EXHIBIT 10.1
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "AGREEMENT"), dated as of February
___, 2006, by and among Universal Communication Systems, Inc., 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 Three Million and Twelve Thousand and Fifty Dollars ($3,012,050)
(the "AGGREGATE PRINCIPAL Amount") 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 Notes, shares of Common Stock issuable upon conversion of the
Notes (the "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 and the
Warrants contemplated hereby shall be held in escrow pending the closing of the
transactions contemplated by this Agreement pursuant to the terms of a Funds
Escrow Agreement to be executed by the parties substantially in the form
attached hereto as EXHIBIT C (the "ESCROW AGREEMENT").
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Subscribers hereby
agree as follows:
1. (a) Aggregate Purchase Price. The aggregate purchase price
for the Notes (the "AGGREGATE PURCHASE PRICE") shall equal the result of (x)
divided by (y), where (x) equals the Aggregate Principal Amount and (y) equals
1.2048192. The aggregate principal amount of the Notes to be purchased by the
Subscribers shall, in the aggregate, be equal to the Aggregate Principal Amount.
Each date upon which a Closing occurs is a "CLOSING DATE".
(b) Initial Closing. Subject to the satisfaction or waiver
of the terms and conditions of this Agreement, on the Initial 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 ("INITIAL
CLOSING NOTES") and Warrants as described in Section 2 of this Agreement
("INITIAL CLOSING WARRANTS"). The Aggregate Purchase Amount of the Notes to be
purchased by the Subscribers on the Initial Closing Date shall be equal to One
Million Five Hundred and Six Thousand and Twenty-Five Dollars ($1,506,025) in
exchange for One Million Two Hundred and Fifty Thousand Dollars ($1,250,000) of
Aggregate Purchase Price (the "INITIAL CLOSING PURCHASE Price"). The "INITIAL
CLOSING DATE" shall be the date that the Initial Closing Purchase Price is
transmitted by wire transfer or otherwise to or for the benefit of the Company.
The consummation of the transactions contemplated herein for all closings shall
take place at the offices of Grushko & Mittman, P.C., 551 Fifth Avenue, Suite
1601, New York, New York 10176, upon the satisfaction of all conditions to
Closing set forth in this Agreement. Each of the Initial Closing Date and Second
Closing Date (as defined in Section 1(b) below) is referred to herein as a
"CLOSING DATE".
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(c) Second Closing. The closing date in relation to up to
One Million Five Hundred and Six Thousand and Twenty-Five Dollars ($1,506,025)
of Aggregate Principal Amount of Notes to be issued in exchange for One Million
Two Hundred and Fifty Thousand Dollars ($1,250,000) of Aggregate Purchase Price
(the "SECOND CLOSING PURCHASE PRICE") shall be on or before the fifth business
day after the Actual Effective Date as defined in Section 11.1(iv) (the "SECOND
CLOSING DATE"), provided the Company has increased its authorized shares to not
less than 1.5 billion shares. Subject to the satisfaction or waiver of the
conditions to closing on the Second Closing Date, each Subscriber shall purchase
and the Company shall sell to each Subscriber a Note in the Aggregate Principal
Amount designated on the signature page hereto ("SECOND CLOSING NOTES") and
Warrants as described in Section 2 of this Agreement ("SECOND CLOSING
WARRANTS"). The Second Closing Notes shall be nearly identical to the Notes
issuable on the Initial Closing Date and have the same maturity date as the
Initial Closing Notes. The Conversion Price (defined in Section 2.1 (b) of the
Note) of the Second Closing Notes shall be the same as the Conversion Price of
the Initial Closing Notes in effect on the Second Closing Date.
(d) Conditions to Second Closing. The occurrence of the
Second Closing is expressly contingent on (i) the truth and accuracy, on the
Effective Date as defined in Section 11.1(iv), Actual Effective Date and the
Second Closing Date of the representations and warranties of the Company and
Subscriber contained in this Agreement, (ii) continued compliance with the
covenants of the Company set forth in this Agreement, (iii) the non-occurrence
of any Event of Default (as defined in the Note) or other default by the Company
of its obligations and undertakings contained in this Agreement, (iv) the
authorized shares of the Company having been increased to not less than 1.5
billion shares, and (v) the delivery on the Second Closing Date of Second
Closing Notes for which the Company Shares issuable upon conversion have been
included in the Registration Statement, which must be effective as of the Second
Closing Date.
(e) Second Closing Deliveries. On the Second Closing Date,
the Company will deliver the Second Closing Notes and Second Closing Warrants to
the Escrow Agent and each Subscriber will deliver his portion of the Second
Closing Purchase Price to the Escrow Agent. On the Second Closing Date, the
Company will deliver a certificate ("SECOND CLOSING CERTIFICATE") signed by its
chief executive officer or chief financial officer (i) representing the truth
and accuracy of all the representations and warranties made by the Company
contained in this Agreement, as of the Initial Closing Date, the Actual
Effective Date and the Second Closing Date, as if such representations and
warranties were made and given on all such dates, (ii) certifying that the
information contained in the schedules and exhibits hereto is substantially
accurate as of the Second Closing Date, except for changes that do not
constitute Material Adverse Effect [as defined in Section 5(a)], (iii) adopting
and renewing the covenants and representations set forth in Sections 5, 7, 8, 9,
10, 11, and 12 of this Agreement in relation to the Second Closing Date, Second
Closing Notes and Second Closing Warrants, (iv) representing the timely
compliance by the Company with the Company's registration requirements set forth
in Section 11 of this Agreement, and (v) certifying that an Event of Default has
not occurred. A legal opinion nearly identical to the legal opinion referred to
in Section 6 of this Agreement shall be delivered to each Subscriber at the
Second Closing in relation to the Company, Second Closing Notes, and Second
Closing Warrants ("SECOND CLOSING LEGAL OPINION"). The Second Closing Legal
Opinion must state that the Registration Statement has been declared effective
by the Commission and remains effective as of the Second Closing Date.
2. Warrants. On each Closing Date, the Company will issue and
deliver Warrants to the Subscribers. One Class A Warrant and one Class B Warrant
will be issued for each two Shares which would be issued on each Closing Date
assuming the conversion of all of the Notes issued on the Closing Date at the
Conversion Price in effect on such Closing Date. The per Warrant Share exercise
price to acquire a Warrant Share upon exercise of a Class A Warrant shall be
$0.02. The per Warrant Share exercise price to acquire a Warrant Share upon
exercise of a Class B Warrant shall be $0.015. The Class A Warrants shall be
exercisable for four year after the Actual Effective Date. The Class B Warrants
shall be exercisable until the Registration Statement [as defined in Section
11.1(iv)] has been effective for 180 days.
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3. Security Interest. The Subscribers will be granted a
security interest in certain assets of the Company and Subsidiaries (as defined
in Section 5(a) of this Agreement), including ownership of the Subsidiaries, to
be memorialized in a "SECURITY AGREEMENT", a form of which is annexed hereto as
EXHIBIT D. Each Subsidiary will execute and deliver to the Subscribers a form of
"GUARANTY" annexed hereto as EXHIBIT E. The Company will execute such other
agreements, documents and financing statements reasonably requested by
Subscribers, which will be filed at the Company's expense with such
jurisdictions, states and counties designated by the Subscribers. The Company
will also execute all such documents reasonably necessary in the opinion of
Subscribers to memorialize and further protect the security interest described
herein. The Subscribers will appoint a Collateral Agent to represent them
collectively in connection with the security interest to be granted to the
Subscribers. The appointment will be pursuant to a "COLLATERAL AGENT AGREEMENT",
a form of which is annexed hereto as EXHIBIT F.
4. Subscriber's 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 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.
(b) Authorization and Power. Each Subscriber has the
requisite power and authority to enter into and perform this Agreement and to
purchase the Notes and Warrants 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, or 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 terms thereof.
(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 or acquire the
Warrants 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. The 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 year ended September 30, 2005 and all periodic
reports filed with the Commission thereafter until five (5) business days prior
to the Closing Date (hereinafter collectively referred to as the "REPORTS"). The
Subscriber has had an opportunity to ask questions and receive answers from
representatives of the Company. In addition, the Subscriber has received in
writing from the Company such other information concerning its operations,
financial condition and other matters as the Subscriber has requested in writing
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(such other information is collectively, the "OTHER WRITTEN Information"), and
considered all factors the 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 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 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.
(f) Purchase of Notes and Warrants. On the Closing Date,
the 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. 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.
(h) Shares Legend. The Shares and the Warrant Shares shall
bear the following or similar legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT OR ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO UNIVERSAL COMMUNICATION SYSTEMS, INC. THAT
SUCH REGISTRATION IS NOT REQUIRED."
(i) Warrants Legend. The Warrants shall bear the following
or similar legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON SHARES
ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID
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ACT OR ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO UNIVERSAL COMMUNICATION
SYSTEMS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(j) Note Legend. The Note shall bear the following legend:
"THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THIS NOTE AND THE COMMON SHARES ISSUABLE
UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO UNIVERSAL
COMMUNICATION SYSTEMS, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED."
