SUBSCRIPTION
AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this “ Agreement
”), is dated as of August 14, 2009, by and among Liberty Star
Uranium & Metals Corp., a Nevada corporation (the “
Company ”), and the subscribers identified on the
signature page hereto (each a “ Subscriber ” and
collectively “ Subscribers ”).
WHEREAS , the Company and the Subscribers are executing and
delivering this Agreement in reliance upon an exemption from
securities registration afforded by the provisions of Section 4(2),
Section 4(6) and/or Regulation D (“ Regulation D
”) as promulgated by the United States Securities and
Exchange Commission (the “ Commission ”) under
the Securities Act of 1933, as amended (the “ 1933 Act
”).
WHEREAS , the parties desire that, upon the terms and
subject to the conditions contained herein, the Company shall issue
and sell to the Subscribers, as provided herein, and the
Subscribers, in the aggregate, shall purchase up to $615,000 (the "
Purchase Price ") of principal amount 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, $0.001 par
value (the " Common Stock ") at a per share conversion price
set forth in the Note (“ Conversion Price ”);
and share purchase warrants (the “ Warrants ”),
in the form annexed hereto as Exhibit B , to purchase shares
of Common Stock (the “ Warrant Shares ”) (the
“ (the “ Offering ”). The Notes, shares of
Common Stock issuable upon conversion of the Notes (the “
Shares ” or “ Conversion Shares ”),
the Warrants and the Warrant Shares are collectively referred to
herein as the " Securities "; and
WHEREAS , the aggregate proceeds of the sale of the Notes
contemplated hereby shall be held in escrow pursuant to the terms
of an Escrow Agreement to be executed by the parties substantially
in the form attached hereto as Exhibit C (the “
Escrow Agreement ”).
NOW, THEREFORE , in consideration of the mutual covenants
and other agreements contained in this Agreement the Company and
the Subscribers hereby agree as follows:
1.
Closing Date . The “ Closing Date ” shall
be the date that the Purchase Price is transmitted by wire transfer
or otherwise credited to or for the benefit of the Company. The
consummation of the transactions contemplated herein shall take
place at the offices of Grushko & Mittman, P.C., 551 Fifth
Avenue, Suite 1601, New York, New York 10176, upon the satisfaction
or waiver of all conditions to closing set forth in this Agreement.
Subject to the satisfaction or waiver of the terms and conditions
of this Agreement, on the Closing Date, each Subscriber shall
purchase and the Company shall sell to each Subscriber a Note in
the Principal Amount designated on the signature page hereto for
the Purchase Price indicated thereon.
2. (a)
Prior Offerings . On May 11, 2007, the Company issued
convertible promissory notes (“ 2007 Notes ”) to
the Subscribers and other investors pursuant to a subscription
agreement (“ 2007 Subscription Agreement ”) and
“transaction documents” as defined in the 2007
Subscription Agreement (“ 2007 Transaction Documents
”). On August 28, 2008, the Company issued convertible
promissory notes (“ 2008 Notes ”) to the
Subscribers and other investors pursuant to a subscription
agreement (“ 2008 Subscription Agreement ”) and
“transaction documents” as defined in the 2008
Subscription Agreement (“ 2008 Transaction Documents
”). On May 22, 2009, the Company issued convertible
promissory notes (“ 2009 Notes ”) to the
Subscribers and other investors pursuant to a subscription
agreement (“ 2009 Subscription Agreement ”) and
“transaction documents” as defined in the 2009
Subscription Agreement (“ 2009 Transaction Documents
”). Schedule 2 hereto sets forth the principal and
interest outstanding on the 2007 Notes, 2008 Notes and 2009 Notes
as of the Closing Date.
