EXHIBIT 10.18
SUBSCRIPTION AGREEMENT
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Dear Subscriber:
You, together with other subscribers (each a "Subscriber") hereby agree
to purchase, and One Voice Technologies Inc., a Nevada corporation (the
"Company"), hereby agrees to issue and to sell to the Subscriber, an unsecured
Convertible Note (the "Note") convertible in accordance with the terms thereof
into shares of the Company's $.001 par value common stock (the "Company Shares")
and common stock purchase warrants ("Warrants") for the aggregate consideration
as set forth on the signature page hereof ("Purchase Price"). The form of Note
is annexed hereto as EXHIBIT A. (The Company Shares included in the Securities
(as hereinafter defined) are sometimes referred to herein as the "Shares",
"Common Shares" or "Common Stock"). (The Notes, the Company Shares, Warrants,
and the Common Stock issuable upon exercise of the Warrants are collectively
referred to herein as, the "Securities"). Upon acceptance of this Agreement by
the Subscriber, the Company shall issue and deliver the Note and Warrants
against payment, by federal funds wire transfer of the Purchase Price.
The following terms and conditions shall apply to this subscription.
1. SUBSCRIBER'S REPRESENTATIONS AND WARRANTIES. The Subscriber hereby
represents and warrants to and agrees with the Company that:
(a) INFORMATION ON COMPANY. The Subscriber has been furnished
with the Company's Form 10-KSB for the year ended December 31, 2002 as
filed with the Securities and Exchange Commission (the "Commission")
together with all subsequently filed forms 10-QSB, 8-K, and other
publicly available filings made with the Commission (hereinafter
referred to collectively as the "Reports"). In addition, the Subscriber
has received from the Company such other information concerning its
operations, financial condition and other matters as the Subscriber has
requested in writing (such information in writing is collectively, the
"Other Written Information"), and considered all factors the Subscriber
deems material in deciding on the advisability of investing in the
Securities.
(b) INFORMATION ON SUBSCRIBER. The Subscriber is an
"accredited investor", as such term is defined in Regulation D
promulgated by the Commission under the Securities Act of 1933, as
amended (the "1933 Act"), is experienced in investments and business
matters, has made investments of a speculative nature and has purchased
securities of United States publicly-owned companies in private
placements in the past and, with its representatives, has such
knowledge and experience in financial, tax and other business matters
as to enable the Subscriber to utilize the information made available
by the Company to evaluate the merits and risks of and to make an
informed investment decision with respect to the proposed purchase,
which represents a speculative investment. The Subscriber has the
authority and is duly and legally qualified to purchase and own the
Securities. The Subscriber is able to bear the risk of such investment
for an indefinite period and to afford a complete loss thereof. The
information set forth on the signature page hereto regarding the
Subscriber is accurate.
(c) PURCHASE OF NOTE AND WARRANTS. On the Closing Date, the
Subscriber will purchase the Note and Warrants for its own account and
not with a view to any distribution thereof.
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(d) COMPLIANCE WITH SECURITIES ACT. The Subscriber understands
and agrees that the Securities have not been registered under the 1933
Act, by reason of their issuance in a transaction that does not require
registration under the 1933 Act (based in part on the accuracy of the
representations and warranties of Subscriber contained herein), and
that such Securities must be held unless a subsequent disposition is
registered under the 1933 Act or is exempt from such registration.
(e) COMPANY SHARES LEGEND. The Company Shares, and the shares
of common stock issuable upon the exercise of the Warrants, shall bear
the following legend, unless same shall have been included in an
effective registration statement under the 1933 Act:
"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 AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO ONE VOICE TECHNOLOGIES INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(f) WARRANTS LEGEND. The Warrants shall bear the following
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 AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO ONE VOICE TECHNOLOGIES INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(g) NOTE LEGEND. The Note shall bear the following legend:
"THIS NOTE AND THE COMMON SHARES ISSUABLE UPON
CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS
NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION
OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE
UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO ONE VOICE TECHNOLOGIES INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
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(h) COMMUNICATION OF OFFER. The offer to sell the Securities
was directly communicated to the Subscriber. At no time was the
Subscriber presented with or solicited by any leaflet, newspaper or
magazine article, radio or television advertisement, or any other form
of general advertising or solicited or invited to attend a promotional
meeting otherwise than in connection and concurrently with such
communicated offer.
(i) CORRECTNESS OF REPRESENTATIONS. The Subscriber represents
that the foregoing representations and warranties are true and correct
as of the date hereof and, unless the Subscriber otherwise notifies the
Company prior to the Closing Date (as hereinafter defined), shall be
true and correct as of the Closing Date. The foregoing representations
and warranties shall survive the Closing Date.
2. COMPANY REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to and agrees with the Subscriber that:
(a) DUE INCORPORATION; SUBSIDIARIES. The Company is a
corporation duly organized, validly existing and in good standing under
the laws of its jurisdiction of incorporation and has the requisite
corporate power to own its properties and to carry on its business as
now being conducted. The Company is duly qualified as a foreign
corporation to do business and is in good standing in each jurisdiction
where the nature of the business conducted or property owned by it
makes such qualification necessary, other than those jurisdictions in
which the failure to so qualify would not have a material adverse
effect on the business, operations or financial condition of the
Company. The Company has no subsidiaries.
(b) OUTSTANDING STOCK. All issued and outstanding shares of
capital stock of the Company and each of its subsidiaries has been duly
authorized and validly issued and are fully paid and non-assessable.
(c) AUTHORITY; ENFORCEABILITY. This Agreement, the Warrant and
other agreements delivered together with this Agreement or in
connection herewith have been duly authorized, executed and delivered
by the Company and are valid and binding agreements enforceable in
accordance with their terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights
generally and to general principles of equity; and the Company has full
corporate power and authority necessary to enter into this Agreement,
Warrant and such other agreements and to perform its obligations
hereunder and under all other agreements entered into by the Company
relating hereto.
(d) ADDITIONAL ISSUANCES. Except as described on Schedule
2(d), there are no outstanding agreements or preemptive or similar
rights affecting the Company's common stock or equity and no
outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, or agreements or understandings
with respect to the sale or issuance of any shares of common stock or
equity of the Company or other equity interest in any of the
subsidiaries of the Company except as described in the Reports or Other
Written Information.
(e) CONSENTS. No consent, approval, authorization or order of
any court, governmental agency or body or arbitrator having
jurisdiction over the Company, or any of its affiliates, the National
Association of Securities Dealers, Inc. ("NASD"), Nasdaq or the
Company's Shareholders is required for execution of this Agreement, and
all other agreements entered into by the Company relating thereto,
including, without limitation, the issuance and sale of the Securities,
and the performance of the Company's obligations hereunder and under
all such other agreements.
(f) NO VIOLATION OR CONFLICT. Assuming the representations and
warranties of the Subscriber in Paragraph 1 are true and correct and
the Subscriber complies with its obligations under this Agreement,
neither the issuance and sale of the Securities nor the performance of
the Company's obligations under this Agreement and all other agreements
entered into by the Company relating thereto by the Company will:
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(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 certificate of
incorporation, charter or bylaws of the Company, (B) to the
Company's knowledge, any decree, judgment, order, law, treaty,
rule, regulation or determination applicable to the Company of
any court, governmental agency or body, or arbitrator having
jurisdiction over the Company or any of its affiliates 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
on the Company; or
(ii) result in the creation or imposition of any
lien, charge or encumbrance upon the Securities or any of the
assets of the Company, its subsidiaries or any of its
affiliates.