(k) 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.
(l) Authority; Enforceability. This Agreement and other
agreements delivered together with this Agreement or in connection herewith have
been duly authorized, executed and delivered by the 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.
(m) Restricted Securities. 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. 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 5(a)] of the Company, if any.
For purposes of this definition, "CONTROL" means the power to direct the
management and policies of such person or firm, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise.
(n) No Governmental Review. Each Subscriber understands
that no United States federal or state agency or any other governmental or state
agency has passed on or made recommendations or endorsement of the Securities or
the suitability of the investment in the Securities nor have such authorities
passed upon or endorsed the merits of the offering of the Securities.
(o) Correctness of Representations. Each Subscriber
represents as to such Subscriber that the foregoing representations and
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warranties are true and correct as of the date hereof and, unless a Subscriber
otherwise notifies the Company prior to the Closing Date shall be true and
correct as of the Closing Date.
(p) Survival. The foregoing representations and warranties
shall survive until three years after the Second Closing Date.
5. Company Representations and Warranties. The Company
represents and warrants to and agrees with each Subscriber that except as set
forth in the Reports 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 as 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 purposes of this Agreement, a "MATERIAL ADVERSE EFFECT"
shall mean a material adverse effect on the financial condition, results of
operations, properties or business of the Company 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 50% 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.
(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 Notes,
the Warrants, the Escrow Agreement, Security Agreement, Collateral Agent
Agreement, Guaranty and any other agreements delivered together with this
Agreement or in connection herewith (collectively "TRANSACTION DOCUMENTS") have
been duly authorized, executed and delivered by the Company and Subsidiaries (as
the case may be) 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.
The Company and Subsidiaries have full corporate power and authority necessary
to enter into and deliver the Transaction Documents and to perform their
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 except as described on SCHEDULE 5(D).
(e) Consents. No consent, approval, authorization or order
of any court, governmental agency or body or arbitrator having jurisdiction over
the Company, or any of its Affiliates, 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.
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(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 in any
material respect) of a material nature under (A) the articles or certificate of
incorporation, charter or bylaws of the Company, (B) 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 contemplated herein; or
(iii) except as set forth in SCHEDULE 5(F), 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) except as set forth in SCHEDULE 5(F), 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 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 and upon exercise of the Warrants, the
Shares and Warrant Shares will be duly and validly issued, fully paid and
nonassessable or if registered pursuant to the 1933 Act, and resold pursuant to
an effective registration statement will be free trading and unrestricted;
(iii) will not have been issued or sold in violation of
any preemptive or other similar rights of the holders of any securities of the
Company;
(iv) will not subject the holders thereof to personal
liability by reason of being such holders, provided Subscriber's representations
herein are true and accurate and Subscribers take no actions or fail to take any
actions required for their purchase of the Securities to be in compliance with
all applicable laws and regulations; and
(v) provided Subscriber's representations herein are
true and accurate and Subscribers take no actions or fail to take any actions
required for their purchase of the Securities to be in compliance with all
applicable laws and regulations, will have been issued in reliance upon an
exemption from the registration requirements of and will not result in a
violation of Section 5 under the 1933 Act.
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(h) Litigation. There is no pending 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
that would affect the execution by the Company or the performance by the Company
of its obligations under the Transaction Documents. Except as disclosed in the
Reports or on SCHEDULE 5(H), there is no pending, or, to the knowledge of the
Company, basis for any, 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 twelve 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, provided, however, that this provision shall not prevent the Company
from engaging in investor relations/public relations activities consistent with
past practices.
(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 Effect relating to the Company's
business, financial condition or affairs not disclosed in the Reports. The
Reports do not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances when made.
(l) 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
articles of incorporation or bylaws. The Company is (i) not in default under or
in violation of any other material agreement or instrument to which it is a
party or by which it or any of its properties are bound or affected, which
default or violation would have a Material Adverse Effect, (ii) not in default
with respect to any order of any court, arbitrator or governmental body or
subject to or party to any order of any court or governmental authority arising
out of any action, suit or proceeding under any statute or other law respecting
antitrust, monopoly, restraint of trade, unfair competition or similar matters,
or (iii) 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
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offers to buy any security under circumstances that would cause the offer of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
the OTC Bulletin Board ("BULLETIN BOARD") or any Principal Market [as defined in
Section 9(b)] 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 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 Common Stock is quoted on the Bulletin
Board. The Company has not received any oral or written notice that the Common
Stock is not eligible nor will become ineligible for quotation on the Bulletin
Board nor that the Common Stock does not meet all requirements for the
continuation of such quotation.
(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 on
SCHEDULE 5(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 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. 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, and the Warrant Shares upon exercise of the Warrants is binding upon the
Company and enforceable regardless of the dilution such issuance may have on the
ownership interests of other 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
9
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 Initial
Closing Date.
(v) DTC Status. The Company's transfer agent is a
participant in and the Common Stock is eligible for transfer pursuant to the
Depository Trust Company Automated Securities Transfer Program. The name,
address, telephone number, fax number, contact person and email address of the
Company transfer agent is set forth on Schedule 5(v) hereto.
(w) 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. Subject to SCHEDULE 5(X),
the Company makes each of the representations contained in Sections 5(a), (b),
(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.
(z) Correctness of Representations. The Company represents
that the foregoing representations and warranties are true and correct as of the
date hereof in all material respects, and, unless the Company otherwise notifies
the Subscribers prior to each Closing Date, shall be true and correct in all
material respects as of each Closing Date.
(AA) Survival. The foregoing representations and warranties
shall survive until three years after the Second Closing Date.
6. 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 G. The
Company will provide, at the Company's expense, such other legal opinions in the
future as are reasonably necessary for the issuance and resale of the Common
Stock issuable upon conversion of the Notes and exercise of the Warrants
pursuant to an effective registration statement and Rule 144 under the 1933 Act.
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 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
10
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(k) of the 1933 Act, or for 90 days if pursuant to the other
provisions of 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 including Liquidated Damages, 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.
(c) The Company understands that a delay in the delivery
of the Shares in the form required pursuant to Section 7.1 hereof, or the
Mandatory Redemption Amount described in Section 7.2 hereof, respectively after
the Delivery Date or the Mandatory Redemption Payment Date (as hereinafter
defined) could result in economic loss to 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 7.1 hereof upon Conversion of the Note in the
amount of $100 per business day after the Delivery Date for each $10,000 of Note
principal amount being converted of the corresponding Shares which are not
timely delivered. The Company shall pay any payments incurred under this Section
in immediately available funds upon demand. Furthermore, in addition to any
other remedies which may be available to 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.
11
7.2. Mandatory Redemption at Subscriber's Election. In the
event (i) the Company is prohibited from issuing Shares, (ii) the Company fails
to timely deliver Shares on a Delivery Date, (iii) upon the occurrence of any
other Event of Default (as defined in the Note or in this Agreement), (iv) of
the liquidation, dissolution or winding up of the Company, or (v) a Change of
Control (as defined below) any of which that continues for more than ten days,
then at the Subscriber's election, the Company must pay to the Subscriber ten
(10) business days after request by the Subscriber, a sum of money determined by
multiplying up to the outstanding principal amount of the Note designated by the
Subscriber by 120%, together with accrued but unpaid interest thereon
("MANDATORY REDEMPTION PAYMENT"). The Mandatory Redemption Payment must be
received by the Subscriber on the same date as the 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 7.1(c) hereof,
that have been paid or accrued for the twenty day period prior to the actual
receipt of the Mandatory Redemption Payment by the Subscriber shall be credited
against the Mandatory Redemption Payment. For purposes of this Section 7.2,
"CHANGE IN CONTROL" shall mean (i) the Company no longer having a class of
shares publicly traded or listed on a Principal Market, (ii) the Company
becoming a Subsidiary of another entity, (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, or (iv) if the Chief Executive
Officer of the Company as of the Initial Closing Date no longer serves as Chief
Executive Officer of the Company.
7.3. Maximum Conversion. The Subscriber shall not be entitled
to convert on a Conversion Date that amount of the Note in connection with that
number of shares of Common Stock which would be in excess of the sum of (i) the
number of shares of common stock beneficially owned by the Subscriber and its
Affiliates on a Conversion Date, and (ii) the number of shares of Common Stock
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-G 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 waive the conversion limitation described in this
Section 7.3, in whole or in part, upon and effective after 61 days prior written
notice to the Company. The Subscriber may decide whether to convert a Note or
exercise Warrants to achieve an actual 4.99% ownership position.
7.4. Injunction Posting of Bond. In the event a Subscriber
shall elect to convert a Note or part thereof or exercise the Warrant in whole
or in part, 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 or exercise of all or part of such Warrant shall have
been sought and obtained by the Company 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 Warrant
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.
