Exhibit 10.1
SUBSCRIPTION
AGREEMENT
THIS SUBSCRIPTION
AGREEMENT (this “
Agreement ”), dated as of June 22, 2009, by and
among Commonwealth Biotechnologies, Inc., a Virginia corporation
(the “ Company ”), and the subscribers
identified on the signature page hereto (each a “
Subscriber ” and collectively “
Subscribers ”).
WHEREAS , the Company and the Subscribers are executing
and delivering this Agreement in reliance upon an exemption from
securities registration afforded by the provisions of
Section 4(2), Section 4(6) and/or Regulation D (“
Regulation D ”) as promulgated by the United States
Securities and Exchange Commission (the “ Commission
”) under the Securities Act of 1933, as amended (the “
1933 Act ”).
WHEREAS , the parties desire that, upon the terms and
subject to the conditions contained herein, the Company shall issue
and sell to the Subscribers, as provided herein, and the
Subscribers, in the aggregate, shall subscribe to Three Hundred and
Sixty-Nine Thousand Nine Hundred Fifty Dollars ($369,950) (the
“ Purchase Price ”) of promissory notes of the
Company (“ Note ” or “ Notes
”), a form of which is annexed hereto as Exhibit A ,
convertible into shares of the Company’s common stock, no par
value (the “ Common Stock ”) at a per share
conversion price set forth in the Note (“ Conversion
Price ”). The Notes and the shares of Common Stock
issuable upon conversion of the Notes (the “ Shares
”) 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 attached hereto as Exhibit B (the
“ Escrow Agreement ”).
NOW, THEREFORE
, in consideration of the mutual
covenants and other agreements contained in this Agreement the
Company and the Subscribers hereby agree as follows:
1. Conditions to Closing .
Subject to the satisfaction or waiver of the terms and conditions
of this Agreement, on the Closing Date, each Subscriber shall
purchase and the Company shall sell to each Subscriber a Note in
the principal amount designated on the signature page hereto for
the purchase price set forth on the signature page hereto. The
Purchase Price will be paid by the surrender of certain outstanding
promissory notes of the Company and deemed payment of interest in
connection with such surrendered promissory notes held by the
Subscribers as more fully described on the signature page
hereto.
2. Closing Date . The
consummation of the transactions contemplated herein shall take
place at the offices of Grushko & Mittman, P.C., 551 Fifth
Avenue, Suite 1601, New York, New York 10176, as soon as
practicable following the satisfaction or waiver of all conditions
to closing set forth in this Agreement (the “ Closing
Date ”).
3. Subscriber’s
Representations and Warranties . Such 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 the 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 and has the requisite corporate power to own its
assets and to carry on its business.
(b) Authorization and Power .
Each Subscriber has the requisite power and authority to enter into
and perform this Agreement and to purchase the Notes being sold to
it hereunder. The execution, delivery and performance of this
Agreement 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 has been duly authorized, executed and
delivered by such Subscriber and constitutes, or shall constitute
when executed and delivered, a valid and binding obligation of the
Subscriber enforceable against the Subscriber in accordance with
the term hereof.
(c) No Conflicts . The
execution, delivery and performance of this Agreement and the
consummation by such Subscriber of the transactions contemplated
hereby 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 or
to purchase the Notes 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 .
Subscriber has been furnished with or has had access at the IDEA
Website of the Commission to the Company’s Form 10-K filed on
March 31, 2009 for the fiscal year ended December 31,
2008, and the financial statements included therein for the year
ended December 31, 2008, together with all subsequent filings
made with the Commission available at the IDEA website until five
days before the Closing Date (hereinafter referred to collectively
as the “ Reports ”). In addition, Subscriber may
have received in writing from the Company such other information
concerning its operations, financial condition and other matters as
Subscriber has requested in writing, identified thereon as OTHER
WRITTEN INFORMATION (such other information is collectively, the
“ Other Written Information ”), and considered
all factors Subscriber deems material in deciding on the
advisability of investing in the Securities.
(e) Information on Subscriber
. The 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 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.
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(f) Purchase of Notes . On
the Closing Date, the Subscriber will purchase the Notes 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, but Subscriber does not agree to hold the
Notes for any minimum amount of time.