(g) THE SECURITIES. The Securities upon issuance:
(i) are, or will be, free and clear of any security
interests, liens, claims or other encumbrances, subject to
restrictions upon transfer under the 1933 Act and State laws;
(ii) have been, or will be, duly and validly
authorized and on the date of issuance and on the Closing
Date, as hereinafter defined, and the date the Note is
converted, and the Warrants are exercised, the Securities will
be duly and validly issued, fully paid and nonassessable (and
if registered pursuant to the 1933 Act, and resold pursuant to
an effective registration statement will be free trading and
unrestricted, provided that the Subscriber complies with the
Prospectus delivery requirements);
(iii) will not have been issued or sold in violation
of any preemptive or other similar rights of the holders of
any securities of the Company; and
(iv) will not subject the holders thereof to personal
liability by reason of being such holders.
(h) LITIGATION. There is no pending or, to the best knowledge
of the Company, threatened action, suit, proceeding or investigation
before any court, governmental agency or body, or arbitrator having
jurisdiction over the Company, or any of its affiliates that would
affect the execution by the Company or the performance by the Company
of its obligations under this Agreement, and all other agreements
entered into by the Company relating hereto. Except as disclosed in the
Reports or Other Written Information, there is no pending or, to the
best knowledge of the Company, threatened action, suit, proceeding or
investigation before any court, governmental agency or body, or
arbitrator having jurisdiction over the Company, or any of its
affiliates which litigation if adversely determined could have a
material adverse effect on the Company.
(i) REPORTING COMPANY. The Company is a publicly-held company
subject to reporting obligations pursuant to Sections 15(d) and 13 of
the Securities Exchange Act of 1934, as amended (the "1934 Act") and
has a class of common shares registered pursuant to Section 12(g) of
the 1934 Act. The Company's common stock is listed for trading on the
OTC Bulletin Board ("Bulletin Board"). Pursuant to the provisions of
the 1934 Act, the Company has filed all reports and other materials
required to be filed thereunder with the Securities and Exchange
Commission during the preceding twelve months.
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(j) NO MARKET MANIPULATION. The Company has not taken, and
will not take, directly or indirectly, any action designed to, or that
might reasonably be expected to, cause or result in stabilization or
manipulation of the price of the common stock of the Company to
facilitate the sale or resale of the Securities or affect the price at
which the Securities may be issued or resold.
(k) INFORMATION CONCERNING COMPANY. The Reports contain all
material information relating to the Company and its operations and
financial condition as of their respective dates which information is
required to be disclosed therein. Since the date of the financial
statements included in the Reports, and except as modified in the Other
Written Information or in the Schedule hereto, there has been no
material adverse change in the Company's business, financial condition
or affairs not disclosed in the Reports. The Reports do not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances when made.
(l) DILUTION. The Company's executive officers and directors
have studied and fully understand the nature of the Securities being
sold hereby and recognize that they have a potential dilutive effect.
The board of directors of the Company has concluded, in its good faith
business judgment, that such issuance is in the best interests of the
Company. The Company specifically acknowledges that its obligation to
issue the Shares upon conversion of the Note and exercise of the
Warrants is binding upon the Company and enforceable, except as
otherwise described in this Subscription Agreement or the Note,
regardless of the dilution such issuance may have on the ownership
interests of other shareholders of the Company.
(m) STOP TRANSFER. The Securities are restricted securities as
of the date of this Agreement. The Company will not issue any stop
transfer order or other order impeding the sale, resale or delivery of
the Securities, except as may be required by federal securities laws.
(n) DEFAULTS. Neither the Company nor any of its subsidiaries
is in violation of its Certificate of Incorporation or ByLaws. Neither
the Company nor any of its subsidiaries is (i) in default under or in
violation of any other material agreement or instrument to which it is
a party or by which it or any of its properties are bound or affected,
which default or violation would have a material adverse effect on the
Company, (ii) in default with respect to any order of any court,
arbitrator or governmental body or subject to or party to any order of
any court or governmental authority arising out of any action, suit or
proceeding under any statute or other law respecting antitrust,
monopoly, restraint of trade, unfair competition or similar matters, or
(iii) to its knowledge in violation of any statute, rule or regulation
of any governmental authority which violation would have a material
adverse effect on the Company.
(o) NO INTEGRATED OFFERING. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales of any security or
solicited any offers to buy any security under circumstances that would
cause the offer of the Securities pursuant to this Agreement to be
integrated with prior offerings by the Company for purposes of the 1933
Act or any applicable stockholder approval provisions, including,
without limitation, under the rules and regulations of the Bulletin
Board nor will the Company or any of its affiliates or subsidiaries
take any action or steps that would cause the offering of the
Securities to be integrated with other offerings. The Company has not
conducted and will not conduct any offer other than the transactions
contemplated hereby that will be integrated with the offer or issuance
of the Securities.
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(p) NO GENERAL SOLICITATION. Neither the Company, nor any of
its affiliates, nor to its knowledge, any person acting on its or their
behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the ▇▇▇▇ ▇▇▇) in
connection with the offer or sale of the Securities.
(q) LISTING. The Company's common stock is quoted on, and
listed for trading on the Bulletin Board. The Company has not received
any oral or written notice that its Common Stock will be delisted from
the Bulletin Board nor that its common stock does not meet all
requirements for the continuation of such listing. The Company
satisfies the requirements for the continued listing of the Common
Stock on the Bulletin Board.
(r) NO UNDISCLOSED LIABILITIES. The Company has no liabilities
or obligations which are material, individually or in the aggregate,
which are not disclosed in the Reports and Other Written Information,
other than those incurred in the ordinary course of the Company's
businesses since December 31, 2001 and which, individually or in the
aggregate, would not reasonably be expected to have a material adverse
effect on the Company's financial condition.
(s) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since December 31,
2001, no event or circumstance has occurred or exists with respect to
the Company or its businesses, properties, operations or financial
condition, that, under applicable law, rule or regulation, requires
public disclosure or announcement prior to the date hereof by the
Company but which has not been so publicly announced or disclosed in
the Reports.
(t) CAPITALIZATION. The authorized and outstanding capital
stock of the Company as of the date of this Agreement and the Closing
Date are set forth in the financial statements included in the Reports.
Except as set forth in the Reports and Other Written Information and
Schedule 2(t), there are no options, warrants, or rights to subscribe
to, securities, rights or obligations convertible into or exchangeable
for or giving any right to subscribe for any shares of capital stock of
the Company. All of the outstanding shares of Common Stock of the
Company have been duly and validly authorized and issued and are fully
paid and nonassessable.
(u) NO DISAGREEMENTS WITH ACCOUNTANTS AND LAWYERS. There are
no disagreements of any kind presently existing, or reasonably
anticipated by the Company to arise, between the accountants and
lawyers formerly or presently employed by the Company, including but
not limited to disputes or conflicts over payment owed to such
accountants and lawyers.
(v) 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 Subscriber prior to the Closing Date, shall be
true and correct in all material respects as of the Closing Date. The
foregoing representations and warranties shall survive the Closing
Date.
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3. REGULATION D OFFERING. This Offering is being made pursuant to the
exemption from the registration provisions of the Securities Act of 1933, as
amended, afforded by Rule 506 of Regulation D promulgated thereunder. On the
Closing Date, the Company will provide an opinion reasonably acceptable to
Subscriber from the Company's legal counsel opining on the availability of the
Regulation D exemption as it relates to the offer and issuance of the
Securities. A form of the legal opinion is annexed hereto as EXHIBIT B. The
Company will provide, at the Company's expense, such other legal opinions in the
future as are reasonably necessary for the conversion of the Note and exercise
of the Warrants.