7.5. 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 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
12
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.
7.6. Adjustments. The Conversion Price, Warrant exercise price
and amount of Shares issuable upon conversion of the Notes and exercise of the
Warrants shall be adjusted as described in this Agreement, the Notes and
Warrants.
7.7. Redemption. The Note and Warrants shall not be redeemable
or mandatorily convertible except as described in the Note and Warrants.
8. Broker/Legal Fees.
(a) Broker's Commission. The Company on the one hand, and
each Subscriber (for himself only) on the other hand, agrees to indemnify the
other against and hold the other harmless from any and all liabilities to any
persons claiming brokerage commissions or similar fees other than the one or
more entities identified on SCHEDULE 8 hereto, (each a "BROKER") on account of
services purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby and
arising out of such party's actions. Anything in this Agreement to the contrary
notwithstanding, each Subscriber is providing indemnification only for such
Subscriber's own actions and not for any action of any other Subscriber. Each
Subscriber's liability hereunder is several and not joint. The Company agrees
that it will pay the Brokers the fees set forth on SCHEDULE 8 hereto ("BROKER'S
FEES"). The Company represents that there are no other parties entitled to
receive fees, commissions, or similar payments in connection with the offering
described in this Agreement except the Broker.
(b) Legal Fees. The Company shall pay to Grushko & Mittman,
P.C., a cash fee of $12,500 ("LEGAL FEES") as reimbursement for services
rendered to the Subscribers in connection with this Agreement and the purchase
and sale of the Notes and Warrants (the "OFFERING"). The Legal Fees and
reimbursement for estimated UCC searches and filing fees (less any amounts paid
prior to a Closing Date) will be payable on the Initial Closing Date out of
funds held pursuant to the Escrow Agreement.
9. Covenants of the Company. The Company covenants and agrees
with the Subscribers as follows:
(a) Stop Orders. The Company will advise the Subscribers,
within two hours after the Company receives notice of issuance by the
Commission, any state securities commission or any other regulatory authority of
any stop order or of any order preventing or suspending any offering of any
securities of the Company, or of the suspension of the qualification of the
Common Stock of the Company for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.
(b) Listing. The Company shall promptly secure the listing
of the shares of Common Stock and the Warrant Shares upon each national
securities exchange, or electronic or automated quotation system upon which they
are or become eligible for listing and shall use commercially reasonable efforts
to maintain such listing so long as any Notes or Warrants are outstanding. The
13
Company will maintain the listing of its Common Stock on the American Stock
Exchange, Nasdaq Capital Market, Nasdaq National Market System, Bulletin Board,
or New York Stock Exchange (whichever of the foregoing is at the time the
principal trading exchange or market for the Common Stock (the "PRINCIPAL
MARKET")), and will comply in all respects with the Company's reporting, filing
and other obligations under the bylaws or rules of the Principal Market, as
applicable. The Company will provide the Subscribers copies of all notices it
receives notifying the Company of the threatened and actual delisting of the
Common Stock from any Principal Market. As of the date of this Agreement, the
Bulletin Board is the Principal Market.
(c) Market Regulations. The Company shall notify the
Commission, the Principal Market and applicable state authorities, in accordance
with their requirements, of the transactions contemplated by this Agreement, and
shall take all other necessary action and proceedings as may be required and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Securities to the Subscribers and promptly provide copies
thereof to Subscriber.
(d) Filing Requirements. From the date of this Agreement
and until the sooner of (i) two (2) years after the Second Closing Date, or (ii)
until all the Shares and Warrant Shares have been resold or transferred by all
the Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company will (A) cause its Common
Stock to continue to be registered under Section 12(b) or 12(g) of the 1934 Act,
(B) comply in all respects with its reporting and filing obligations under the
1934 Act, (C) voluntarily comply with all reporting requirements that are
applicable to an issuer with a class of shares registered pursuant to Section
12(g) of the 1934 Act, if Company is not subject to such reporting requirements,
and (D) comply with all requirements related to any registration statement filed
pursuant to this Agreement. The Company will use its commercially reasonable
efforts not to take any action or file any document (whether or not permitted by
the 1933 Act or the 1934 Act or the rules thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under said acts until two (2) years after the Second Closing Date.
Until the earlier of the resale of the Common Stock and the Warrant Shares by
each Subscriber or two (2) years after the Warrants have been exercised, the
Company will use its commercially reasonable efforts to continue the listing or
quotation of the Common Stock on a Principal Market and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the Principal Market; provided that the Company shall not be
required to consummate a reverse stock split in order to comply with the
foregoing covenant. The Company agrees to timely file a Form D with respect to
the Securities if required under Regulation D and to provide a copy thereof to
each Subscriber promptly after such filing.
(e) Use of Proceeds. The proceeds of the Offering will be
employed by the Company for general working capital. The net amount due the
Company from the Aggregate Purchase Price may not and will not be used for
accrued and unpaid officer and director salaries, payment of financing related
debt, redemption of outstanding notes or equity instruments of the Company,
litigation related settlements, brokerage fees, nor non-trade obligations
outstanding on a Closing Date. For so long as any Notes are outstanding, the
Company will not prepay any financing related debt obligations nor redeem any
equity instruments of the Company.
(f) Reservation. Prior to the Closing Date, the Company
undertakes to reserve, pro rata, on behalf of the Subscribers from its
authorized but unissued common stock, a number of common shares equal to 125% of
the amount of Common Stock necessary to allow each Subscriber to be able to
convert all Notes issuable pursuant to this Agreement and interest thereon and
reserve 100% of the amount of Warrant Shares issuable upon exercise of the
Warrants. After the Approval (as described in Section 9(s) of this Agreement),
the Company will reserve pro-rata on behalf of the Subscribers from its
authorized but unissued Common Stock a number of common shares equal to 250% of
the amount of Common Stock necessary to allow each Holder of a Note to be able
to convert all such outstanding Notes and interest and reserve the amount of
Warrant Shares issuable upon exercise of the Warrants. Failure to have
sufficient shares reserved pursuant to this Section 9(f) for five (5)
consecutive business days or fifteen (15) days in the aggregate shall be a
14
material default of the Company's obligations under this Agreement and an Event
of Default under the Note.
(g) Taxes. From the date of this Agreement and until the
conversion or satisfaction of the Note, in its entirety, the Company will
promptly pay and discharge, or cause to be paid and discharged, when due and
payable, all lawful taxes, assessments and governmental charges or levies
imposed upon the income, profits, property or business of the Company; provided,
however, that any such tax, assessment, charge or levy need not be paid if the
validity thereof shall currently be contested in good faith by appropriate
proceedings and if the Company shall have set aside on its books adequate
reserves with respect thereto, and provided, further, that the Company will pay
all such taxes, assessments, charges or levies forthwith upon the commencement
of proceedings to foreclose any lien which may have attached as security
therefore.
(h) Insurance. From the date of this Agreement and until
the conversion or satisfaction of the Note, in its entirety, the Company will
keep its assets which are of an insurable character insured by financially sound
and reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in the Company's line of business, in
amounts sufficient to prevent the Company from becoming a co-insurer and not in
any event less than one hundred percent (100%) of the insurable value of the
property insured less reasonable deductible amounts; and the Company will
maintain, with financially sound and reputable insurers, insurance against other
hazards and risks and liability to persons and property to the extent and in the
manner customary for companies in similar businesses similarly situated and to
the extent available on commercially reasonable terms.
(i) Books and Records. From the date of this Agreement and
until the conversion or satisfaction of the Note, in its entirety, the Company
will keep true records and books of account in which full, true and correct
entries will be made of all dealings or transactions in relation to its business
and affairs in accordance with generally accepted accounting principles applied
on a consistent basis.
(j) Governmental Authorities. From the date of this
Agreement and until the conversion or satisfaction of the Note, in its entirety,
the Company shall duly observe and conform in all material respects to all valid
requirements of governmental authorities relating to the conduct of its business
or to its properties or assets.
(k) Intellectual Property. From the date of this Agreement
and until the conversion or satisfaction of the Note, in its entirety, the
Company shall maintain in full force and effect its corporate existence, rights
and franchises and all licenses and other rights to use intellectual property
owned or possessed by it and reasonably deemed to be necessary to the conduct of
its business, unless it is sold for value.
(l) Properties. From the date of this Agreement and until
the conversion or satisfaction of the Note, in its entirety, the Company will
keep its properties in good repair, working order and condition, reasonable wear
and tear excepted, and from time to time make all necessary and proper repairs,
renewals, replacements, additions and improvements thereto; and the Company will
at all times comply with each provision of all leases to which it is a party or
under which it occupies property if the breach of such provision could
reasonably be expected to have a Material Adverse Effect.