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(b)
Payment Subordination . Pursuant to the authority of the
Subscribers constituting a Majority in Interest (as defined in the
2007 Transaction Documents, 2008 Transaction Documents and 2009
Transaction Documents), the following actions, modifications and
terms shall apply to the 2007 Transaction Documents, 2008
Transaction Documents and 2009 Transaction Documents:
(i) The term “
Obligations ” as employed in the Security Agreement
and Collateral Agent Agreement components of the 2008 Transaction
Documents shall include all amounts payable or owing to the
Subscribers under the Notes, the Subsidiary Guaranty, the
Additional Security Documents (as hereinafter defined) and pursuant
to the August 2009 Transaction Documents.
(ii) The terms “
Note ” and “ Notes ” as employed in
the Security Agreement component of the 2008 Transaction Documents
shall include respectively, “ Note ” and “
Notes ” as employed in the August 2009 Transaction
Documents.
(iii) The rights described in Section
12(a) of the 2008 Subscription Agreement are waived with respect to
the Offering.
(iv) Rights and benefits granted
to the Subscribers pursuant to the August 2009 Transaction
Documents including but not limited to the rights described in
Sections 9(f) and 12(a) of this Agreement which conflict with
rights granted pursuant to the terms of the 2007 Transaction
Documents, 2008 Transaction Documents and 2009 Transaction
Documents shall supersede and be superior to such other
rights.
(v) The Company will not issue
shares of Common Stock upon conversion of 2007 Notes, 2008 Notes
and 2009 Notes to any holders of such 2007 Notes, 2008 Notes and
2009 Notes who does not purchase its entire pro-rata portion which
may be purchased hereunder in the full amounts set forth on
Schedule A to the Escrow Agreement until the Subscribers who
do purchase Notes in this Offering for their full pro-rata amounts
set forth on Schedule A to the Escrow Agreement have
converted or have been paid principal of the 2007 Notes, 2008
Notes, 2009 Notes or Notes, after the Closing Date, of not less
than 100% of the amount of Note principal purchased by all such
Subscribers in the Offering.
(vi) The Subscribers hereunder
are granted priority in payment of any amount equal to the Notes
acquired pursuant to this Agreement. To the extent the Company is
unable to fully satisfy all of the 2007 Notes, 2008 Notes, 2009
Notes and the Notes, regardless of the existence of a security
interest and the terms of the Security Agreement and Collateral
Agent Agreement components of the 2008 Transaction Documents,
payment shall be made first to satisfy all amounts payable to the
Subscribers pursuant to the August 2009 Transaction Documents and
thereafter in the priority set forth in the 2009 Transaction
Documents. It is the intention of the Subscribers and Company that
the 2007 Notes, 2008 Notes, 2009 Notes and all sums payable in
connection with the 2007 Transaction Documents, 2008 Transaction
Documents and 2009 Transaction Documents be subordinate to the
Notes in terms of conversion, payment, priority, security and share
reservation.
(vii) The Subscribers agree that
they will not authorize nor instruct the Collateral Agent to
enforce any rights under the 2007 Transaction Documents or 2008
Transaction Documents or 2009 Transaction Documents inconsistent
with any of the foregoing or the rights granted to the Subscribers
pursuant to the August 2009 Transaction Documents or arising as a
result of or in connection with the Offering and August 2009
Transaction Documents.
3.
Warrants . On the Closing Date, the Company will issue and
deliver Class A
2
Warrants to
the Subscribers (the “ Warrants” ). One Class A
Warrant will be issued for each one Share which would be issued on
the Closing Date assuming the complete conversion of the Notes
issued on such Closing Date at the Conversion Price in effect on
the Closing Date assuming such Closing Date were a Conversion Date.
The per Warrant Share exercise price to acquire a Warrant Share
upon exercise of a Class A Warrant shall be equal to $0.005. The
Class A Warrants shall be exercisable until six (6) years after the
Closing Date. The Class A Warrants will be exercisable on a
cashless basis as described in the Class A Warrants.