(g) Compliance with Securities
Act . The Subscriber understands and agrees that the Securities
have not been registered under the 1933 Act or any applicable state
securities laws, by reason of their issuance in a transaction that
does not require registration under the 1933 Act (based in part on
the accuracy of the representations and warranties of Subscriber
contained herein), and that such Securities must be held
indefinitely unless a subsequent disposition is registered under
the 1933 Act or any applicable state securities laws or is exempt
from such registration. 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 when employed in connection with the
Company includes each Subsidiary [as defined in Section 4(a)]
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.
(h) Shares Legend . The
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 (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.
”
(i) Note Legend . The Note
shall bear the following legend:
“ NEITHER THE ISSUANCE AND
SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES UNDERLYING THESE SECURITIES 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
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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) Communication of Offer .
The offer to sell the Securities was directly communicated to the
Subscriber by the Company. At no time was the Subscriber presented
with or solicited by any leaflet, newspaper or magazine article,
radio or television advertisement, or any other form of general
advertising or solicited or invited to attend a promotional meeting
otherwise than in connection and concurrently with such
communicated offer.
(k) 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 Subscriber has full corporate power and
authority necessary to enter into this Agreement and such other
agreements and to perform its obligations hereunder and under all
other agreements entered into by the Subscriber relating
hereto.
(l) 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.
(m) Correctness of
Representations . Such Subscriber represents 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.
(n) Survival . The foregoing
representations and warranties shall survive the Closing
Date.
4. Company Representations and
Warranties . The Company represents and warrants to and agrees
with each Subscriber that except as set forth in the Reports or the
Other Written Information and as otherwise qualified in the
Transaction Documents:
(a) Due Incorporation . The
Company is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power to own its
properties and to carry on its business is disclosed in the
Reports. 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 purpose of this Agreement, a “ Material
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Adverse Effect ” shall mean a material adverse effect on
the financial condition, results of operations, properties or
business of the Company taken individually, or in the aggregate, 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. All the Company’s
Subsidiaries as of the Closing Date are set forth on Schedule
4(a) hereto.
(b) Outstanding Stock . All
issued and outstanding shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid and
nonassessable.
(c) Authority; Enforceability
. This Agreement, the Note, the 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 are valid and binding agreements enforceable against
the Company in accordance with their respective 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 .
Except as described in the Reports, there are no outstanding
agreements or preemptive or similar rights affecting the
Company’s or any of its Subsidiaries’ Common Stock or
other 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 Common Stock or equity of the Company except as described on
Schedule 4(d) . The Common Stock and all other equity of the
Company and its Subsidiaries on a fully diluted basis outstanding
as of the last trading day preceding the Closing Date is set forth
on Schedule 4(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, any Principal Market (as defined in
Section 9(b) of this Agreement), nor the Company’s
shareholders is required for the execution by the Company of the
Transaction Documents and compliance and performance by the Company
of its obligations under the Transaction Documents, including,
without limitation, the issuance and sale of the Securities. The
Transaction Documents and the Company’s performance of its
obligations thereunder has been unanimously approved by the
Company’s Board of Directors. The Company will timely make
all filings required to be made with the Principal Market [as
defined in Section 9(b)].”“
(f) No Violation or Conflict
. Assuming the representations and warranties of the Subscribers in
Section 3 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 in any material respect) under
(A) the articles or
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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 (as defined in Section 9(n)) upon the
Securities or any of the assets of the Company or any of its
Affiliates except as described herein; or
(iii) except for any of the
Securities held by the Subscribers, result in the activation of any
anti-dilution rights or a reset or repricing of any debt or
security instrument of any other creditor or equity holder of the
Company, nor result in the acceleration of the due date of any
obligation of the Company; or
(iv) result in the activation of any
piggy-back registration rights of any person or entity holding
securities or debt 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 only to restrictions upon transfer under the 1933 Act and
any applicable state securities laws;
(ii) have been, or will be, duly and
validly authorized and on the dates of issuance of the Shares upon
conversion of the Note, such Shares will be duly and validly
issued, fully paid and non-assessable and if registered pursuant to
the 1933 Act and resold pursuant to an effective registration
statement or exempt from registration will be free trading,
unrestricted and unlegended;
(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 or rights to acquire
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 of any of the Transaction Documents or the
performance by the Company of its obligations under the Transaction
Documents. There is no pending or, to the best knowledge of the
Company, basis for or
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threatened action, suit, proceeding or
investigation before any court, governmental agency or body, or
arbitrator having jurisdiction over the Company, or any of its
Affiliates which litigation if adversely determined would have a
Material Adverse Effect.