4. REISSUANCE OF SECURITIES. The Company agrees to reissue certificates
representing the Securities without the legends set forth in Sections 1(e) and
1(f) above at such time as (a) the holder thereof is permitted to and disposes
of such Securities pursuant to Rule 144(d) and/or Rule 144(k) under the 1933 Act
in the opinion of counsel reasonably satisfactory to the Company, or (b) upon
resale subject to an effective registration statement after the Securities are
registered under the ▇▇▇▇ ▇▇▇. The Company agrees to cooperate with the
Subscriber in connection with all resales pursuant to Rule 144(d) and Rule
144(k) and provide legal opinions at the Company's expense necessary to allow
such resales provided the Company and its counsel receive reasonably requested
written representations from the Subscriber and selling broker, if any. Provided
the Subscriber provides required certifications and representation letters, if
any, if the Company fails to remove any legend as required by this Section 4 (a
"Legend Removal Failure"), then beginning on the tenth (10th) day following the
date that the Subscriber has requested the removal of the legend and delivered
all items reasonably required by the Company to be delivered by the Subscriber,
that the Company continues to fail to remove such legend, the Company shall pay
to each Subscriber or assignee holding shares, subject to a Legend Removal
Failure, as liquidated damages and not a penalty an amount equal to ten percent
(10%) of the Purchase Price of the shares subject to a Legend Removal Failure
for each 15-day period or part thereof that such failure continues. If during
any twelve (12) month period, the Company fails to remove any legend as required
by this Section 4 for an aggregate of thirty (30) days, each Subscriber or
assignee holding Securities subject to a Legend Removal Failure may, at its
option, require the Company to purchase all or any portion of the Securities
subject to a Legend Removal Failure held by such Subscriber or assignee at a
price per share equal to 130% of the applicable Purchase Price.
5. WARRANTS.
(a) The Company will also issue and deliver on the Closing
Date to the Subscriber 29,167 Warrants for each fifty thousand dollars
($50,000) of Purchase Price. A form of Warrant is annexed hereto as
EXHIBIT C. The per share "Purchase Price" of Common Stock (as defined
in the Warrant) shall be 120% of the closing price of the common stock
on the Bulletin Board for the trading day immediately preceding the
Closing Date. The Warrants shall be exercisable for three years after
the Issue Date (as defined in the Warrant).
(b) All the representations, covenants, warranties,
undertakings, remedies, liquidated damages, indemnification, rights in
Section 9 hereof, and other rights including but not limited to
registration rights made or granted to or for the benefit of the
Subscriber are hereby also made and granted to the Subscribers in
respect of the Warrants and Company Shares issuable upon exercise of
the Warrants.
6. FINDER'S FEE/LEGAL FEE.
(a) LEGAL FEE. The Company shall pay to Grushko & ▇▇▇▇▇▇▇,
P.C., counsel to the Subscriber a fee of $7,500 ("Legal Fees") as
reimbursement for services rendered to Subscriber in connection with
this Agreement and the purchase and sale of the Company Shares and
Warrants for the aggregate Purchase Price of $600,000 (the "Offering")
and acting as escrow agent for the Offering. The Legal Fees will be
payable out of funds held pursuant to a funds escrow agreement ("Escrow
Agreement") to be entered into by the Company, Subscriber and Escrow
Agent in connection with the Offering.
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(b) FINDER. The Company on the one hand, and the Subscriber on
the other hand, agree to indemnify the other against and hold the other
harmless from any and all liabilities to any persons claiming brokerage
commissions or finder's fees other than the entities identified on
Schedule 6 (each a "Finder") 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 agrees that it will pay the
Finders a cash fee on the Closing Date apportioned among them as
described on Schedule 6 directly out of the funds held pursuant to the
Escrow Agreement. The aggregate Finder's Fee payable by the Company in
connection with the Offering is $39,000.
(c) The Company on the one hand, and the Subscriber on the
other hand, agree to indemnify the other against and hold the other
harmless from any and all liabilities to any other persons claiming
brokerage commissions or finder's fees other than the Finder 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 the Subscriber represent to each other that
there are no other parties entitled to receive fees, commissions, or
similar payments in connection with the Offering.
7.1. COVENANTS OF THE COMPANY. The Company covenants and agrees with
the Subscriber as follows:
(a) STOP ORDERS. The Company will advise the Subscriber,
promptly after it receives notice of issuance by the Securities and
Exchange Commission, any state securities commission or any other
regulatory authority of any stop order or of any order preventing or
suspending any offering of any securities of the Company, or of the
suspension of the qualification of the Common Stock of the Company for
offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
(b) LISTING. The Company shall promptly secure the listing of
the Company Shares, and Common Stock issuable upon the exercise of the
Warrants upon each national securities exchange, or automated quotation
system, if any, upon which shares of common stock are then listed
(subject to official notice of issuance) and shall maintain such
listing so long as any Notes are outstanding. The Company will maintain
the listing of its Common Stock on the Nasdaq SmallCap Market, Nasdaq
National Market System, NASD OTC Bulletin Board (or any successor
entity or the proposed Bulletin Board Exchange), 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 National Association of Securities Dealers ("NASD") and such
exchanges, as applicable. The Company will provide the Subscriber
copies of all notices it receives notifying the Company of the
threatened and actual delisting of the Common Stock from any Principal
Market.
(c) MARKET REGULATION. The Company shall notify the
Commission, NASD, the Principal Market and applicable state
authorities, in accordance with their requirements, if any, 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 Subscriber and promptly provide copies thereof
to Subscriber.
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(d) REPORTING REQUIREMENTS. From the Closing Date and until at
least two (2) years after the effectiveness of the Registration
Statement on Form SB-2 or such other Registration Statement described
in Section 10.1(iv) hereof, the Company will (i) cause its Common Stock
to continue to be registered under Sections 12(b) or 12(g) of the
Exchange Act, (ii) comply in all respects with its reporting and filing
obligations under the Exchange Act, (iii) comply with all reporting
requirements that are applicable to an issuer with a class of Shares
registered pursuant to Section 12(g) of the Exchange Act, and (iv)
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 Exchange Act or the rules thereunder) to
terminate or suspend such registration or to terminate or suspend its
reporting and filing obligations under said Acts until the later of two
(2) years after the actual effective date of the Registration Statement
on Form SB-2 or such other Registration Statement described in Section
10.1(iv) hereof. Until the earlier of the resale of the Company Shares
by the Subscriber or at least two (2) years after the Warrants have
been exercised, the Company will use its best efforts to continue the
listing of the Common Stock on the Bulletin Board and will comply in
all respects with the Company's reporting, filing and other obligations
under the bylaws or rules of Bulletin Board.
(e) RESERVATION. The Company undertakes to reserve, pro rata
on behalf of each holder of a Note or Warrant, from its authorized but
unissued common stock, at all times that Notes or Warrants remain
outstanding, a number of common shares equal to not less than 150% of
the amount of common shares necessary to allow each such holder to be
able to convert all such outstanding Notes, and one common share for
each common share issuable upon exercise of the Warrants.
(f) USE OF PROCEEDS. The Company undertakes to use the
proceeds of the Subscriber's funds for the purposes set forth on
SCHEDULE 7 hereto. A deviation from the use of proceeds set forth on
SCHEDULE 7 of more than 10% per item or more than 20% in the aggregate
shall be deemed a material breach of the Company's obligations
hereunder. Except as set forth on SCHEDULE 7, the Purchase Price may
not and will not be used for accrued and unpaid officer and director
salaries, payment of financing related debt, redemption of outstanding
redeemable notes or equity instruments of the Company nor non-trade
obligations outstanding on the Closing Date.
