SUBSCRIPTION
AGREEMENT
THIS SUBSCRIPTION
AGREEMENT (this
"Agreement"), is dated as of March 30, 2009, by and among
Attitude Drinks Inc., a Delaware corporation (the
"Company"), and the subscribers identified on the signature
page hereto (each a "Subscriber" and collectively
"Subscribers").
WHEREAS, the Company and the Subscribers are executing
and delivering this Agreement in reliance upon an exemption from
securities registration afforded by the provisions of Section 4(2),
Section 4(6) and/or Regulation D ("Regulation D") as
promulgated by the United States Securities and Exchange Commission
(the "SEC" and/or "Commission") under the Securities Act of
1933, as amended (the "1933 Act").
WHEREAS, the parties desire that, upon the terms and
subject to the conditions contained herein, the Company shall issue
and sell to the Subscriber, as provided herein, and the Subscribers
in the aggregate, shall purchase for $180,000 (the "Purchase
Price") promissory notes of the Company ("Note" or
"Notes") at an original issue discount of 10% for the principal
amount of up to $200,000 (the principal amount of each Subscriber's
Note will be determined by dividing such Subscriber's Purchase
Price by .90) ("Note Principal"), in the form annexed hereto
as Exhibit A; and share purchase warrants (the
"Warrants"), in the form annexed hereto as Exhibit B,
to purchase shares of Common Stock (the "Warrant Shares").
The Notes and Shares of the Company's Common Stock, $.001 par value
(the "Common Stock") issuable upon conversion of the Notes
("Shares"), the Warrants and the Warrant Shares issuable
upon exercise of the Warrants are collectively referred to herein
as the "Securities"; and
WHEREAS,
the aggregate proceeds of the sale of the Notes contemplated hereby
shall be held in escrow pursuant to the terms of a Funds Escrow
Agreement to be executed by the parties, substantially in the form
annexed 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 Subscriber hereby
agree as follows:
1.
Closing. Subject to the satisfaction or waiver of the terms
and conditions of this Agreement, on the Closing Date, Subscriber
shall purchase and the Company shall sell to the Subscribers Notes
in the principal amount of $200,000. The "Closing Date"
shall be the date that subscriber funds representing the net amount
due the Company from the Purchase Price is transmitted by wire
transfer or otherwise to or for the benefit of the
Company.
2.
Security Interest. On or about October 23, 2007, certain
lenders were granted a security interest in the assets of the
Company, including ownership of the Subsidiaries (as defined in
Section 5(a) of this Agreement) and in the assets of the
Subsidiaries, which security interest was memorialized in a
"Security Agreement" and "Collateral Agent Agreement"
dated October 23, 2007, as amended on or about January 8, 2008,
September 29, 2008, and January 27, 2009, respectively. The
Subsidiaries guaranteed the Company's obligations under the
Transaction Documents [as defined in Section 5(c)]. Such guaranties
were memorialized in a "Subsidiary Guaranty". The Security
Agreement and Collateral Agent Agreement are hereby amended to
include the Subscribers and the Company agrees that the Subscribers
are hereby made parts to the Security Agreement and Collateral
Agent Agreement as Lenders therein and their interests in the
Obligations (as defined in the Security Agreement) are pari pasu in
proportion to their specific Obligation amounts and of equal
priority with each other. The Company will execute such other
agreements, documents and financing statements reasonably requested
by the Subscribers to memorialize and further protect the security
interest described herein, which will be filed at the Company's
expense with the jurisdictions, states and counties designated by
the Subscribers. The Company will also execute all such documents
reasonably necessary in the opinion of Subscribers to memorialize
and further protect the security interest described
herein.
3.
Warrants. On the Closing Date, the Company will issue and
deliver Class A Warrants to the Subscribers. One Class A Warrant
will be issued for every two Shares which would be issued on the
Closing Date assuming the complete conversion of the Note on the
Closing Date at the Conversion Price. The exercise price to acquire
a Warrant Share upon exercise of a Class A Warrant shall be equal
to $0.05, subject to reduction as described in the Class A Warrant.
The Class A Warrants shall be exercisable until five 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 this Agreement and the Warrant.
4.
Subscriber Representations and Warranties. 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 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 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 or has had access at the EDGAR Website of the Commission to
the Company's audited financial statements for the period ended
March 31, 2008 filed on July 2, 2008 and unaudited financial
statements for the period ended December 31, 2008 filed on March 5,
2009 (hereinafter referred to collectively as the
"Reports"). Such financial statements were prepared pursuant
to Generally Accepted Accounting Principles in the United States
and fairly present in all material respects the financial position
of the Company and its consolidated subsidiaries, if any, as of and
for the dates thereof and the results of operations and cash flows
for the periods then ended, subject to normal, immaterial
adjustments. In addition, such Subscriber may have 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 the time of the conversion of the Notes, 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
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 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 disposition is registered under the 1933 Act or any
applicable state securities laws or is exempt from such
registration. Such Subscriber will comply with all applicable rules
and regulations in connection with the sales of the Securities
including laws relating to short sales.