(i) Reporting Company . The
Company is a publicly-held company subject to reporting obligations
pursuant to Section 13 of the Securities Exchange Act of 1934
(the “ 1934 Act ”) and has a class of common
shares registered pursuant to Section 12(g) of the 1934 Act.
Pursuant to the provisions of the 1934 Act, the Company has filed
all reports and other materials required to be filed thereunder
with the Commission during the preceding thirty-six
months.
(j) 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.
(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 and all the information required to be
disclosed therein. Since the last day of the fiscal year of the
most recent audited financial statements included in the Reports
(“ Latest Financial Date ”), and except as
modified in the Other Written Information or in the Schedules
hereto, there has been no Material Adverse Event relating to the
Company’s business, financial condition or affairs not
disclosed in the Reports. The Reports including the financial
statements therein do not contain any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances when made.
(l) Stop Transfer . The
Company will not issue any stop transfer order or other order
impeding the sale, resale or delivery of any of the Securities,
except as may be required by any applicable federal or state
securities laws and unless contemporaneous notice of such
instruction is given to the Subscriber.
(m) Defaults . The Company is
not in violation of its certificate of incorporation or bylaws.
Except as disclosed on Schedule 4(m) , 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) to the Company’s knowledge not in
violation of any statute, rule or regulation of any governmental
authority which violation would have a Material Adverse
Effect.
(n) Not an 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 NCM which would impair the exemptions relied upon in this
Offering or the Company’s ability to timely comply with its
obligations hereunder. Nor will the Company or any of its
Affiliates take any action or steps that would cause the offer or
issuance of the Securities to be integrated with other offerings
which would impair the exemptions relied upon in this Offering or
the Company’s ability to timely comply with its obligations
hereunder. The Company will not conduct any offering
other
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than the transactions contemplated hereby that
will be integrated with the offer or issuance of the Securities,
which would impair the exemptions relied upon in this Offering or
the Company’s ability to timely comply with its obligations
hereunder.
(o) No General Solicitation .
Neither the Company, nor any of its 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.
(p) Listing . The
Company’s common stock is quoted on the NCM under the symbol
CBTE. Except as described in the Reports, the Company has not
received any oral or written notice that its common stock is not
eligible nor will become ineligible for quotation on the NCM nor
that its common stock does not meet all requirements for the
continuation of such quotation. Except as described in the Reports,
the Company satisfies all the requirements for the continued
quotation of its common stock on the NCM.
(q) 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 the Latest Financial Date 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 4(q) .
(r) No Undisclosed Events or
Circumstances . Since the Latest Financial Date, 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.
(s) Capitalization . The
authorized and outstanding capital stock of the Company as of the
date of this Agreement and the Closing Date (not including the
Securities) are set forth on Schedule 4(d) . Except as set
forth on Schedule 4(d) or described in the Reports, there
are no options, warrants, or rights to subscribe to, securities,
rights or obligations convertible into or exchangeable for or
giving any right to subscribe for any shares of capital stock of
the Company or any of its Subsidiaries. All of the outstanding
shares of Common Stock of the Company have been duly and validly
authorized and issued and are fully paid and
nonassessable.
(t) Dilution . The
Company’s executive officers and directors understand the
nature of the Securities being sold hereby and recognize that the
issuance of the Securities will have a potential dilutive effect on
the equity holdings of other holders of the Company’s equity
or rights to receive equity of the Company. The board of directors
of the Company has concluded, in its good faith business judgment
that the issuance of the Securities is in the best interests of the
Company. The Company specifically acknowledges that its obligation
to issue the Shares upon conversion of the Notes is binding upon
the Company and enforceable against the Company regardless of the
dilution such issuance may have on the ownership interests of other
shareholders of the Company or parties entitled to receive equity
of the Company.