(g) TAXES. The Company will promptly pay and discharge, or
cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the
income, profits, property or business of the Company; provided,
however, that any such tax, assessment, charge or levy need not be paid
if the validity thereof shall currently be contested in good faith by
appropriate proceedings and if the Company shall have set aside on its
books adequate reserves with respect thereto, and provided, further,
that the Company will pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose any
lien which may have attached as security therefore. None of the
Company's tax returns are presently being audited by any taxing
authority.
(h) INSURANCE. 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 100% of the insurable value
of the property insured; and the Company will maintain, with
financially sound and reputable insurers, insurance against other
hazards and risks and liability to persons and property to the extent
and in the manner customary for companies in similar businesses
similarly situated and to the extent available on commercially
reasonable terms.
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(i) BOOKS AND RECORDS. The Company will keep true records and
books of account in which full, true and correct entries will be made
of all dealings or transactions in relation to its business and affairs
in accordance with generally accepted accounting principles applied on
a consistent basis.
(j) GOVERNMENTAL AUTHORITIES. 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. The Company shall maintain in full
force and effect its corporate existence, rights and franchises and all
licenses and other rights to use intellectual property owned or
possessed by it and reasonably deemed to be necessary to the conduct of
its business.
(l) PROPERTIES. The Company will keep its properties in good
repair, working order and condition, reasonable wear and tear excepted,
and from time to time make all needful and proper repairs, renewals,
replacements, additions and improvements thereto; and the Company will
at all times comply with each provision of all leases to which it is a
party or under which it occupies property if the breach of such
provision could reasonably be expected to have a material adverse
effect.
(m) CONFIDENTIALITY. The Company agrees that it will not
disclose, and will not include in any public announcement, the name of
any Subscriber, unless expressly agreed to by such Subscriber or unless
and until such disclosure is required by law or applicable regulation,
and then only to the extent of such requirement.
(n) BLACKOUT. The Company undertakes and covenants that until
the first to occur of (i) the registration statement described in
Section 10.1(iv) has been effective for one hundred and eighty (180)
business days, (ii) until all the Company Shares have been resold
pursuant to said registration statement, or (iii) two years after the
Closing Date, the Company will not enter into any acquisition, merger,
exchange or sale or other transaction that could have the effect of
delaying the effectiveness of any pending registration statement,
causing an already effective registration statement to no longer be
effective or current, or require the filing of an amendment to an
already effective registration statement.
7.2. COVENANTS OF THE SUBSCRIBER. The Subscribers to the Offering, each
for itself, covenant and agree with the Company that provided no Event of
Default (as defined in the Note) has occurred, then until 180 days after the
Effective Date (as defined in Section 10.1[iv] of this Agreement), each
Subscriber will not, without prior approval by the Company, sell in open market
transactions on any trading day an amount of Company Shares in excess of such
Subscriber's Proportionate Share (as set forth on the signature page hereto) of
25%of the reported trading volume of the Company's Common Stock for such trading
day. In the event a Subscriber does not sell its full Proportionate Share on the
subsequent trading day, then the unsold portion may be sold thereafter on any
trading day without regard to the limitation described in this Section 7.2.
8. COVENANTS OF THE COMPANY AND SUBSCRIBER REGARDING INDEMNIFICATION.
(a) The Company agrees to indemnify, hold harmless, reimburse
and defend Subscriber, Subscriber'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
Subscriber or any such person which results, arises out of or is based
10
upon (i) any material misrepresentation by Company or breach of any
warranty by Company in this Agreement or in any Exhibits or Schedules
attached hereto, or other agreement delivered pursuant hereto; or (ii)
after any applicable notice and/or cure periods, any breach or default
in performance by the Company of any covenant or undertaking to be
performed by the Company hereunder, or any other agreement entered into
by the Company and Subscribers relating hereto.
(b) Subscriber agrees to indemnify, hold harmless, reimburse
and defend the Company and each of the Company's officers, directors,
agents, affiliates, control persons against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees)
of any nature, incurred by or imposed upon the Company or any such
person which results, arises out of or is based upon (i) any material
misrepresentation by Subscriber in this Agreement or in any Exhibits or
Schedules attached hereto, or other agreement delivered pursuant
hereto; or (ii) after any applicable notice and/or cure periods, any
breach or default in performance by Subscriber of any covenant or
undertaking to be performed by Subscriber hereunder, or any other
agreement entered into by the Company and Subscribers relating hereto.
(c) The procedures set forth in Section 10.6 shall apply to
the indemnifications set forth in Sections 8(a) and 8(b) above.
9.1. CONVERSION OF NOTE.
(a) Upon the conversion of the Note or part thereof, the
Company shall, at its own cost and expense, take all necessary action
(including the issuance of an opinion of counsel) to assure that the
Company's transfer agent shall issue stock certificates in the name of
Subscriber (or its nominee) or such other persons as designated by
Subscriber and in such denominations to be specified at conversion
representing the number of shares of common stock issuable upon such
conversion. The Company warrants that no instructions other than these
instructions have been or will be given to the transfer agent of the
Company's Common Stock and that, unless waived by the Subscriber, the
Shares will be free-trading, and freely transferable, and will not
contain a legend restricting the resale or transferability of the
Shares provided the Shares are being sold pursuant to an effective
registration statement covering the Shares or are otherwise exempt from
registration.
(b) Subscriber will give notice of its decision to exercise
its right to convert the Note or part thereof by telecopying an
executed and completed Notice of Conversion (a form of which is annexed
to EXHIBIT A hereto) to the Company via confirmed telecopier
transmission or otherwise pursuant to Section 11(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
or cause the transfer agent to transmit the Company's Common Stock
certificates representing the Shares issuable upon conversion of the
Note to the Subscriber via express courier for receipt by such
Subscriber within three (3) business days after receipt by the Company
of the Notice of Conversion (the "Delivery Date"). In the event the
Shares are electronically transferable, then delivery of the Shares
MUST be made by electronic transfer provided request for such
electronic transfer has been made by the Subscriber. A Note
representing the balance of the Note not so converted will be provided
by the Company to the Subscriber, if requested by Subscriber provided
an original Note is delivered to the Company. To the extent that a
Subscriber elects not to surrender a Note for reissuance upon partial
payment or conversion, the Subscriber hereby indemnifies the Company
against any and all loss or damage attributable to a third-party claim
in an amount in excess of the actual amount then due under the Note.
11
(c) The Company understands that a delay in the delivery of
the Shares in the form required pursuant to Section 9 hereof, or the
Mandatory Redemption Amount described in Section 9.2 hereof, beyond the
Delivery Date or Mandatory Redemption Payment Date (as hereinafter
defined) could result in economic loss to the Subscriber. As
compensation to the Subscriber for such loss, the Company agrees to pay
late payments to the Subscriber for late issuance of Shares in the form
required pursuant to Section 9 hereof upon Conversion of the Note or
late payment of the Mandatory Redemption Amount, in the amount of $100
per business day after the Delivery Date or Mandatory Redemption
Payment Date, as the case may be, for each $10,000 of Note principal
amount being converted or redeemed. The Company shall pay any payments
incurred under this Section in immediately available funds upon demand.