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 August 2009 Transaction Documents and to purchase the
Notes and Warrants being sold to it hereunder. The execution,
delivery and performance of this Agreement and the other August
2009 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 August 2009
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 August 2009 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 August 2009 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 Form 10-KSB for the fiscal year ended January 31,
2009, and the financial statements included therein for the year
ended January 31, 2009, together with all subsequent filings made
with the Commission available at the EDGAR website until five days
before the Closing Date (hereinafter referred to collectively as
the " Reports "). 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
3
Information "), and considered all factors such Subscriber
deems material in deciding on the advisability of investing in the
Securities.
(e)
Information on Subscriber . Subscriber is, and will be at
the time of the conversion of the Notes and exercise of the
Warrants, an " accredited investor ", as such term is
defined in Regulation D promulgated by the Commission under the
1933 Act, is experienced in investments and business matters, has
made investments of a speculative nature and has purchased
securities of United States publicly-owned companies in private
placements in the past and, with its representatives, has such
knowledge and experience in financial, tax and other business
matters as to enable 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. In any event, and subject to compliance with
applicable securities laws, the Subscriber may enter into lawful
hedging transactions in the course of hedging the position they
assume and the Subscriber may also enter into lawful short
positions or other derivative transactions relating to the
Securities, or interests in the Securities, and deliver the
Securities, or interests in the Securities, to close out their
short or other positions or otherwise settle other transactions, or
loan or pledge the Securities, or interests in the Securities, to
third parties that in turn may dispose of these
Securities.
(h)
Shares Legend . The Shares and 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 (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
4
ACCOUNT
OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES. "
(i)
Notes and Warrants Legend . The Notes and Warrants 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
–OR-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)
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.
(k)
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.
(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
as to such
5
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.
(n)
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. As of the Closing Date, the Company’s only Subsidiary
is Big Chunk Corp., an Alaska corporation, which is wholly-owned by
the Company.
(b)
Outstanding Stock . All issued and outstanding shares of
capital stock of the Company and Subsidiary have been duly
authorized and validly issued and are fully paid and
non-assessable.
(c)
Authority; Enforceability . This Agreement, the Note, the
Warrants, the Subsidiary Guaranty, the Additional Security
Documents and the Escrow Agreement and any other agreements
delivered together with this Agreement or in connection herewith
(collectively “ August 2009 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 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 August
2009 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 and the components thereof are set forth
on Schedule 5(d) .
6
(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 OTC
Bulletin Board (the “ Bulletin Board ”) or the
Company's shareholders is required for the execution by the Company
of the August 2009 Transaction Documents and compliance and
performance by the Company of its obligations under the August 2009
Transaction Documents, including, without limitation, the issuance
and sale of the Securities. The August 2009 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, equity or
security instrument of any other creditor or equity holder of the
Company, or the holder of the right to receive any debt, equity or
security instrument 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 or other registration rights of any person or entity
holding securities of the Company or having the right to receive
securities of the Company.
(g)
The Securities . The Securities upon issuance:
(i) are, or will be, free and
clear of any security interests, liens, claims or other
encumbrances, subject to restrictions upon transfer under the 1933
Act and any applicable state securities laws;
(ii) have been, or will be, duly and
validly authorized and on the date of issuance of the Shares upon
conversion of the Notes and the Warrant Shares upon exercise of the
Warrants, the Shares and Warrant 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 will be free trading and unrestricted;
7
(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 August 2009
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 January 31, 2009 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 including the financial
statements included 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, taken
as a whole, not misleading in light of the circumstances when
made.
(k)
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).
(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
8
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 of
the Bulletin Board. No prior integrated offering will 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 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 January 31, 2009 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 . Since January 31,
2009, except as disclosed in the Reports, 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 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. The only
officer, director, employee and consultant stock option or stock
incentive plan currently in effect or contemplated by the Company
is described on Schedule 5(d) .
(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. The Company specifically
acknowledges that its obligation to issue the Shares upon
conversion of the Notes is binding upon the Company and enforceable
regardless of the dilution such issuance may have on the ownership
interests of other shareholders of the Company or parties entitled
to receive equity of the Company.