(u) No Disagreements with
Accountants and Lawyers. There are no disagreements of any kind
presently existing, or reasonably anticipated by the Company to
arise, between the Company and the accountants and lawyers formerly
or presently employed by the Company, including but not limited to
disputes or conflicts over payment owed to such accountants and
lawyers, nor have there been any such disagreements during the two
years prior to the Closing Date.
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(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 4(v)
hereto.
(w) Investment Company .
Neither the Company nor any Affiliate is an “investment
company” within the meaning of the Investment Company Act of
1940, as amended.
(x) Subsidiary
Representations . The Company makes each of the representations
contained in Sections 4(a), (b), (c), (d), (e), (f), (h), (k), (m),
(q), (r), (u) and (w) of this Agreement, as same relate
to each Subsidiary of the Company.
(y) Company Predecessor . All
representations made by or relating to the Company of a historical
or prospective nature and all undertakings described in Sections
9(g) through 9(l) shall relate, apply and refer to the Company and
its predecessors, if any.
(z) 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 Securities hereunder and subject to the
Company’s working capital deficiency and its being in default
on certain notes which give rise to its ability to continue as a
going concern, (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).
(AA) Preservation of Corporate
Existence . With the exception of Exelgen Limited, the
Company’s wholly-owned subsidiary that is in the process of
administration, the Company shall preserve and maintain its
corporate existence, rights, privileges and franchises in the
jurisdiction of its incorporation, and qualify and remain
qualified, as a foreign corporation in each jurisdiction in which
such qualification is necessary in view of its business or
operations and where the failure to qualify or remain qualified
might reasonably have a Material Adverse Effect upon the financial
condition, business or operations of the Company and its
Subsidiaries taken as a whole.
(BB) Correctness of
Representations . The Company represents that the foregoing
representations and warranties are true and correct as of the date
hereof in all material respects, and, unless the Company otherwise
notifies the Subscribers prior to the Closing Date, shall be true
and correct in all material respects as of the Closing
Date.
(CC) Survival . The foregoing
representations and warranties shall survive the Closing
Date.
9
5. Regulation D Offering .
The offer and issuance of the Securities to the Subscribers is
being made pursuant to the exemption from the registration
provisions of the 1933 Act afforded by Section 4(2) or
Section 4(6) of the 1933 Act and/or Rule 506 of Regulation D
promulgated thereunder. On the Closing Date, the Company will
provide an opinion reasonably acceptable to Subscriber from the
Company’s legal counsel opining on the availability of an
exemption from registration under the 1933 Act as it relates to the
offer and issuance of the Securities and other matters reasonably
requested by Subscribers. A form of the legal opinion is annexed
hereto as Exhibit C . At the Company’s option, the
Company will provide, at the Company’s expense or reimburse
Subscribers, such other legal opinions in the future as are
reasonably necessary for the issuance and resale of the Common
Stock issuable upon conversion of the Notes pursuant to an
effective registration statement, Rule 144 under the 1933 Act or an
exemption from registration.
6.1. Conversion of Note
.
(a) Upon the conversion of a Note or
part thereof, the Company shall, at its own cost and expense, take
all necessary action, including obtaining and delivering, an
opinion of counsel to assure that the Company’s transfer
agent shall issue stock certificates in the name of Subscriber (or
its 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 1933 Act restriction from transfer legend. If and when the
Subscriber sells the Shares, assuming (i) the Registration
Statement (as defined below) is effective and the prospectus, as
supplemented or amended, contained therein is current and
(ii) the Subscriber confirms in writing to the transfer agent
that the Subscriber has complied with the prospectus delivery
requirements, the restrictive legend can be removed and the Shares
will be free trading, and freely transferable. In the event that
the Shares are sold in a manner that complies with an exemption
from registration, the Company will promptly instruct its counsel
to issue to the transfer agent an opinion permitting removal of the
legend (indefinitely, if pursuant to Rule 144 of the 1933
Act).