Furthermore, in addition to any other remedies which may be available
to the Subscriber, in the event that the Company fails for any reason
to effect delivery of the Shares by the Delivery Date or make payment
by the Mandatory Redemption Payment Date, the Subscriber will be
entitled to revoke all or part of the relevant Notice of Conversion or
rescind all or part of the notice of Mandatory Redemption by delivery
of a notice to such effect to the Company whereupon the Company and the
Subscriber shall each be restored to their respective positions
immediately prior to the delivery of such notice, except that late
payment charges described above shall be payable through the date
notice of revocation or rescission is given to the Company.
(d) Nothing contained herein or in any document referred to
herein or delivered in connection herewith shall be deemed to establish
or require the payment of a rate of interest or other charges in excess
of the maximum permitted by applicable law. In the event that the rate
of interest or dividends required to be paid or other charges hereunder
exceed the maximum permitted by such law, any payments in excess of
such maximum shall be credited against amounts owed by the Company to
the Subscriber and thus refunded to the Company.
9.2. MANDATORY REDEMPTION AT SUBSCRIBER'S ELECTION. In the event the
Company is prohibited from issuing Shares, or fails to timely deliver Shares on
a Delivery Date, or upon the occurrence of any other Event of Default (as
defined in the Note or in this Agreement) or for any reason other than pursuant
to the limitations set forth in Section 9.3 hereof, then at the Subscriber's
election, the Company must pay to the Subscriber ten (10) business days after
request by the Subscriber or on the Delivery Date (if requested by the
Subscriber) at the Subscriber's election, a sum of money determined by (i)
multiplying up to the outstanding principal amount of the Note designated by the
Subscriber by 130%, or (ii) multiplying the number of Shares otherwise
deliverable upon conversion of an amount of Note principal and/or interest
designated by the Subscriber (with the date of giving of such designation being
a Deemed Conversion Date) at the then Conversion Price that would be in effect
on the Deemed Conversion Date by the highest closing price of the Common Stock
on the principal market for the period commencing on the Deemed Conversion Date
until the day prior to the receipt of the Mandatory Redemption Payment,
whichever is greater, together with accrued but unpaid interest thereon
("Mandatory Redemption Payment"). The Mandatory Redemption Payment must be
received by the Subscriber on the same date as the Company Shares otherwise
deliverable or within ten (10) business days after request, whichever is sooner
("Mandatory Redemption Payment Date"). Upon receipt of the Mandatory Redemption
Payment, the corresponding Note principal and interest will be deemed paid and
no longer outstanding.
9.3. MAXIMUM CONVERSION. The Subscriber shall not be entitled to
convert on a Conversion Date that amount of the Note in connection with that
number of shares of Common Stock which would be in excess of the sum of (i) the
number of shares of common stock beneficially owned by the Subscriber and its
affiliates on a Conversion Date, and (ii) the number of shares of Common Stock
12
issuable upon the conversion of the Note with respect to which the determination
of this provision is being made on a Conversion Date, which would result in
beneficial ownership by the Subscriber and its affiliates of more than 9.99% of
the outstanding shares of common stock of the Company on such Conversion Date.
For the purposes of the provision to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.
Subject to the foregoing, the Subscriber shall not be limited to aggregate
conversions of only 9.99% and aggregate conversion by the Subscriber may exceed
9.99%. The Subscriber may void the conversion limitation described in this
Section 9.3 upon 61 days prior written notice to the Company. The Subscriber may
allocate which of the equity of the Company deemed beneficially owned by the
Subscriber shall be included in the 9.99% amount described above and which shall
be allocated to the excess above 9.99%.
9.4. INJUNCTION - POSTING OF BOND. In the event a Subscriber shall
elect to convert a Note or part thereof, the Company may not refuse conversion
based on any claim that such Subscriber or any one associated or affiliated with
such Subscriber has been engaged in any violation of law, or for any other
reason, unless, an injunction from a court, on notice, restraining and or
enjoining conversion of all or part of said Note shall have been sought and
obtained and the Company has posted a surety bond for the benefit of such
Subscriber in the amount of 130% of the amount of the Note, which is 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.
9.5. BUY-IN. In addition to any other rights available to the
Subscriber, if the Company fails to deliver to the Subscriber such shares
issuable upon conversion of a Note by the Delivery Date and if ten (10) days
after the Delivery Date the Subscriber purchases (in an open market transaction
or otherwise) shares of Common Stock to deliver in satisfaction of a sale by
such Subscriber of the Common Stock which the Subscriber anticipated receiving
upon such conversion (a "Buy-In"), then the Company shall pay in cash to the
Subscriber (in addition to any remedies available to or elected by the
Subscriber) the amount by which (A) the Subscriber's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (B) the aggregate principal and/or interest amount of the Note
for which such conversion was not timely honored, together with interest thereon
at a rate of 15% per annum, accruing until such amount and any accrued interest
thereon is paid in full (which amount shall be paid as liquidated damages and
not as a penalty). For example, if the Subscriber purchases shares of Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted conversion of $10,000 of note principal and/or interest, the
Company shall be required to pay the Subscriber $1,000, plus interest. The
Subscriber shall provide the Company written notice indicating the amounts
payable to the Subscriber in respect of the Buy-In. The delivery date by which
Common Stock must be delivered pursuant to this Section 9.5 shall be tolled for
the amount of days that the Subscriber does not deliver information reasonably
requested by the Company's transfer agent.
9.6 ADJUSTMENTS. The Conversion Price and amount of Shares issuable
upon conversion of the Notes shall be adjusted to offset the effect of stock
splits, stock dividends, pro rata distributions of property or equity interests
to the Company's shareholders, and dilutive issuances to other parties.
9.7. REDEMPTION. The Company may not redeem or call the Note without
the consent of the holder of the Note.
10.1. REGISTRATION RIGHTS. The Company hereby grants the following
registration rights to holders of the Securities.
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(i) On one occasion, for a period commencing 91 days after the
Closing Date, but not later than three years after the Closing Date
("Request Date"), the Company, upon a written request therefor from any
record holder or holders of more than 50% of the aggregate of the
Company's Shares issued and issuable upon conversion of the Notes (the
Common Stock issued or issuable upon conversion of the Notes or
issuable by virtue of ownership of the Notes, and one share of Common
Stock for each share issuable upon exercise of the Warrants are
collectively the "Registrable Securities"), shall prepare and file with
the Commission a registration statement under the 1933 Act covering the
Registrable Securities which are the subject of such request, unless
such Registrable Securities are the subject of an effective
registration statement or included for registration in a pending
registration statement. In addition, upon the receipt of such request,
the Company shall promptly give written notice to all other record
holders of the Registrable Securities that such registration statement
is to be filed and shall include in such registration statement
Registrable Securities for which it has received written requests
within 10 days after the Company gives such written notice. Such other
requesting record holders shall be deemed to have exercised their
demand registration right under this Section 10.1(i). As a condition
precedent to the inclusion of Registrable Securities, the holder
thereof shall provide the Company with such information as the Company
reasonably requests. The obligation of the Company under this Section
10.1(i) shall be limited to one registration statement.