(m) Confidentiality/Public Announcement. From the date of
this Agreement and until the sooner of (i) two (2) years after the Closing Date,
or (ii) until all the Shares and Warrant Shares have been resold or transferred
by all the Subscribers pursuant to the Registration Statement or pursuant to
Rule 144, without regard to volume limitations, the Company agrees that except
in connection with a Form 8-K or the Registration Statement or as otherwise
15
required in any other Commission filing, it will not disclose publicly or
privately the identity of the Subscribers unless expressly agreed to in writing
by a Subscriber, only to the extent required by law and then only upon five days
prior notice to Subscriber. In any event and subject to the foregoing, the
Company shall file a Form 8-K or make a public announcement describing the
Offering not later than the first business day after the Closing Date. In the
Form 8-K or public announcement, the Company will specifically disclose the
amount of Common Stock outstanding immediately after the closing. A form of the
proposed Form 8-K or public announcement to be employed in connection with the
closing is annexed hereto as EXHIBIT H.
(n) Further Registration Statements. Except for a
registration statement filed on behalf of the Subscribers pursuant to Section 11
of this Agreement, and as set forth on SCHEDULE 11.1 hereto, the Company will
not file any registration statements or amend any already filed registration
statement to increase the amount of Common Stock registered therein, or reduce
the price of which such Common Stock registered therein, including but not
limited to Forms S-8, with the Commission or with state regulatory authorities
without the consent of the Subscriber until the expiration of the "EXCLUSION
PERIOD", which shall be defined as the sooner of (i) the Registration Statement
having been current and available for use in connection with the resale of all
of the Registrable Securities (as defined in Section 11.1(i) for a period of 180
days, or (ii) until all the Shares and Warrant Shares have been resold or
transferred by the Subscribers pursuant to the Registration Statement or Rule
144, without regard to volume limitations. The Exclusion Period will be tolled
during the pendency of an Event of Default as defined in the Note.
(o) Blackout. The Company undertakes and covenants that
until the end of the Exclusion Period, the Company will not enter into any
acquisition, merger, exchange or sale or other transaction that could have the
effect of delaying the effectiveness of any pending Registration Statement or
causing an already effective Registration Statement to no longer be effective or
current for a period of twenty (20) or more days in the aggregate.
(p) Non-Public Information. The Company covenants and
agrees that neither it nor any other person acting on its behalf will provide
any Subscriber or its agents or counsel with any information that the Company
believes constitutes material non-public information, unless prior thereto such
Subscriber shall have agreed in writing to receive such information. The Company
understands and confirms that each Subscriber shall be relying on the foregoing
representations in effecting transactions in securities of the Company.
(q) Offering Restrictions. Until the expiration of the
Exclusion Period and during the pendency of an Event of Default, except for the
Excepted Issuances, the Company will not enter into an agreement to nor issue
any equity, convertible debt or other securities convertible into common stock
or equity of the Company nor modify any of the foregoing which may be
outstanding at anytime, without the prior written consent of the Subscriber,
which consent may be withheld for any reason. For so long as the Notes are
outstanding, except for the Excepted Issuances, the Company will not enter into
any equity line of credit or similar agreement, nor issue nor agree to issue any
floating or variable priced equity linked instruments nor any of the foregoing
or equity with price reset rights. The only officer, director, employee and
consultant stock option or stock incentive plan currently in effect or
contemplated by the Company has been submitted to the Subscribers. No other plan
will be adopted nor may any options or equity not included in such plan be
issued for so long as any sum is outstanding under the Note.
(r) Negative Pledge. So long as any Notes are outstanding
without the consent of the Subscribers, the Company shall not, and shall cause
each of its Subsidiaries not to, create, incur, assume or suffer to exist any
pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim,
security interest, security title, mortgage, security deed or deed of trust,
easement or encumbrance, or preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including any lease
or title retention agreement, any financing lease having substantially the same
16
economic effect as any of the foregoing, and the filing of, or agreement to
give, any financing statement perfecting a security interest under the Uniform
Commercial Code or comparable law of any jurisdiction) (each, a "LIEN") upon any
of its property, whether now owned or hereafter acquired except for (i) the
Excepted Issuances (as defined in Section 12(a) hereof), (ii) (a) Liens imposed
by law for taxes that are not yet due or are being contested in good faith and
for which adequate reserves have been established in accordance with generally
accepted accounting principles; (b) carriers', warehousemen's, mechanics',
material men's, repairmen's and other like Liens imposed by law, arising in the
ordinary course of business and securing obligations that are not overdue by
more than 30 days or that are being contested in good faith and by appropriate
proceedings; (c) pledges and deposits made in the ordinary course of business in
compliance with workers' compensation, unemployment insurance and other social
security laws or regulations; (d) deposits to secure the performance of bids,
trade contracts, leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature, in each case in the
ordinary course of business; (e) Liens created with respect to the financing of
the purchase of new property in the ordinary course of the Company's business up
to the amount of the purchase price of such property, or (f) easements, zoning
restrictions, rights-of-way and similar encumbrances on real property imposed by
law or arising in the ordinary course of business that do not secure any
monetary obligations and do not materially detract from the value of the
affected property (each of (a) through (f), a "PERMITTED LIEN") and (iii)
indebtedness for borrowed money which is not senior or pari passu in right of
payment to the payment of the Notes.
(s) Approval. The Company undertakes to file a preliminary
proxy statement (the "PROXY STATEMENT") with the Commission not later than ten
(10) days after the Closing Date ("PROXY FILING DATE") for a meeting of the
Company's shareholders. The Company covenants to use its best efforts to solicit
the approval of the Company's shareholders in the Proxy Statement to increase
the authorized shares of the Company's Common Stock to not less than 1.5 billion
shares (the "RESOLUTIONS") and thereafter effectuate the Resolutions (such
effectuation the "APPROVAL"). The Company will hold a meeting of its
shareholders to obtain their consent and approval of the Resolutions upon the
soonest to occur of (i) 50 days after the Closing Date if the Proxy Statement is
not reviewed by the Commission, (ii) 75 days after the Closing Date if the Proxy
Statement is reviewed by the Commission, or (iii) 30 days after the Commission
indicates orally or in writing that it has no further comments on the Proxy
Statement or that all comments have been responded to satisfactorily (the
earliest of which is the "REQUIRED MEETING DATE"). Each of (w) failure to file
the Proxy Statement by the Proxy Filing Date, (x) conduct the meeting of
shareholders by the Required Meeting Date, (y) have the shares reserved by the
Board of Directors by the Required Meeting Date, or (z) if the Resolutions are
approved by the shareholders but not effectuated within three (3) days after the
meeting of shareholders (each of which is an "APPROVAL DEFAULT") is an Event of
Default under the Note for which liquidated damages will accrue at the rate of
two percent (2%) for each thirty (30) days, or pro rata portion thereof during
the pendency of such default. Liquidated damages for an Approval Default that
accrue at the same time as liquidated damages for a Non-Registration Event (as
defined in Section 11.4 hereof) shall be limited to the greater of the amount of
such damages which may accrue.
10. Covenants of the Company and Subscriber Regarding
Indemnification.
(a) The Company agrees to indemnify, hold harmless,
reimburse and defend the Subscribers, the Subscribers' officers, directors,
agents, Affiliates, control persons, and principal shareholders, against any
claim, cost, expense, liability, obligation, loss or damage (including
reasonable legal fees) of any nature, incurred by or imposed upon the Subscriber
or any such person which results, arises out of or is based upon (i) any
material misrepresentation by Company or material breach of any warranty by
Company in this Agreement or in any Exhibits or Schedules attached hereto, or
other agreement delivered pursuant hereto; or (ii) after any applicable notice
and/or cure periods, any material breach or default in performance by the
Company of any covenant or undertaking to be performed by the Company hereunder,
or any other agreement entered into by the Company and Subscriber relating
hereto.
(b) Each Subscriber agrees to indemnify, hold harmless,
reimburse and defend the Company and each of the Company's officers, directors,
17
agents, Affiliates, control persons and principal shareholders against any
claim, cost, expense, liability, obligation, loss or damage (including
reasonable legal fees) of any nature, incurred by or imposed upon the Company or
any such person which results, arises out of or is based upon (i) any material
misrepresentation by such Subscriber in this Agreement or in any Exhibits or
Schedules attached hereto, or other agreement delivered pursuant hereto; or (ii)
after any applicable notice and/or cure periods, any material breach or default
in performance by such Subscriber of any covenant or undertaking to be performed
by such Subscriber hereunder, or any other agreement entered into by the Company
and Subscribers, relating hereto.
(c) In no event shall the liability of any Subscriber or
permitted successor hereunder or under any Transaction Document or other
agreement delivered in connection herewith be greater in amount than the dollar
amount of the net proceeds actually received by such Subscriber upon the sale of
Registrable Securities (as defined herein).
(d) The procedures set forth in Section 11.6 shall apply
to the indemnification set forth in Sections 10(a) and 10(b) above.
11.1. Registration Rights. The Company hereby grants the
following registration rights to holders of the Securities.