(b) Subscriber will give notice of
its decision to exercise its right to convert the Note, interest,
any sum due to the Subscriber under the Transaction Documents or
part thereof by telecopying an executed and completed Notice of
Conversion (a form of which is annexed as Exhibit A to
the Note) to the Company via confirmed telecopier transmission or
otherwise pursuant to Section 13(a) of this Agreement. The
Subscriber will not be required to surrender the Note until the
Note has been fully converted or satisfied. Each date on which a
Notice of Conversion is telecopied to the Company in accordance
with the provisions hereof shall be deemed a Conversion Date
. The Company will itself or cause the Company’s transfer
agent to transmit the Company’s Common Stock certificates
representing the Shares issuable upon conversion of the Note to the
Subscriber via express courier for receipt by such Subscriber
within three (3) business days after receipt by the Company of
the Notice of Conversion (such third day being the “
Delivery Date ”). In the event the Shares are
electronically transferable, then delivery of the Shares
must be made by electronic transfer provided request for
such electronic transfer has been made by the Subscriber and the
Subscriber has complied with all applicable securities laws in
connection with the sale of the Common Stock, including, without
limitation, the prospectus delivery requirements. A Note
representing the balance of the Note not so converted will be
provided by the Company to the Subscriber if requested by
Subscriber, provided the Subscriber delivers the original Note to
the Company. In the event that a Subscriber elects not to surrender
a Note for reissuance upon partial payment or conversion, 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. “
Business day ” and “ trading day ”
as employed in the Transaction Documents is a day that the New York
Stock Exchange is open for trading for three or more
hours.
10
(c) The Company understands that a
delay in the delivery of the Shares in the form required pursuant
to Section 6.1 hereof, or the Mandatory Redemption Amount
described in Section 6.2 hereof, respectively after the
Delivery Date or the Mandatory Redemption Payment Date (as
hereinafter defined) could result in economic loss to the
Subscriber. As compensation to the Subscriber for such loss, the
Company agrees to pay (as liquidated damages and not as a penalty)
to the Subscriber for late issuance of Shares in the form required
pursuant to Section 6.1 hereof upon Conversion of the Note in
the amount of $100 per business day after the Delivery Date for
each $10,000 of Note principal amount being converted of the
corresponding Shares which are not timely delivered. The Company
shall pay any payments incurred under this Section in immediately
available funds upon demand. Furthermore, in addition to any other
remedies which may be available to the Subscriber, in the event
that the Company fails for any reason to effect delivery of the
Shares by the Delivery Date or make payment by the Mandatory
Redemption Payment Date, the Subscriber may revoke all or part of
the relevant Notice of Conversion or rescind all or part of the
notice of Mandatory Redemption by delivery of a notice to such
effect to the Company whereupon the Company and the Subscriber
shall each be restored to their respective positions immediately
prior to the delivery of such notice, except that the liquidated
damages described above shall be payable through the date notice of
revocation or rescission is given to the Company.
(d) Nothing contained herein or in
any document referred to herein or delivered in connection herewith
shall be deemed to establish or require the payment of a rate of
interest or other charges in excess of the maximum permitted by
applicable law. In the event that the rate of interest or dividends
required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall
be credited against amounts owed by the Company to the Subscriber
and thus refunded to the Company.
6.2. Mandatory Redemption at
Subscriber’s Election . In the event (i) the Company
is prohibited from issuing Conversion Shares, (ii) upon the
occurrence of any other Event of Default (as defined in the Note or
in this Agreement), that continues for more than twenty
(20) business days, (iii) a Change in Control (as defined
below), or (iv) of the liquidation, dissolution or winding up
of the Company, then at the Subscriber’s election, the
Company must pay to each Subscriber ten (10) business days
after request by each Subscriber (“ Calculation Period
”), a sum of money determined by multiplying up to the
outstanding principal amount of the Note designated by each such
Subscriber by 120%, plus accrued but unpaid interest (“
Mandatory Redemption Payment ”). The Mandatory
Redemption Payment must be received by each Subscriber on the same
date as the Conversion Shares otherwise deliverable or within ten
(10) business days after request, whichever is sooner (“
Mandatory Redemption Payment Date ”). Upon receipt of
the Mandatory Redemption Payment, the corresponding Note principal
and interest will be deemed paid and no longer outstanding.