(ii) If the Company at any time proposes to register any of
its securities under the 1933 Act for sale to the public, whether for
its own account or for the account of other security holders or both,
except with respect to registration statements on Forms ▇-▇, ▇-▇ or
another form not available for registering the Registrable Securities
for sale to the public, provided the Registrable Securities are not
otherwise registered for resale by the Subscriber or Holder pursuant to
an effective registration statement, each such time it will give at
least 25 days' prior written notice to the record holder of the
Registrable Securities of its intention so to do. Upon the written
request of the holder, received by the Company within 15 days after the
giving of any such notice by the Company, to register any of the
Registrable Securities, the Company will cause such Registrable
Securities as to which registration shall have been so requested to be
included with the securities to be covered by the registration
statement proposed to be filed by the Company, all to the extent
required to permit the sale or other disposition of the Registrable
Securities so registered by the holder of such Registrable Securities
(the "Seller"). In the event that any registration pursuant to this
Section 10.1(ii) shall be, in whole or in part, an underwritten public
offering of common stock of the Company, the number of shares of
Registrable Securities to be included in such an underwriting may be
reduced by the managing underwriter if and to the extent that the
Company and the underwriter shall reasonably be of the opinion that
such inclusion would adversely affect the marketing of the securities
to be sold by the Company therein; provided, however, that the Company
shall notify the Seller in writing of any such reduction.
Notwithstanding the foregoing provisions, or Section 10.4 hereof, the
Company may withdraw or delay or suffer a delay of any registration
statement referred to in this Section 10.1(ii) without thereby
incurring any liability to the Seller.
(iii) If, at the time any written request for registration is
received by the Company pursuant to Section 10.1(i), the Company has
determined to proceed with the actual preparation and filing of a
registration statement under the 1933 Act in connection with the
proposed offer and sale for cash of any of its securities for the
Company's own account and the Company actually does file such other
registration statement, such written request shall be deemed to have
been given pursuant to Section 10.1(ii) rather than Section 10.1(i),
14
and the rights of the holders of Registrable Securities covered by such
written request shall be governed by Section 10.1(ii).
(iv) The Company shall file with the Commission not later than
thirty (30) days after the Closing Date (the "Filing Date"), and use
its reasonable commercial efforts to cause to be declared effective
within ninety (90) days after the Closing Date, a Form SB-2
registration statement (or such other form that it is eligible to use)
in order to register the Registrable Securities for issuance to the
Subscriber and distribution under the 1933 Act. The registration
statement described in this paragraph must be declared effective by the
Commission no later than ninety (90) days after the Closing Date
("Effective Date"). The Company will register a number of shares of
Common Stock in the aforedescribed registration statement that is equal
to 200% of the number of Company Shares issuable upon conversion of the
Notes at the Conversion Price in effect at the Closing Date, or actual
filing date of the registration statement or any amendment thereto
assuming issuance and conversion of 100% of the Notes (whichever
results in the greatest number of Company shares) and one share of
common stock for each of the shares issuable upon exercise of the
Warrants. Such registration statement will immediately be amended or
additional registration statements will be immediately filed by the
Company as necessary in order to register additional Company Shares to
allow the unlegended reissuance of all Common Stock included and
issuable by virtue of the Registrable Securities. The Registrable
Securities shall be reserved and set aside exclusively for the benefit
of each Subscriber in proportion to each Subscriber's interest in the
Registrable Securities, and not issued, employed or reserved for anyone
other than the Subscriber. No securities of the Company other than the
Registrable Securities will be included in the registration statement
described in this Section 10.1(iv) except as described on SCHEDULE
10.1.
10.2. REGISTRATION PROCEDURES. If and whenever the Company is required
by the provisions hereof to effect the registration of any shares of Registrable
Securities under the 1933 Act, the Company will, as expeditiously as possible:
(a) prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to
cause such registration statement to become and remain effective for
the period of the distribution contemplated thereby (determined as
herein provided), and promptly provide to the holders of Registrable
Securities ("Sellers") copies of all filings and Commission letters of
comment;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective until the latest of: (i) twelve months after the
latest Maturity Date of a Note; (ii) until six months after all the
Company Shares issuable upon conversion of the Notes and Second Notes
are eligible for resale pursuant to Rule 144(k) of the 1933 Act; or
(iii) until such registration statement has been effective for a period
of not less than 365 days, and comply with the provisions of the 1933
Act with respect to the disposition of all of the Registrable
Securities covered by such registration statement in accordance with
the Seller's intended method of disposition set forth in such
registration statement for such period;
(c) furnish to the Seller, such number of copies of the
registration statement and the prospectus included therein (including
each preliminary prospectus) as such Seller reasonably may request in
order to facilitate the public sale or their disposition of the
securities covered by such registration statement;
(d) use its best efforts to register or qualify the Seller's
Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Seller shall
reasonably designate, provided, however, that the Company shall not for
any such purpose be required to qualify generally to transact business
as a foreign corporation in any jurisdiction where it is not so
qualified or to consent to general service of process in any such
jurisdiction;
15
(e) list the Registrable Securities covered by such
registration statement with any securities exchange on which the Common
Stock of the Company is then listed;
(f) immediately notify the Seller when a prospectus relating
thereto is required to be delivered under the 1933 Act, of the
happening of any event of which the Company has knowledge as a result
of which the prospectus contained in such registration statement, as
then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing;
(g) make available for inspection by the Seller, and any
attorney, accountant or other agent retained by the Seller or
underwriter, all publicly available, non-confidential financial and
other records, pertinent corporate documents and properties of the
Company, and cause the Company's officers, directors and employees to
supply all publicly available, non-confidential information reasonably
requested by the seller, attorney, accountant or agent in connection
with such registration statement.
10.3. PROVISION OF DOCUMENTS. In connection with each registration
hereunder, the Seller will furnish to the Company in writing such information
and representation letters with respect to itself and the proposed distribution
by it as reasonably shall be necessary in order to assure compliance with
federal and applicable state securities laws. In connection with each
registration pursuant to Section 10.1(i) or 10.1(ii) covering an underwritten
public offering, the Company and the Seller agree to enter into a written
agreement with the managing underwriter in such form and containing such
provisions as are customary in the securities business for such an arrangement
between such underwriter and companies of the Company's size and investment
stature.
10.4. NON-REGISTRATION EVENTS. The Company and the Subscriber agree
that the Seller will suffer damages if any registration statement required under
Section 10.1(i) or 10.1(ii) above is not filed within 30 days after written
request by the Holder and not declared effective by the Commission within 90
days after such request [or the Filing Date and Effective Date, respectively, in
reference to the Registration Statement on Form SB-2 or such other form
described in Section 10.1(iv)], and maintained in the manner and within the time
periods contemplated by Section 10 hereof, and it would not be feasible to
ascertain the extent of such damages with precision. Accordingly, if (i) the
Registration Statement described in Sections 10.1(i) or 10.1(ii) is not filed
within 30 days of such written request, or is not declared effective by the
Commission on or prior to the date that is 90 days after such request, or (ii)
the registration statement on Form SB-2 or such other form described in Section
10.1(iv) is not filed on or before the Filing Date or not declared effective on
or before the sooner of the Effective Date, or within ten business days of
receipt by the Company of a written or oral communication from the Commission
that the registration statement described in Section 10.1(iv) will not be
reviewed, or (iii) any registration statement described in Sections 10.1(i),
10.1(ii) or 10.1(iv) is filed and declared effective but shall thereafter cease
to be effective (without being succeeded immediately by an additional
registration statement filed and declared effective) for a period of time which
shall exceed 30 days in the aggregate per year or more than 20 consecutive
calendar days (defined as a period of 365 days commencing on the date the
Registration Statement is declared effective) (each such event referred to in
clauses (i), (ii) and (iii) of this Section 10.4 is referred to herein as a
"Non-Registration Event"), then, for so long as such Non-Registration Event
shall continue, the Company shall pay, at the Subscriber's option, in cash or
stock at the applicable Conversion Price, as Liquidated Damages to each holder
of any Registrable Securities an amount equal to one percent (1%) for the first
thirty days or part thereof and two percent (2%) per thirty days for each thirty
days or part thereof thereafter, during the pendency of such Non-Registration
16
Event, of the principal of the Notes issued in the Offering, whether or not
converted, owned of record by such holder or issuable as of or subsequent to the
occurrence of such Non-Registration Event. Payments to be made pursuant to this
Section 10.4 shall be due and payable within ten (10) business days after demand
in immediately available funds. In the event a Mandatory Redemption Payment is
demanded from the Company by the Holder pursuant to Section 9.2 of this
Subscription Agreement, then the Liquidated Damages described in this Section
10.4 shall no longer accrue on the portion of the Purchase Price underlying the
Mandatory Redemption Payment, from and after the date the Holder receives the
Mandatory Redemption Payment.