(h)
Shares Legend. The Shares, and the Warrant Shares shall bear
the following or similar legend:
"THE ISSUANCE AND SALE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL
SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE
FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (H)
UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES."
(i)
Warrants Legend. The Warrants shall bear the following or
similar legend:
"NEITHER THE ISSUANCE AND SALE OF
THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES
INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.
THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH
COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT
OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN
OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES."
(j)
Note Legend. The Note shall bear the following
legend:
"NEITHER THE ISSUANCE AND SALE OF
THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES
INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL
(WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A
GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT
OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
"
(k)
Communication of Offer. The offer to sell the Securities was
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)
Authority; Enforceability. This Agreement and other
agreements delivered together with this Agreement or in connection
herewith have been duly authorized, executed and delivered by such
Subscriber and are valid and binding agreements enforceable in
accordance with their terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights
generally and to general principles of equity; and such Subscriber
has full power and authority necessary to enter into this Agreement
and such other agreements and to perform its obligations hereunder
and under all other agreements entered into by such Subscriber
relating hereto.
(m)
Restricted Securities. Such Subscriber understands that the
Securities have not been registered under the 1933 Act and such
Subscriber will not sell, offer to sell, assign, pledge,
hypothecate or otherwise transfer any of the Securities unless
pursuant to an effective registration statement under the 1933 Act,
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.
(n)
No Governmental Review. Such Subscriber understands that no
United States federal or state agency or any other governmental or
state agency has passed on or made recommendations or endorsement
of the Securities or the suitability of the investment in the
Securities nor have such authorities passed upon or endorsed the
merits of the offering of the Securities.
(o)
Correctness of Representations. Each Subscriber represents
only as to such Subscriber that the foregoing representations and
warranties are true and correct as of the date hereof and, unless
such Subscriber otherwise notifies the Company prior to the Closing
Date shall be true and correct as of the Closing Date.
(p)
Survival. The foregoing representations and warranties shall
survive the Closing Date.
5.
Company Representations and Warranties. The Company
represents and warrants to and agrees with each Subscriber
that:
(a) Due Incorporation. The Company is 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 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. For purposes of this Agreement, a
"Material Adverse Effect" shall mean a material adverse
effect on the financial condition, results of operations,
prospects, properties or business of the Company and its
Subsidiaries taken as a whole. For purposes of this Agreement,
"Subsidiary" means, with respect to any 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 30% 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. The Company's Subsidiaries as of
the Closing Date are set forth on Schedule 5(a).
(b)
Outstanding Stock. All issued and outstanding shares of
capital stock of the Company and each Subsidiary have been duly
authorized and validly issued and are fully paid and
non-assessable.
(c)
Authority; Enforceability. This Agreement, the Note, the
Warrants, Escrow Agreement, and any other agreements delivered
together with this Agreement or in connection herewith
(collectively "Transaction Documents") have been duly
authorized, executed and delivered by the Company, and Subsidiaries
(as applicable) and are valid and binding agreements of the Company
and Subsidiaries, and are enforceable in accordance with their
terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights generally
and to general principles of equity. The Company has full corporate
power and authority necessary to enter into and deliver the
Transaction Documents and to perform its obligations
thereunder.
(d)
Additional Issuances.
There are no outstanding agreements
or preemptive or similar rights affecting the Company's Common
Stock or equity and no outstanding rights, warrants or options to
acquire, or instruments convertible into or exchangeable for, or
agreements or understandings with respect to the sale or issuance
of any shares of Common Stock or equity of the Company or
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 court, governmental agency or body or arbitrator having
jurisdiction over the Company, or any of its Affiliates, or 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 unanimously approved by the
Company's Board of Directors.
(f)
No Violation or Conflict. Assuming the representations and
warranties of the Subscribers in Section 4 are true and correct,
neither the issuance and sale of the Securities nor the performance
of the Company's obligations under this Agreement and all other
agreements entered into by the Company relating thereto by the
Company will:
(i) violate, conflict with, result
in a breach of, or constitute a default (or an event which with the
giving of notice or the lapse of time or both would be reasonably
likely to constitute a default) under (A) the articles or
certificate of incorporation, charter or bylaws of the Company,
(B) to the Company's knowledge, any decree, judgment, order,
law, treaty, rule, regulation or determination applicable to the
Company of any court, governmental agency or body, or
arbitrator having jurisdiction over the Company or 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) except as
described in Schedule 5(d), result in the activation of any
anti-dilution rights or a reset or repricing of any debt or
security instrument of any other creditor or equity holder of the
Company, nor result in the acceleration of the due date of any
obligation of the Company; or
(iv) will 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:
(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 upon exercise of the
Warrants, the Warrant Shares will be duly and validly issued, fully
paid and non-assessable;
(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 warranties
of the 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
the Company, threatened action, suit, proceeding or investigation
before any court, governmental agency or body, or arbitrator having
jurisdiction over the Company, or any of its Affiliates that would
affect the execution by the Company or the performance by the
Company of its obligations under the Transaction Documents. Except
as disclosed in the Reports, there is no pending or, to the best
knowledge of the Company, basis for or threatened action, suit,
proceeding or investigation before any court, governmental agency
or body, or arbitrator having jurisdiction over the Company, or any
of its Affiliates which litigation if adversely determined would
have a Material Adverse Effect.