Liquidated damages calculated pursuant to Section 6.1(c)
hereof, that have been paid or accrued for the ten day period prior
to the actual receipt of the Mandatory Redemption Payment by a
Subscriber shall be credited against the Mandatory Redemption
Payment. For purposes of this Section 6.2, “ Change
in Control ” shall mean (i) the Company no longer
having a class of shares publicly traded or listed on a Principal
Market (as defined in Section 9(b)), (ii) the Company
becoming a Subsidiary of another entity (other than a corporation
formed by the Company for purposes of reincorporation in another
U.S. jurisdiction), (iii) a majority of the board of directors
of the Company as of the Closing Date no longer serving as
directors of the Company except due to natural causes (which shall
include, termination of such directors by the holders of more than
50% of the Common Stock outstanding as of such termination date),
and (iv) the sale, lease or transfer of substantially all the
assets of the Company or its Subsidiaries (it being understood that
the issuance of capital stock by the Company shall not, in and of
itself, be deemed to be the sale or transfer of an asset of the
Company).
11
6.3. Maximum Conversion/Maximum
Issuance . The Subscriber shall not be entitled to convert on a
Conversion Date that amount of the Note in connection with that
number of shares of Common Stock which would be in excess of the
sum of (i) the number of shares of common stock beneficially
owned by the Subscriber and its Affiliates on a Conversion Date,
and (ii) the number of shares of Common Stock issuable upon
the conversion of the Note with respect to which the determination
of this provision is being made on a Conversion Date, which would
result in beneficial ownership by the Subscriber and its Affiliates
of more than 4.99% of the outstanding shares of common stock of the
Company on such Conversion Date. 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 exercises which would result in the issuance of more than
4.99%. The restriction described in this paragraph may be
waived, in whole or in part, upon sixty-one (61) days prior
notice from the Subscriber to the Company to increase such
percentage to up to 9.99%, but not in excess of 9.99%. The
Subscriber may decide whether to convert a Convertible Note to
achieve an actual 4.99% or up to 9.99% ownership position as
described above, but not in excess of 9.99%. The maximum amount of
Shares issuable upon conversion of the Notes shall not exceed, in
the aggregate, 9.99% of the amount of Common Stock outstanding
immediately preceding the Closing. The Company acknowledges that,
as of the date of Closing, it has issued and outstanding 7,416,896
shares of Common Stock, 9.99% of which would be not less than
740,947 shares of Common Stock. Both parties acknowledge that, in
no case shall the Company be required to take actions that would
require it to file with the NASDAQ Stock Market a Listing of
Additional Shares under NASDAQ Rule 5250(e)(2).
6.4. 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 such Note
shall have been sought and obtained by the Company or at the
Company’s request or with the Company’s assistance, and
the Company has posted a surety bond for the benefit of such
Subscriber in the amount of 120% of the outstanding principal and
interest of the Note, or aggregate purchase price of the Shares
which are sought to be subject to the injunction, which bond shall
remain in effect until the completion of arbitration/litigation of
the dispute and the proceeds of which shall be payable to such
Subscriber to the extent Subscriber obtains judgment in
Subscriber’s favor.
6.5. 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 after seven (7) business
days after the Delivery Date the Subscriber or a broker on the
Subscriber’s behalf, purchases (in an open market transaction
or otherwise) shares of Common Stock to deliver in satisfaction of
a sale by such Subscriber of the Common Stock which the Subscriber
was entitled to receive upon such conversion (a “
Buy-In ”), then the Company shall pay in cash to the
Subscriber (in addition to any remedies available to or elected by
the Subscriber) the amount by which (A) the Subscriber’s
total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased exceeds (B) the
aggregate principal and/or interest amount of the Note for which
such conversion was not timely honored, together with interest
thereon at a rate of 15% per annum, accruing until such amount
and any accrued interest thereon is paid in full (which amount
shall be paid as liquidated damages and not as a penalty). For
example, if the Subscriber purchases shares of Common Stock having
a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted conversion of $10,000 of note principal and/or
interest, the Company shall be required to pay the Subscriber
$1,000, plus interest. The Subscriber shall provide the Company
written notice indicating the amounts payable to the Subscriber in
respect of the Buy-In.
12
6.6. Adjustments. The
Conversion Price and amount of Shares issuable upon conversion of
the Notes shall be adjusted as described in this Agreement and the
Notes.
7. Redemption . The Note
shall not be redeemable or callable except as described in the
Note.
8. Legal Fees . The
Subscribers shall pay to Grushko & Mittman, P.C., legal
fees (“ Legal Fees ”) as reimbursement for
services rendered to the Subscribers in connection with this
Agreement and the purchase and sale of the Notes (t