10.5. EXPENSES. All expenses incurred by the Company in complying with
Section 10, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including reasonable counsel
fees) incurred in connection with complying with state securities or "blue sky"
laws, fees of the National Association of Securities Dealers, Inc., transfer
taxes, fees of transfer agents and registrars, and costs of insurance are called
"Registration Expenses". All underwriting discounts and selling commissions
applicable to the sale of Registrable Securities, including any fees and
disbursements of any special counsel to the Seller, are called "Selling
Expenses". The Seller shall pay the fees of its own additional counsel, if any.
The Company will pay all Registration Expenses in connection with the
registration statement under Section 10. All Selling Expenses in connection with
each registration statement under Section 10 shall be borne by the Seller and
may be apportioned among the Sellers in proportion to the number of shares sold
by the Seller relative to the number of shares sold under such registration
statement or as all Sellers thereunder may agree.
10.6. INDEMNIFICATION AND CONTRIBUTION.
(a) In the event of a registration of any Registrable
Securities under the 1933 Act pursuant to Section 10, the Company will
indemnify and hold harmless the Seller, each officer of the Seller,
each director of the Seller, each underwriter of such Registrable
Securities thereunder and each other person, if any, who controls such
Seller or underwriter within the meaning of the 1933 Act, against any
losses, claims, damages or liabilities, joint or several, to which the
Seller, or such underwriter or controlling person may become subject
under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such
Registrable Securities was registered under the 1933 Act pursuant to
Section 10, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances when made, and
will reimburse the Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company
shall not be liable to the Seller to the extent that any such damages
arise out of or are based upon an untrue statement or omission made in
any preliminary prospectus if (i) the Seller failed to send or deliver
a copy of the final prospectus delivered by the Company to the Seller
with or prior to the delivery of written confirmation of the sale by
the Seller to the person asserting the claim from which such damages
arise, (ii) the final prospectus would have corrected such untrue
statement or alleged untrue statement or such omission or alleged
omission, or (iii) to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity
with information furnished by any such Seller, or any such controlling
person in writing specifically for use in such registration statement
or prospectus.
17
(b) In the event of a registration of any of the Registrable
Securities under the 1933 Act pursuant to Section 10, the Seller will
indemnify and hold harmless the Company, and each person, if any, who
controls the Company within the meaning of the 1933 Act, each officer
of the Company who signs the registration statement, each director of
the Company, each underwriter and each person who controls any
underwriter within the meaning of the 1933 Act, against all losses,
claims, damages or liabilities, joint or several, to which the Company
or such officer, director, underwriter or controlling person may become
subject under the 1933 Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement
under which such Registrable Securities were registered under the 1933
Act pursuant to Section 10, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will
reimburse the Company and each such officer, director, underwriter and
controlling person for any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss,
claim, damage, liability or action, provided, however, that the Seller
will be liable hereunder in any such case if and only to the extent
that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon and in conformity with
information pertaining to such Seller, as such, furnished in writing to
the Company by such Seller specifically for use in such registration
statement or prospectus, and provided, further, however, that the
liability of the Seller hereunder shall be limited to the gross
proceeds received by the Seller from the sale of Registrable Securities
covered by such registration statement.
(c) Promptly after receipt by an indemnified party hereunder
of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the
indemnifying party hereunder, notify the indemnifying party in writing
thereof, but the omission so to notify the indemnifying party shall not
relieve it from any liability which it may have to such indemnified
party other than under this Section 10.6(c) and shall only relieve it
from any liability which it may have to such indemnified party under
this Section 10.6(c), except and only if and to the extent the
indemnifying party is prejudiced by such omission. In case any such
action shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the
extent it shall wish, to assume and undertake the defense thereof with
counsel satisfactory to such indemnified party, and, after notice from
the indemnifying party to such indemnified party of its election so to
assume and undertake the defense thereof, the indemnifying party shall
not be liable to such indemnified party under this Section 10.6(c) for
any legal expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation and of liaison with counsel so selected, provided,
however, that, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded that there may be reasonable defenses
available to it which are different from or additional to those
available to the indemnifying party or if the interests of the
indemnified party reasonably may be deemed to conflict with the
interests of the indemnifying party, the indemnified parties shall have
the right to select one separate counsel and to assume such legal
defenses and otherwise to participate in the defense of such action,
with the reasonable expenses and fees of such separate counsel and
other expenses related to such participation to be reimbursed by the
indemnifying party as incurred.
(d) In order to provide for just and equitable contribution in
the event of joint liability under the 1933 Act in any case in which
either (i) the Seller, or any controlling person of the Seller, makes a
claim for indemnification pursuant to this Section 10.6 but it is
judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or
18
the denial of the last right of appeal) that such indemnification may
not be enforced in such case notwithstanding the fact that this Section
10.6 provides for indemnification in such case, or (ii) contribution
under the 1933 Act may be required on the part of the Seller or
controlling person of the Seller in circumstances for which
indemnification is provided under this Section 10.6; then, and in each
such case, the Company and the Seller will contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that the Seller
is responsible only for the portion represented by the percentage that
the public offering price of its securities offered by the registration
statement bears to the public offering price of all securities offered
by such registration statement, provided, however, that, in any such
case, (y) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities offered by
it pursuant to such registration statement; and (z) no person or entity
guilty of fraudulent misrepresentation (within the meaning of Section
10(f) of the ▇▇▇▇ ▇▇▇) will be entitled to contribution from any person
or entity who was not guilty of such fraudulent misrepresentation.
11. FAVORED NATIONS PROVISIONS. In the event that at any time a Note is
outstanding, the Company shall for any reason (other than in connection with
employee stock options or as full or partial consideration in connection with
any merger, consolidation or purchase of substantially all of the securities or
assets of any corporation or other entity (an "Acquisition") issue any common
stock or securities convertible into or exercisable for shares of common stock
to any person, firm or corporation at price per share or conversion or exercise
price per share which shall be lower than the Conversion Price of the Shares
issuable upon conversion of the Note, then and in such even the Conversion Price
set forth in the Note shall be automatically reduced to such lower per share
purchase price, exercise price or conversion price, as the case may be.
12. MISCELLANEOUS.
(a) NOTICES. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder
shall be in writing and, unless otherwise specified herein, shall be
(i) personally served, (ii) deposited in the mail, registered or
certified, return receipt requested, postage prepaid, (iii) delivered
by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set
forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication
required or permitted to be given hereunder shall be deemed effective
(a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the
address or number designated below (if delivered on a business day
during normal business hours where such notice is to be received), or
the first business day following such delivery (if delivered other than
on a business day during normal business hours where such notice is to
be received) or (b) on the second business day following the date of
mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first
occur. The addresses for such communications shall be: (i) if to the
Company to One Voice Technologies Inc., ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇
▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇, telecopier number: (▇▇▇) ▇▇▇-▇▇▇▇, with a
copy by telecopier only to: Sichenzia, Ross, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP,
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, Attn: ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, Esq., telecopier number: (▇▇▇) ▇▇▇-▇▇▇▇, and (ii) if to the
Subscriber, to the name, address and telecopy number set forth on the
signature page hereto, with a copy by telecopier only to Grushko &
▇▇▇▇▇▇▇, P.C., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇,
telecopier number: (▇▇▇) ▇▇▇-▇▇▇▇.