(i) On one occasion, for a period commencing one hundred
and twenty-one (121) days after the Closing Date, but not later than two (2)
years after the Closing Date, upon a written request therefor from any record
holder or holders of more than 50% of the Shares issued and issuable upon
conversion of the outstanding Notes and outstanding Warrant Shares, the Company
shall prepare and file with the Commission a registration statement under the
1933 Act registering the Registrable Securities, as defined in Section 11.1(iv)
hereof, which are the subject of such request for unrestricted public resale by
the holder thereof. For purposes of Sections 11.1(i) and 11.1(ii), Registrable
Securities shall not include Securities which are (A) registered for resale in
an effective registration statement, (B) included for registration in a pending
registration statement, or (C) which have been issued without further transfer
restrictions after a sale or transfer pursuant to Rule 144 under the 1933 Act.
Upon the receipt of such request, the Company shall promptly give written notice
to all other record holders of the Registrable Securities that such registration
statement is to be filed and shall include in such registration statement
Registrable Securities for which it has received written requests within ten
(10) days after the Company gives such written notice. Such other requesting
record holders shall be deemed to have exercised their demand registration right
under this Section 11.1(i).
(ii) If the Company at any time proposes to register any
of its securities under the 1933 Act for sale to the public, whether for its own
account or for the account of other security holders or both, except with
respect to registration statements on Forms S-4, S-8 or another form not
available for registering the Registrable Securities for sale to the public,
provided the Registrable Securities are not otherwise registered for resale by
the Subscribers or holder of Registrable Securities ("HOLDER") pursuant to an
effective registration statement, each such time it will give at least fifteen
(15) days' prior written notice to the record holder of the Registrable
Securities of its intention so to do. Upon the written request of the holder,
received by the Company within ten (10) days after the giving of any such notice
by the Company, to register any of the Registrable Securities not previously
registered, the Company will cause such Registrable Securities as to which
registration shall have been so requested to be included with the securities to
be covered by the registration statement proposed to be filed by the Company,
all to the extent required to permit the sale or other disposition of the
Registrable Securities so registered by the holder of such Registrable
Securities (the "SELLER" or "SELLERS"). In the event that any registration
pursuant to this Section 11.1(ii) shall be, in whole or in part, an underwritten
public offering of common stock of the Company, the number of shares of
Registrable Securities to be included in such an underwriting may be reduced by
the managing underwriter if and to the extent that the Company and the
underwriter shall reasonably be of the opinion that such inclusion would
adversely affect the marketing of the securities to be sold by the Company
therein; provided, however, that the Company shall notify the Seller in writing
of any such reduction. Notwithstanding the foregoing provisions, or Section 11.4
18
hereof, the Company may withdraw or delay or suffer a delay of any registration
statement referred to in this Section 11.1(ii) without thereby incurring any
liability to the Seller.
(iii) If, at the time any written request for
registration is received by the Company pursuant to Section 11.1(i), the Company
has determined to proceed with the actual preparation and filing of a
registration statement under the 1933 Act in connection with the proposed offer
and sale for cash of any of its securities for the Company's own account and the
Company actually does file such other registration statement, such written
request shall be deemed to have been given pursuant to Section 11.1(ii) rather
than Section 11.1(i), and the rights of the holders of Registrable Securities
covered by such written request shall be governed by Section 11.1(ii).
(iv) The Company shall file with the Commission a Form
SB-2 registration statement (the "REGISTRATION STATEMENT") (or such other form
that it is eligible to use) in order to register the Registrable Securities for
resale and distribution under the 1933 Act within forty-five (45) calendar days
after the Initial Closing Date (the "FILING DATE"), and use its commercially
reasonable efforts to cause to be declared effective not later than one-hundred
and twenty (120) calendar days after the Initial Closing Date (the "EFFECTIVE
DATE"). The Company will register not less than a number of shares of common
stock in the aforedescribed registration statement that is equal to 175% of the
Shares issuable upon conversion of all of the Notes issuable to the Subscribers,
and 100% of the Warrant Shares issuable pursuant to this Agreement upon exercise
of the Warrants (collectively the "REGISTRABLE SECURITIES"). The Registrable
Securities shall be reserved and set aside exclusively for the benefit of each
Subscriber and Warrant holder, pro rata, and not issued, employed or reserved
for anyone other than each such Subscriber and Warrant holder. The Registration
Statement will immediately be amended or additional registration statements will
be immediately filed by the Company as necessary to register additional shares
of Common Stock to allow the public resale of all Common Stock included in and
issuable by virtue of the Registrable Securities. Except with the written
consent of the Subscriber, or as described on SCHEDULE 11.1 hereto, no
securities of the Company other than the Registrable Securities will be included
in the Registration Statement. It shall be deemed a Non-Registration Event if at
any time after the date the Registration Statement is declared effective by the
Commission ("ACTUAL EFFECTIVE DATE") the Company has registered for unrestricted
resale on behalf of the Subscribers fewer than 125% of the amount of Common
Shares issuable upon full conversion of all sums due under the Notes and 100% of
the Warrant Shares issuable upon exercise of the Warrants.
11.2. Registration Procedures. If and whenever the Company is
required by the provisions of Section 11.1(i), 11.1(ii), or (iv) to effect the
registration of any Registrable Securities under the 1933 Act, the Company will,
as expeditiously as possible:
(a) subject to the timelines provided in this Agreement,
prepare and file with the Commission a registration statement required by
Section 11, with respect to such securities and use its best efforts to cause
such registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as herein provided), promptly
provide to the holders of the Registrable Securities copies of all filings and
Commission letters of comment and notify Subscribers (by telecopier and by
e-mail addresses provided by Subscribers) and Grushko & Mittman, P.C. (by
telecopier and by email to Counslers@aol.com) on or before 6:00 PM EST on the
business after the day that the Company receives notice that (i) the Commission
has no comments or no further comments on the Registration Statement, and (ii)
the registration statement has been declared effective (failure to timely
provide notice as required by this Section 11.2(a) shall be a material breach of
the Company's obligation and an Event of Default as defined in the Notes and a
Non-Registration Event as defined in Section 11.4 of this Agreement);
(b) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
19
connection therewith as may be necessary to keep such registration statement
effective until such registration statement has been effective for a period of
two (2) years, and comply with the provisions of the 1933 Act with respect to
the disposition of all of the Registrable Securities covered by such
registration statement in accordance with the Sellers' intended method of
disposition set forth in such registration statement for such period;
(c) furnish to the Sellers, at the Company's expense,
such number of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons reasonably may
request in order to facilitate the public sale or their disposition of the
securities covered by such registration statement or make them electronically
available;
(d) use its commercially reasonable best efforts to
register or qualify the Registrable Securities covered by such registration
statement under the securities or "blue sky" laws of New York and such
jurisdictions as the Sellers shall request in writing, provided, however, that
the Company shall not for any such purpose be required to qualify generally to
transact business as a foreign corporation in any jurisdiction where it is not
so qualified or to consent to general service of process in any such
jurisdiction;
(e) if applicable, list the Registrable Securities
covered by such registration statement with any securities exchange on which the
Common Stock of the Company is then listed;
(f) notify the Subscribers within four hours of the
Company's becoming aware that a prospectus relating thereto is required to be
delivered under the 1933 Act, of the happening of any event of which the Company
has knowledge as a result of which the prospectus contained in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing or which becomes subject to a Commission, state or other governmental
order suspending the effectiveness of the registration statement covering any of
the Shares; and
(g) provided same would not be in violation of the
provision of Regulation FD under the 1934 Act, make available for inspection by
the Sellers, and any attorney, accountant or other agent retained by the Seller
or underwriter, all publicly available, non-confidential financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all publicly
available, non-confidential information reasonably requested by the seller,
attorney, accountant or agent in connection with such registration statement.
11.3. Provision of Documents. In connection with each
registration described in this Section 11, each Seller will furnish to the
Company in writing such information and representation letters with respect to
itself and the proposed distribution by it as reasonably shall be necessary in
order to assure compliance with federal and applicable state securities laws.
11.4. Non-Registration Events. The Company and the Subscribers
agree that the Sellers will suffer damages if the Registration Statement is not
filed by the Filing Date and not declared effective by the Commission by the
Effective Date, and any registration statement required under Section 11.1(i) or
11.1(ii) is not filed within 60 days after written request and declared
effective by the Commission within 120 days after such request, and maintained
in the manner and within the time periods contemplated by Section 11 hereof, and
it would not be feasible to ascertain the extent of such damages with precision.