9
(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)
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. Pursuant to the provisions of the 1934 Act,
the Company has timely filed all reports and other materials
required to be filed thereunder with the Commission during the
preceding twelve months.
(w)
Listing . The Company's Common Stock is quoted on the
Bulletin Board under the symbol LBSU. The Company has not received
any oral or written notice that its Common Stock is not eligible
nor will become ineligible for quotation on the Bulletin Board nor
that its Common Stock does not meet all requirements for the
continuation of such quotation. The Company satisfies all the
requirements for the continued quotation of its Common Stock on the
Bulletin Board.
(x)
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(x) hereto.
(y)
Company Predecessor and Subsidiaries . The Company makes
each of the representations contained in Sections 5(a), (b), (c),
(d), (e), (f), (h), (j), (l), (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(l) shall relate, apply and refer to the
Company and its predecessors. The Company represents that it owns
the equity of the Subsidiaries and rights to receive equity of the
Subsidiaries as set forth on Schedule 5(a) , free and clear
of all liens, encumbrances and claims, except as set forth on
Schedule 5(a) . No person or entity other than the Company
has the right to receive any equity interest in the
Subsidiaries.
(z)
Banking . Schedule 5(z) contains a list of all
financial institutions at which the Company maintains deposit and
checking accounts. The list includes the address of such financial
institution and account number of such accounts.
(AA)
Correctness of Representations . The Company represents that
the foregoing
10
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; provided, that, if such representation or warranty is
made as of a different date in which case such representation or
warranty shall be true as of such date.
(BB)
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
conversion of the Notes and exercise of the Warrants pursuant to an
effective registration statement, Rule 144 under the 1933 Act or an
exemption from registration.
7.1.
Conversion of Note .
(a) Upon
the conversion of a Note or part thereof, the Company shall, at its
own cost and expense, take all necessary action, including
obtaining and delivering, an opinion of counsel to assure that the
Company's transfer agent shall issue stock certificates in the name
of Subscriber (or its 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 legend set forth in Section 4(h). If and when a
Subscriber sells the Shares, assuming (i) a registration statement
including such Shares for registration, filed with the Commission
is effective and the prospectus, as supplemented or amended,
contained therein is current and (ii) such Subscriber or its agent
confirms in writing to the transfer agent that such Subscriber has
complied with the prospectus delivery requirements, the Company
will reissue the Shares without restrictive legend 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(b)(1)(i) of the 1933
Act, or for 90 days if pursuant to the other provisions of Rule 144
of the 1933 Act, provided that Subscriber delivers all reasonably
requested representations in support of such opinion.
(b) A
Subscriber will give notice of its decision to exercise its right
to convert the Note, interest, or part thereof by telecopying, or
otherwise delivering a 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. Such 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 by 6 PM Eastern Time (“ET”) (or if received by
the Company after 6 PM ET then the next business day) shall be
deemed a “ Conversion Date .” The Company will
itself or cause the Company’s transfer agent to transmit the
Company's Common Stock certificates representing the Shares
issuable upon conversion of the Note to such Subscriber via express
courier for receipt by such Subscriber within three (3) business
days after the Notice of Conversion is given
11
by the
Subscriber (such third day being the " Delivery Date "). In
the event the Shares are electronically transferable, then delivery
of the Shares must be made by electronic transfer provided
request for such electronic transfer has been made by the
Subscriber. A Note representing the balance of the Note not so
converted will be provided by the Company to such Subscriber if
requested by Subscriber, provided such Subscriber delivers the
original Note to the Company. In the event that a Subscriber elects
not to surrender a Note for reissuance upon partial payment or
conversion of a Note, such Subscriber hereby indemnifies the
Company against loss or damage attributable to a third-party claim
in an amount in excess of the actual amount then due under the
Note.