(b) CLOSING. The consummation of the transactions contemplated
herein shall take place at the offices of Grushko & ▇▇▇▇▇▇▇, P.C., ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, upon the
satisfaction of all conditions to Closing set forth in this Agreement.
The closing date shall be the date that subscriber funds representing
the net amount due the Company from the Purchase Price of the Offering
is transmitted by wire transfer or otherwise to the Company (the
"Closing Date").
19
(c) ENTIRE AGREEMENT; ASSIGNMENT. This Agreement and other
documents delivered in connection herewith represent the entire
agreement between the parties hereto with respect to the subject matter
hereof and may be amended only by a writing executed by both parties.
Neither the Company nor the Subscriber has relied on any
representations not contained or referred to in this Agreement and the
documents delivered herewith. No right or obligation of either party
shall be assigned by that party without prior notice to and the written
consent of the other party.
(d) EXECUTION. This Agreement may be executed simultaneously
in several counterparts, each of which shall be deemed an original, and
all of which together shall constitute one and the same instrument. A
facsimile of an executed counterpart will have the same effect as the
original executed counterpart.
(e) LAW GOVERNING THIS AGREEMENT. This Agreement shall be
governed by and construed in accordance with the laws of the State of
New York without regard to principles of conflicts of laws. Any action
brought by either party against the other concerning the transactions
contemplated by this Agreement shall be brought only in the state
courts of New York or in the federal courts located in the state of New
York. Both parties and the individuals executing this Agreement and
other agreements on behalf of the Company agree to submit to the
jurisdiction of such courts and waive trial by jury. The prevailing
party shall be entitled to recover from the other party its reasonable
attorney's fees and costs. In the event that any provision of this
Agreement or any other agreement delivered in connection herewith is
invalid or unenforceable under any applicable statute or rule of law,
then such provision shall be deemed inoperative to the extent that it
may conflict therewith and shall be deemed modified to conform with
such statute or rule of law. Any such provision which may prove invalid
or unenforceable under any law shall not affect the validity or
enforceability of any other provision of any agreement.
(f) SPECIFIC ENFORCEMENT, CONSENT TO JURISDICTION. The Company
and Subscriber acknowledge and agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were
not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the
provisions of this Agreement and to enforce specifically the terms and
provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity. Subject
to Section 12(e) hereof, each of the Company and Subscriber hereby
waives, and agrees not to assert in any such suit, action or
proceeding, any claim that it is not personally subject to the
jurisdiction of such court, that the suit, action or proceeding is
brought in an inconvenient forum or that the venue of the suit, action
or proceeding is improper. Nothing in this Section shall affect or
limit any right to serve process in any other manner permitted by law.
(g) PRESS RELEASE. The Company may issue a press release
relating to the transactions contemplated hereby provided that the
Subscriber is afforded the opportunity to review and approve such
release prior to its issuance.
20
(h) AUTOMATIC TERMINATION. This Agreement shall automatically
terminate without any further action of either party hereto if the
Closing shall not have occurred by the tenth (10th) business day
following the date this Agreement is accepted by the Subscriber.
[THIS SPACE INTENTIONALLY LEFT BLANK]
21
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.
ONE VOICE TECHNOLOGIES INC.
A Nevada Corporation
By:_______________________________________
Name:
Title:
Dated: April _____, 2003
--------------------------------------------------- ------------------------- ------------------------ ------------------------
SUBSCRIBER PROPORTIONATE SHARE
--------------------------------------------------- ------------------------- ------------------------ ------------------------
Purchase Price of Note: Warrants to Purchase 41.67%
$250,000 145,835 Common Shares
----------------------------------
(Signature)
ALPHA CAPITAL AKTIENGESELLSCHAFT
▇▇▇▇▇▇▇▇▇ ▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Vaduz, Lichtenstein
Fax: ▇▇▇-▇▇▇-▇▇▇-▇▇▇▇
--------------------------------------------------- ------------------------- ------------------------ ------------------------
Purchase Price of Note: Warrants to Purchase 16.67%
$100,000 58,334 Common Shares
----------------------------------
(Signature) GREENWICH GROWTH FUND LIMITED
▇/▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇.
▇.▇. ▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇ JX, Bermuda
Fax: ▇▇▇-▇▇▇-▇▇▇▇
--------------------------------------------------- ------------------------- ------------------------ ------------------------
22
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.
ONE VOICE TECHNOLOGIES INC.
A Nevada Corporation
By:____________________________________
Name:
Title:
Dated: April _____, 2003
--------------------------------------------------------- --------------------- --------------------- -------------------------
SUBSCRIBER PROPORTIONATE SHARE
--------------------------------------------------------- --------------------- --------------------- -------------------------
Purchase Price of Warrants to 33.33%
Note: $200,000 Purchase 116,668
Common Shares
------------------------------------
(Signature)
▇▇▇▇▇ ENTERPRISES LTD.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇, ▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇▇▇▇▇▇
--------------------------------------------------------- --------------------- --------------------- -------------------------
Purchase Price of Warrants to 8.33%
Note: $50,000 Purchase 29,167
Common Shares
------------------------------------
(Signature)
O1144 LIMITED
By: Ian Mickinnon
c/o Canaccord Capital Corporation
▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇, ▇▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
--------------------------------------------------------- --------------------- --------------------- -------------------------
23
LIST OF SCHEDULES AND EXHIBITS
------------------------------
Exhibit A Form of Note
Exhibit B Form of Legal Opinion
Exhibit C Form of Common Stock Purchase Warrant
Schedule 2(d) Additional Issuances
Schedule 6 Finders
Schedule 7 Use of Proceeds
Schedule 10.1 Other Securities to be Registered
24
SCHEDULE 6
----------
------------------------------------------------------------------ -------------
FINDER FINDER'S FEE
------------------------------------------------------------------ -------------
LIBRA FINANCE, S.A. (1) $5,000.00
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇-▇▇▇▇
------------------------------------------------------------------ -------------
GREENWICH GROWTH FUND LIMITED (2) $2,000.00
▇/▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇.
▇.▇. ▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇ JX, Bermuda
Fax: ▇▇▇-▇▇▇-▇▇▇▇
------------------------------------------------------------------ -------------
▇▇▇▇▇ ENTERPRISES LTD. (3) $4,000.00
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇, ▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇▇▇▇▇▇
------------------------------------------------------------------ -------------
O1144 LIMITED (4) $1,000.00
By: Ian Mickinnon
c/o Canaccord Capital Corporation
▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇, ▇▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
------------------------------------------------------------------ -------------
UNISOURCE, INC. (5) $27,000.00
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
------------------------------------------------------------------ -------------
TOTAL $39,000.00
------------------------------------------------------------------ -------------
(1) In relation to investment by Alpha Capital Aktiengesellschaft.
(2) In relation to investment by Greenwich Growth Fund Limited.
(3) In relation to investment by ▇▇▇▇▇ Enterprises Ltd.
(4) In relation to investment by O1144 Limited.
(5) In relation to investment by all Subscribers.
25