Accordingly, if (A) the Registration Statement is not filed on or before the
Filing Date, (B) is not declared effective on or before the Effective Date, (C)
due to the action or inaction of the Company the Registration Statement is not
declared effective within three (3) business days after receipt by the Company
20
or its attorneys of a written or oral communication from the Commission that the
Registration Statement will not be reviewed or that the Commission has no
further comments, (D) if the registration statement described in Sections
11.1(i) or 11.1(ii) is not filed within 60 days after such written request, or
is not declared effective within 120 days after such written request, or (E) any
registration statement described in Sections 11.1(i), 11.1(ii) or 11.1(iv) is
filed and declared effective but shall thereafter cease to be effective without
being succeeded within fifteen (15) business days by an effective replacement or
amended registration statement or for a period of time which shall exceed 30
days in the aggregate per year (defined as a period of 365 days commencing on
the Actual Effective Date (each such event referred to in clauses A through E of
this Section 11.4 is referred to herein as a "Non-Registration Event"), then the
Company shall deliver to the holder of Registrable Securities, as liquidated
damages, an amount equal to two percent (2%) for each thirty (30) days or part
thereof of the Aggregate Principal Amount of the Notes remaining unconverted and
purchase price of Shares issued upon conversion of the Notes and exercise of
Warrants owned of record by such holder which are subject to such
Non-Registration Event ("LIQUIDATED DAMAGES"). The Company must pay the
Liquidated Damages in cash. The Liquidated Damages must be paid within ten (10)
days after the end of each thirty (30) day period or shorter part thereof for
which Liquidated Damages are payable. In the event a Registration Statement is
filed by the Filing Date but is withdrawn prior to being declared effective by
the Commission, then such Registration Statement will be deemed to have not been
filed. All oral or written comments received from the Commission relating to the
Registration Statement must be satisfactorily responded to within ten (10)
business days after receipt of comments from the Commission. Failure to timely
respond to Commission comments is a Non-Registration Event for which Liquidated
Damages shall accrue and be payable by the Company to the holders of Registrable
Securities at the same rate set forth above. Notwithstanding the foregoing, the
Company shall not be liable to the Subscriber under this Section 11.4 for any
events or delays occurring as a consequence of the acts or omissions of the
Subscribers contrary to the obligations undertaken by Subscribers in this
Agreement. Liquidated Damages will not accrue nor be payable pursuant to this
Section 11.4 nor will a Non-Registration Event be deemed to have occurred for
times during which Registrable Securities are transferable by the holder of
Registrable Securities pursuant to Rule 144(k) under the 1933 Act.
11.5. Expenses. All expenses incurred by the Company in
complying with Section 11, including, without limitation, all registration and
filing fees, printing expenses (if required), fees and disbursements of counsel
and independent public accountants for the Company, fees and expenses (including
reasonable counsel fees) incurred in connection with complying with state
securities or "blue sky" laws, fees of the National Association of Securities
Dealers, Inc., transfer taxes, and fees of transfer agents and registrars, are
called "REGISTRATION EXPENSES." All underwriting discounts and selling
commissions applicable to the sale of Registrable Securities are called "SELLING
EXPENSES." The Company will pay all Registration Expenses in connection with the
registration statement under Section 11. Selling Expenses in connection with
each registration statement under Section 11 shall be borne by the Seller and
may be apportioned among the Sellers in proportion to the number of shares sold
by the Seller relative to the number of shares sold under such registration
statement or as all Sellers thereunder may agree.
11.6. Indemnification and Contribution.
(a) In the event of a registration of any Registrable
Securities under the 1933 Act pursuant to Section 11, the Company will, to the
extent permitted by law, indemnify and hold harmless the Seller, each officer of
the Seller, each director of the Seller, each underwriter of such Registrable
Securities thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities were registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
21
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances when made, and will subject to the provisions of
Section 11.6(c) reimburse the Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable to
the Seller to the extent that any such damages arise out of or are based upon an
untrue statement or omission made in any preliminary prospectus if (i) the
Seller failed to send or deliver a copy of the final prospectus delivered by the
Company to the Seller with or prior to the delivery of written confirmation of
the sale by the Seller to the person asserting the claim from which such damages
arise, (ii) the final prospectus would have corrected such untrue statement or
alleged untrue statement or such omission or alleged omission, or (iii) to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by any such Seller, or
any such controlling person in writing specifically for use in such registration
statement or prospectus.
(b) In the event of a registration of any of the
Registrable Securities under the 1933 Act pursuant to Section 11, each Seller
severally but not jointly will, to the extent permitted by law, indemnify and
hold harmless the Company, and each person, if any, who controls the Company
within the meaning of the 1933 Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and each
person who controls any underwriter within the meaning of the 1933 Act, against
all losses, claims, damages or liabilities, joint or several, to which the
Company or such officer, director, underwriter or controlling person may become
subject under the 1933 Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in the registration statement under which such Registrable Securities were
registered under the 1933 Act pursuant to Section 11, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each such
officer, director, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
that the Seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information pertaining to
such Seller, as such, furnished in writing to the Company by such Seller
specifically for use in such registration statement or prospectus, and provided,
further, however, that the liability of the Seller hereunder shall be limited to
the net proceeds actually received by the Seller from the sale of Registrable
Securities covered by such registration statement.
(c) Promptly after receipt by an indemnified party
hereunder of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party hereunder, notify the indemnifying party in writing thereof, but the
omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to such indemnified party, except and only if and to
the extent the indemnifying party is prejudiced by such omission. In case any
such action shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel reasonably satisfactory to such
indemnified party, and, after notice from the indemnifying party to such
indemnified party of its election so to assume and undertake the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under this Section 11.6(c) for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected, provided,
however, that, if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded based upon the advice of counsel that there may be reasonable defenses
available to it which are different from or additional to those available to the
indemnifying party or if the interests of the indemnified party reasonably may
be deemed to conflict with the interests of the indemnifying party, the
indemnified parties, as a group, shall have the right to select one separate
counsel and to assume such legal defenses and otherwise to participate in the
defense of such action, with the reasonable expenses and fees of such separate
22
counsel and other expenses related to such participation to be reimbursed by the
indemnifying party as incurred.
(d) In order to provide for just and equitable
contribution in the event of joint liability under the 1933 Act in any case in
which either (i) a Seller, or any controlling person of a Seller, makes a claim
for indemnification pursuant to this Section 11.6 but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 11.6 provides for indemnification in
such case, or (ii) contribution under the 1933 Act may be required on the part
of the Seller or controlling person of the Seller in circumstances for which
indemnification is not provided under this Section 11.6; then, and in each such
case, the Company and the Seller will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that the Seller is responsible only for the
portion represented by the percentage that the public offering price of its
securities offered by the registration statement bears to the public offering
price of all securities offered by such registration statement, provided,
however, that, in any such case, (y) the Seller will not be required to
contribute any amount in excess of the public offering price of all such
securities sold by it pursuant to such registration statement; and (z) no person
or entity guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) will be entitled to contribution from any person or
entity who was not guilty of such fraudulent misrepresentation.
11.7. Delivery of Unlegended Shares.
(a) Within three (3) business days (such third business
day being the "UNLEGENDED SHARES DELIVERY DATE") after the business day on which
the Company has received (i) a notice that Shares or Warrant Shares or any other
Common Stock held by a Subscriber have been sold pursuant to the Registration
Statement or Rule 144 under the 1933 Act, (ii) a representation that the
prospectus delivery requirements, or the requirements of Rule 144, as applicable
and if required, have been satisfied, (iii) the original share certificates
representing the shares of Common Stock that have been sold, and (iv) in the
case of sales under Rule 144, customary representation letters of the Subscriber
and/or Subscriber's broker regarding compliance with the requirements of Rule
144, the Company at its expense, (y) shall deliver, and shall cause legal
counsel selected by the Company to deliver to its transfer agent (with copies to
Subscriber) an appropriate instruction and opinion of such counsel, directing
the delivery of shares of Common Stock without any legends including the legend
set forth in Section 4(h) above, reissuable pursuant to any effective and
current Registration Statement described in Section 11 of this Agreement or
pursuant to Rule 144 under the 1933 Act (the "UNLEGENDED SHARES"); and (z) cause
the transmission of the certificates representing the Unlegended Shares together
with a legended certificate representing the balance of the submitted share
certificates, if any, to the Subscriber at the address specified in the notice
of sale, via express courier, by electronic transfer or otherwise on or before
the Unlegended Shares Delivery Date.
(b) In lieu of delivering physical certificates
representing the Unlegended Shares, if the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer program, upon request of a Subscriber, so long as the certificates
therefor do not bear a legend and the Subscriber is not obligated to return such
certificate for the placement of a legend thereon, the Company shall cause its
transfer agent to electronically transmit the Unlegended Shares by crediting the
account of Subscriber's prime Broker with DTC through its Deposit Withdrawal
Agent Commission system. Such delivery must be made on or before the Unlegended
Shares Delivery Date.