(c) The
Company understands that a delay in the delivery of the Shares in
the form required pursuant to Section 7.1 hereof, or the Mandatory
Redemption Amount described in Section 7.2 hereof, respectively
later than the Delivery Date or the Mandatory Redemption Payment
Date (as hereinafter defined) could result in economic loss to the
Subscriber. As compensation to Subscriber for such loss, the
Company agrees to pay (as liquidated damages and not as a penalty)
to such Subscriber for late issuance of Shares in the form required
pursuant to Section 7.1 hereof upon Conversion of the Note in the
amount of $100 per business day after the Delivery Date for each
$10,000 of Note principal amount (and proportionately for other
amounts) being converted of the corresponding Shares which are not
timely delivered. The Company shall pay any payments incurred under
this Section 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 within seven (7) business days after the Delivery Date or
make payment within seven (7) business days after the Mandatory
Redemption Payment Date (as defined in Section 7.2 below), such
Subscriber will be entitled to revoke all or part of the relevant
Notice of Conversion or rescind all or part of the notice of
Mandatory Redemption by delivery of a notice to such effect to the
Company whereupon the Company and such Subscriber shall each be
restored to their respective positions immediately prior to the
delivery of such notice, except that the liquidated damages
described above shall be payable through the date notice of
revocation or rescission is given to the Company.
7.2.
Mandatory Redemption at Subscriber’s Election . In the
event (i) the Company is prohibited from issuing 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 thirty
(30) 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 115%, plus
accrued but unpaid interest and any other amounts due under the
2009 Transaction Documents (" Mandatory Redemption Payment
"). The Mandatory Redemption Payment must be received by each
Subscriber on the same date as the 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,
interest and other amounts will be deemed paid and no longer
outstanding. The Subscriber may rescind the election to receive a
Mandatory Redemption Payment at any time until such payment is
actually received. Liquidated damages calculated pursuant to
Section 7.1(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 7.2, “
Change in Control ” shall mean (i) 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), (ii) the sale, lease or transfer of
substantially all the assets of the Company or its Subsidiaries,
and (iii) if the holders of the Company’s Common Stock as of
the Closing Date beneficially own at any time after the Closing
Date less than 40% of the Common Stock owned by them on the Closing
Date (other than as a result of their having sold their stock
except under a tender offer).
12
7.3.
Maximum Conversion . A Subscriber shall not be entitled to
convert on a Conversion Date that amount of the Note nor may the
Company make any payment including principal, interest, or
liquidated or other damages 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 such
Subscriber and its Affiliates on a Conversion Date or payment 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 such Subscriber and its
Affiliates of more than 4.99% of the outstanding shares of Common
Stock of the Company on such Conversion Date. For the purposes of
the provision to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of
the Securities Exchange Act of 1934, as amended, and Rule 13d-3
thereunder. Subject to the foregoing, the Subscriber shall not be
limited to aggregate conversions of only 4.99% and aggregate
conversions by the Subscriber may exceed 4.99% . The Subscriber may
increase the permitted beneficial ownership amount up to 9.99% upon
and effective after 61 days’ prior written notice to the
Company. Such Subscriber may allocate which of the equity of the
Company deemed beneficially owned by such Subscriber shall be
included in the 4.99% amount described above and which shall be
allocated to the excess above 4.99% .
7.4.
Injunction/ Posting of Bond . In the event a Subscriber
shall elect to convert a Note or part thereof, the Company may not
refuse conversion or exercise based on any claim that such
Subscriber or any one associated or affiliated with such Subscriber
has been engaged in any violation of law, or for any other reason,
unless, an injunction from a court, on notice, restraining and or
enjoining conversion of all or part of such Note shall have been
sought and obtained by the Company or at the Company’s
request or with the Company’s assistance, and the Company has
posted a surety bond for the benefit of such Subscriber in the
amount of 120% of the outstanding principal and interest of the
Note, or aggregate purchase price of the Shares which are sought to
be subject to the injunction, which bond shall remain in effect
until the completion of arbit