(i)
No
Market Manipulation. The Company and its Affiliates have 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 to facilitate the sale or resale of the Securities or affect
the price at which the Securities may be issued or
resold.
(j)
Information Concerning Company. The Reports and Other
Written 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 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.
(k)
Stop Transfer. The Company will not issue any stop transfer
order or other order impeding the sale, resale or delivery of any
of the Securities, except as may be required by any applicable
federal or state securities laws and if so required only if
contemporaneous notice of such instruction is given to the
Subscriber.
(l)
Defaults. The Company is not in violation of its articles
of incorporation or bylaws. 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, or (iii) not in violation of any
statute, rule or regulation of any governmental authority which
violation would have a Material Adverse Effect.
(m)
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
ofthe 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 Affiliates will take any action or steps
that would cause the offer or issuance of the Securities to be
integrated with other offerings or issuances 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 that would impair the exemptions relied upon in this
Offering or the Company's ability to timely comply with its
obligations hereunder.
(n)
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 1933 Act)
in connection with the offer or sale of the Securities.
(o)
No Undisclosed
Liabilities. The Company
has no liabilities or obligations which are material, individually
or in the aggregate, other than those incurred in the ordinary
course of the Company businesses since the date of the most recent
financial statements of the Company contained in the Reports and
which, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect, except as disclosed in
the Reports or on Schedule 5(o).
(p)
No Undisclosed
Events or Circumstances. 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.
(q)
Capitalization. The authorized and outstanding capital stock
of the Company and Subsidiaries as of the date of this Agreement
and the Closing Date (not including the Securities) are set forth
in the Reports or 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.
(r)
Dilution. The Company's executive officers and directors
understand the nature of the Securities being sold hereby and
recognize that the issuance of the Securities will have a potential
dilutive effect on the equity holdings of other holders of the
Company's equity or rights to receive equity of the Company. The
board of directors of the Company has concluded, in its good faith
business judgment that the issuance of the Securities is in the
best interests of the Company.
(s)
No
Disagreements with Accountants and Lawyers. There are no
material disagreements of any kind presently existing, or
reasonably anticipated by the Company to arise between the Company
and the accountants and lawyers 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 years prior to the Closing
Date.
(t)
Investment Company. Neither the Company nor any Affiliate of
the Company is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(u)
Foreign Corrupt Practices. Neither the Company, nor to the
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 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.
(v)
DTC
Status. The Company's transfer agent is a participant in, and
the Common Stock is eligible for transfer pursuant to, the
Depository Trust Company Automated Securities Transfer Program. 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)
Reporting Company. The Company is a publicly-held company
subject to reporting obligations pursuant to Section 13 of the
Securities Exchange Act of 1934, as amended (the "1934 Act")
and has a class of Common Stock registered pursuant to Section
12(g) of the 1934 Act. The Company is not a "shell company" as that
term is employed in the 1933 Act.
(x)
Solvency. Based on the financial condition of the Company as
of the Closing Date after giving effect to the receipt by the
Company of the proceeds from the sale of the Notes 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; (ii) the Company's assets do not
constitute unreasonably small capital to carry on its business for
the current fiscal year as now conducted and as proposed to be
conducted including its capital needs taking into account the
particular capital requirements of the business conducted by the
Company, and projected capital requirements and capital
availability thereof; and (iii) 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. The Company does not intend to incur debts beyond its
ability to pay such debts as they mature (taking into account the
timing and amounts of cash to be payable on or in respect of its
debt).
(y)
Company Predecessor and Subsidiaries. The Company makes each
of the representations contained in Sections 5(a), (b), (c), (d),
(e), (0, (h), (j), (1), (o), (p), (q), (s), (t), and (u) of this
Agreement, as same relate to the Subsidiary of the Company. 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(1) shall relate, apply and refer to the Company and
its predecessors. The Company represents that it owns 100% of the
outstanding equity of the Subsidiaries and rights to receive equity
of the Subsidiaries free and clear of all liens, encumbrances and
claims, except as set forth on Schedule 5(d). No person or
entity other than the Company has the right to receive any equity
interest in the Subsidiaries.
(z)
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.
(AA)
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 the
Subscribers from the Company's legal counsel opining on the
availability of an exemption from registration under the 1933 Act
as it relates to the offer and issuance of the Securities and other
matters reasonably requested by Subscribers. A form of the legal
opinion is annexed hereto as Exhibit D. The Company will
provide, at the Company's expense, such other legal opinions, if
any, as are reasonably necessary in each Subscriber's opinion for
the issuance and resale of the Common Stock issuable upon exercise
of the Warrants pursuant to an effective registration statement,
Rule 144 under the 1933 Act or an exemption from
registration.
(a) Upon the
conversion of a Note or part thereof, the Company shall, at its own
cost and expense, take all necessary action, including obtaining
and delivering, an opinion of counsel to assure that the Company's
transfer agent shall issue stock certificates in the name of
Subscriber (or its permitted 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
the certificates representing such shares shall contain no legend
other than the usual