(c) The Company understands that a delay in the delivery
of the Unlegended Shares pursuant to Section 11 hereof later than two business
days after the Unlegended Shares Delivery Date could result in economic loss to
a Subscriber. As compensation to a Subscriber for such loss, the Company agrees
23
to pay late payment fees (as liquidated damages and not as a penalty) to the
Subscriber for late delivery of Unlegended Shares in the amount of $100 per
business day after the Delivery Date for each $10,000 of purchase price of the
Unlegended Shares subject to the delivery default. If during any 360 day period,
the Company fails to deliver Unlegended Shares as required by this Section 11.7
for an aggregate of thirty (30) days, then each Subscriber or assignee holding
Securities subject to such default may, at its option, require the Company to
redeem all or any portion of the Shares and Warrant Shares subject to such
default at a price per share equal to 120% of the amount purchased of such
Common Stock and Warrant Shares ("UNLEGENDED REDEMPTION AMOUNT"). The amount of
the aforedescribed liquidated damages that have accrued or been paid for the
twenty day period prior to the receipt by the Subscriber of the Unlegended
Redemption Amount shall be credited against the Unlegended Redemption Amount.
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand.
(d) In addition to any other rights available to a
Subscriber, if the Company fails to deliver to a Subscriber Unlegended Shares as
required pursuant to this Agreement, within seven (7) business days after the
Unlegended Shares Delivery Date and the Subscriber purchases (in an open market
transaction or otherwise) shares of common stock to deliver in satisfaction of a
sale by such Subscriber of the shares of Common Stock which the Subscriber was
entitled to receive from the Company (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 purchase price of the shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares together with
interest thereon at a rate of 15% per annum, accruing until such amount and any
accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For example, if a Subscriber purchases
shares of Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to $10,000 of purchase price of shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares, the Company shall
be required to pay 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.
(e) In the event a Subscriber shall request delivery of
Unlegended Shares as described in Section 11.7 and the Company is required to
deliver such Unlegended Shares pursuant to Section 11.7, the Company may not
refuse to deliver Unlegended Shares based on any claim that such Subscriber or
any one associated or affiliated with such Subscriber has been engaged in any
violation of law, or for any other reason, unless, an injunction or temporary
restraining order from a court, on notice, restraining and or enjoining delivery
of such Unlegended Shares or exercise of all or part of said Warrant shall have
been sought and obtained and the Company has posted a surety bond for the
benefit of such Subscriber in the amount of 120% of the amount of the aggregate
purchase price of the Common Stock and Warrant Shares which are subject to the
injunction or temporary restraining order, which bond shall remain in effect
until the completion of arbitration/litigation of the dispute and the proceeds
of which shall be payable to such Subscriber to the extent Subscriber obtains
judgment in Subscriber's favor.
12. (a) Right of First Refusal. Until the end of the Exclusion
Period, the Subscribers shall be given not less than the later of ten (10)
business days prior written notice of any proposed sale by the Company of its
common stock or other securities or debt obligations, except in connection with
(i) full or partial consideration in connection with a strategic merger,
acquisition, consolidation or purchase of substantially all of the securities or
assets of a corporation or other entity which holders of such securities or debt
are not at any time granted registration rights, (ii) the Company's issuance of
securities in connection with strategic license agreements and other partnering
arrangements so long as such issuances are not for the purpose of raising
capital which holders of such securities or debt are not at any time granted
registration rights, (iii) as a result of the exercise of Warrants or conversion
24
of Notes which are granted or issued pursuant to this Agreement, (iv) the
payment of any interest on the Notes and liquidated damages or other damages
pursuant to the Transaction Documents, (v) upon the exercise or conversion of
any of the outstanding securities set forth on SCHEDULE 5(D), and (vi) the
Company's issuance of securities pursuant to its compensation plans previously
disclosed to the Subscribers (collectively the foregoing are "EXCEPTED
ISSUANCES"). The Subscribers who exercise their rights pursuant to this Section
12(a) shall have the right during the ten (10) business days following receipt
of the notice to purchase such offered common stock, debt or other securities in
accordance with the terms and conditions set forth in the notice of sale in the
same proportion to each other as their purchase of Notes in the Offering for up
to 100% of the amount of securities or debt issued in such other offering. In
the event such terms and conditions are modified during the notice period, the
Subscribers shall be given prompt notice of such modification and shall have the
right during the ten (10) business days following the notice of modification to
exercise such right; provided, however, that the action of the pricing mechanism
shall not be deemed a modification of such terms or conditions.
(b) Favored Nations Provision. Other than in connection
with the Excepted Issuances, if at any time Notes or Warrants are outstanding
the Company shall offer, issue or agree to issue any common stock or securities
convertible into or exercisable for shares of common stock (or modify any of the
foregoing which may be outstanding) to any person or entity at an effective
price per share or conversion or exercise price per share which shall be less
than the Conversion Price in respect of the Shares, or if less than the Warrant
exercise price in respect of the Warrant Shares, without the consent of each
Subscriber holding Notes, Shares, Warrants, or Warrant Shares, then the Company
shall issue, for each such occasion, additional shares of Common Stock to each
Subscriber so that the average per share purchase price of the shares of Common
Stock issued to the Subscriber (of only the Common Stock or Warrant Shares still
owned by the Subscriber) is equal to such other lower effective price per share
and the Conversion Price and Warrant exercise price shall automatically be
adjusted as provided in the Notes and the Warrants. The average purchase price
of the Shares and average exercise price in relation to the Warrant Shares shall
be calculated separately for the Shares and Warrant Shares. The foregoing
calculation and issuance shall be made separately for Shares received upon
conversion and separately for Warrant Shares. The delivery to the Subscriber of
the additional shares of Common Stock shall be not later than the closing date
of the transaction giving rise to the requirement to issue additional shares of
Common Stock. The Subscriber is granted the registration rights described in
Section 11 hereof in relation to such additional shares of Common Stock except
that the Filing Date and Effective Date vis-a-vis such additional common shares
shall be, respectively, the thirtieth (30th) and sixtieth (60th) date after the
closing date giving rise to the requirement to issue the additional shares of
Common Stock. For purposes of the issuance and adjustment described in this
paragraph, the issuance of any security of the Company carrying the right to
convert such security into shares of Common Stock or of any warrant, right or
option to purchase Common Stock shall result in the issuance of the additional
shares of Common Stock upon the sooner of the agreement to or actual issuance of
such convertible security, warrant, right or option and again at any time upon
any subsequent issuances of shares of Common Stock upon exercise of such
conversion or purchase rights if such issuance is at a price lower than the
Conversion Price or Warrant exercise price in effect upon such issuance. The
rights of the Subscriber set forth in this Section 12 are in addition to any
other rights the Subscriber has pursuant to this Agreement, the Note, any
Transaction Document, and any other agreement referred to or entered into in
connection herewith.
(c) Paid In Kind. The Subscriber may demand that some or
all of the sums payable to the Subscriber pursuant to Sections 7.1(c), 7.2, 7.5,
11.4, 11.7(c), 11.7(d) and 11.7(e) that are not paid within ten business days of
the required payment date be paid in shares of Common Stock valued at the
Conversion Price in effect at the time Subscriber makes such demand. In addition
to any other rights granted to the Subscriber herein, the Subscriber is also
granted the registration rights set forth in Section 11.1(ii) hereof in relation
to the aforedescribed shares of Common Stock.
(d) Maximum Exercise of Rights. In the event the
exercise of the rights described in Sections 12(a), 12(b) and 12(c) would result
in the issuance of an amount of Common Stock of the Company that would exceed
the maximum amount that may be issued to a Subscriber calculated in the manner
described in Section 7.3 of this Agreement, then the issuance of such additional
shares of Common Stock of the Company to such Subscriber will be deferred in
whole or in part until such time as such Subscriber is able to beneficially own
such Common Stock without exceeding the maximum amount set forth calculated in
25
the manner described in Section 7.3 of this Agreement. The determination of when
such Common Stock may be issued shall be made by each Subscriber as to only such
Subscriber.
13. Miscellaneous.
(a) Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be: (i) if to the Company, to: Universal Communication
Systems, Inc., 407 Lincoln Road, Suite 12F, Miami Beach, FL 33139, Attn: Michael
J. Zwebner, CEO, telecopier: (305) 672-1965, with a copy by telecopier only to:
Torys LLP, 466 Lexington Avenue, New York, NY 10017, Attn: Andrew J. Beck, Esq.,
telecopier: (212) 682-0200, and (ii) if to the Subscriber, to: the one or more
addresses and telecopier numbers indicated on the signature pages hereto, with
an additional copy by telecopier only to: Grushko & Mittman, P.C., 551 Fifth
Avenue, Suite 1601, New York, New York 10176, telecopier number: (212) 697-3575,
and (iii) if to the Broker, to: the address and telecopier number set forth on
SCHEDULE 8 hereto.
(b) Entire Agreement; Assignment. This Agreement and
other documents delivered in connection herewith represent the entire agreement
between the parties hereto with respect to the subject matter hereof and may be
amended only by a writing executed by both parties. Neither the Company nor the
Subscribers have relied on any representations not contained or referred to in
this Agreement and the documents delivered herewith. No right or obligation of
the Company shall be assigned without prior notice to and the written consent of
the Subscribers.
(c) Counterparts/Execution. This Agreement may be
executed in any number of counterparts and by the different signatories hereto
on separate counterparts, each of which, when so executed, shall be deemed an
original, but all such counterparts shall constitute but one and the same
instrument. This Agreement may be executed by facsimile signature and delivered
by facsimile transmission.
(d) Law Governing this Agreement. This Agreement shall
be governed by and construed in accordance with the laws of the State of New
York without regard to conflicts of laws principles that would result in the
application of the substantive laws of another jurisdiction. Any action brought
by either party against the other concerning the transactions contemplated by
this Agreement shall be brought only in the civil or state courts of New York or
in the federal courts located in New York County. THE PARTIES AND THE
INDIVIDUALS EXECUTING THIS AGREEMENT AND OTHER AGREEMENTS REFERRED TO HEREIN OR
DELIVERED IN CONNECTION HEREWITH ON BEHALF OF THE COMPANY AGREE TO SUBMIT TO THE
JURISDICTION OF SUCH COURTS AND WAIVE TRIAL BY JURY. The prevailing party shall
be entitled to recover from the other party its reasonable attorney's fees and
costs. In the event that any provision of this Agreement or any other agreement
delivered in connection herewith is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
26
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of any agreement.
(e) Specific Enforcement, Consent to Jurisdiction. To
the extent permitted by law, the Company and Subscriber acknowledge and agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to one or more preliminary and final injunctions to prevent or cure
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof, this being in addition to any other remedy to which
any of them may be entitled by law or equity. Subject to Section 13(d) hereof,
each of the Company, Subscriber and any signator hereto in his personal capacity
hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction in New York of
such court, that the suit, action or proceeding is brought in an inconvenient
forum or that the venue of the suit, action or proceeding is improper. Nothing
in this Section shall affect or limit any right to serve process in any other
manner permitted by law.
(f) Independent Nature of Subscribers. The Company
acknowledges that the obligations of each Subscriber under the Transaction
Documents are several and not joint with the obligations of any other
Subscriber, and no Subscriber shall be responsible in any way for the
performance of the obligations of any other Subscriber under the Transaction
Documents. The Company acknowledges that each Subscriber has represented that
the decision of each Subscriber to purchase Securities has been made by such
Subscriber independently of any other Subscriber and independently of any
information, materials, statements or opinions as to the business, affairs,
operations, assets, properties, liabilities, results of operations, condition
(financial or otherwise) or prospects of the Company which may have been made or
given by any other Subscriber or by any agent or employee of any other
Subscriber, and no Subscriber or any of its agents or employees shall have any
liability to any Subscriber (or any other person) relating to or arising from
any such information, materials, statements or opinions. The Company
acknowledges that nothing contained in any Transaction Document, and no action
taken by any Subscriber pursuant hereto or thereto (including, but not limited
to, the (i) inclusion of a Subscriber in the Registration Statement and (ii)
review by, and consent to, such Registration Statement by a Subscriber) shall be
deemed to constitute the Subscribers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the
Subscribers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. The
Company acknowledges that each Subscriber shall be entitled to independently
protect and enforce its rights, including without limitation, the rights arising
out of the Transaction Documents, and it shall not be necessary for any other
Subscriber to be joined as an additional party in any proceeding for such
purpose. The Company acknowledges that it has elected to provide all Subscribers
with the same terms and Transaction Documents for the convenience of the Company
and not because Company was required or requested to do so by the Subscribers.
The Company acknowledges that such procedure with respect to the Transaction
Documents in no way creates a presumption that the Subscribers are in any way
acting in concert or as a group with respect to the Transaction Documents or the
transactions contemplated thereby.
(g) Damages. In the event the Subscriber is entitled to
receive any liquidated damages pursuant to the Transactions, the Subscriber may
elect to receive the greater of actual damages or such liquidated damages.
(h) Consent. As used in the Agreement, "consent of the
Subscribers" or similar language means the consent of holders of not less than
75% of the total of the Shares issued and issuable upon conversion of
outstanding Notes owned by Subscribers on the date consent is requested.
27
(i) No consideration shall be offered or paid to any
person to amend or consent to a waiver or modification of any provision of the
Transaction Documents unless the same consideration is also offered and paid to
all the Subscribers and their permitted successors and assigns.
[THIS SPACE INTENTIONALLY LEFT BLANK]
28
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (A)
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
UNIVERSAL COMMUNICATION SYSTEMS, INC.
a Nevada corporation
By:_________________________________
Name: Michael J. Zwebner
Title: CEO
Dated: February ___, 2006
- ------------------------------------------------ ---------------------- -------------------- ------------------- ------------------
SUBSCRIBER NOTE PRINCIPAL AMOUNT PURCHASE PRICE CLASS A WARRANTS CLASS B WARRANTS
- ------------------------------------------------ ---------------------- -------------------- ------------------- ------------------
ALPHA CAPITAL AKTIENGESELLSCHAFT (Each Closing Date) (Each Closing Date) 15,060,250 15,060,250
Pradafant 7 $301,205.00 $250,000.00
9490 Furstentums
Vaduz, Lichtenstein
Fax: 011-42-32323196
- --------------------------------
(Signature)
By:
- ------------------------------------------------ ---------------------- -------------------- ------------------- ------------------
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (B)
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
UNIVERSAL COMMUNICATION SYSTEMS, INC.
a Nevada corporation
By:_________________________________
Name: Michael J. Zwebner
Title: CEO
Dated: February ___, 2006
- ------------------------------------------------ ---------------------- -------------------- ------------------- ------------------
SUBSCRIBER NOTE PRINCIPAL AMOUNT PURCHASE PRICE CLASS A WARRANTS CLASS B WARRANTS
- ------------------------------------------------ ---------------------- -------------------- ------------------- ------------------
BRISTOL INVESTMENT FUND, LTD. (Each Closing Date) (Each Closing Date) 24,096,400 24,096,400
Caledonian Fund Services Limited $481,928.00 $400,000.00
69 Dr. Roy's Drive
George Town, Grand Cayman
Cayman Islands
Fax: (310) 696-0334
- --------------------------------
(Signature)
By:
- ------------------------------------------------ ---------------------- -------------------- ------------------- ------------------
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (C)
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
UNIVERSAL COMMUNICATION SYSTEMS, INC.
a Nevada corporation
By:_________________________________
Name: Michael J. Zwebner
Title: CEO
Dated: February ___, 2006
- ------------------------------------------------ ---------------------- -------------------- ------------------- ------------------
SUBSCRIBER NOTE PRINCIPAL AMOUNT PURCHASE PRICE CLASS A WARRANTS CLASS B WARRANTS
- ------------------------------------------------ ---------------------- -------------------- ------------------- ------------------
MONTGOMERY EQUITY PARTNERS (Each Closing Date) (Each Closing Date) 36,144,600 36,144,600
$722,892.00 $600,000.00
- --------------------------------
(Signature)
By:
- ------------------------------------------------ ---------------------- -------------------- ------------------- ------------------
LIST OF EXHIBITS AND SCHEDULES
Exhibit A Form of Note
Exhibit B Form of Class A and Class B Warrant
Exhibit C Escrow Agreement
Exhibit D Form of Security Agreement
Exhibit E Form of Guaranty
Exhibit F Form of Collateral Agent Agreement
Exhibit G Form of Legal Opinion
Exhibit H Form of Form 8-K or Public Announcement
Schedule 5(d) Additional Issuances / Capitalization
Schedule 5(f) Violations or Conflicts
Schedule 5(h) Litigation
Schedule 5(q) Undisclosed Liabilities
Schedule 5(x) Subsidiaries
Schedule 5(v) Transfer Agent
Schedule 8 Broker
Schedule 9(e) Use of Proceeds
Schedule 11.1 Other Registrable Securities
SCHEDULE 5(D)
As of January 27, 2006 the Company had 315,042,257 shares of Common
Stock outstanding. A description of the Company's capitalization, including all
warrants, options and convertible securities, is contained in its Form 10-KSB
for the fiscal year ended September 30, 2005.
SCHEDULE 5(F)
The transactions contemplated by this Agreement may trigger
anti-dilution rights in the Company's outstanding preferred stock and 6% and 10%
convertible debentures and associated warrants. The filing of the Registration
Statement may trigger piggyback registration rights of the holders of such
securities.
SCHEDULE 5(H)
A description of litigation involving the Company is contained in its
Form 10-KSB for the fiscal year ended September 30, 2005.
SCHEDULE 5(Q)
None
SCHEDULE 5(V)
Nevada Agency & Trust Company
50 West Liberty Street, Suite 880
Reno, Nevada 89501
Tel.: 775-322-0626
Fax: 775-322-5623
Attention: Mary J. Ramsey / Amanda Cardinelli
e-mail: mary@natco.org
SCHEDULE 5(X)
Atmospheric Water Technology, Inc. is not in good standing in Texas
SCHEDULE 8
BROKERS
[TO BE COMPLETED]