EXHIBIT 10.4
STRATIVATION, INC.
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT ("Subscription Agreement") made as of this 7 day
of March, 2007, by and among Strativation, Inc., a Delaware corporation ("PUBCO"
or the "COMPANY"), CNS Response, Inc., a California corporation, a wholly owned
subsidiary of the Company ("CNSR") and the undersigned (the "SUBSCRIBER").
WHEREAS, the Company, the Company's wholly-owned subsidiary, CNSR
Merger Corporation, and CNSR are parties to a certain Agreement and Plan of
Merger dated as of January 16, 2007, as amended (the "MERGER AGREEMENT"),
pursuant to which a newly organized, wholly owned subsidiary of the Company will
merge with and into CNSR, CNSR will become a wholly owned subsidiary of the
Company, and the existing CNSR stockholders will obtain majority ownership and
control of the Company (the "MERGER"). On the date on which the Merger becomes
effective (the "INITIAL CLOSING DATE"), the Company will change its name to CNS
Response, Inc. and will assume, through CNSR, its business and operations.
WHEREAS, as a condition to the closing of the Merger, the Company
intends to obtain subscriptions for the purchase and sale, in a private
placement transaction (the "OFFERING") pursuant to Regulation D promulgated
under the Securities Act of 1933, as amended (the "ACT"), of Units (the "Units")
consisting of (i) one (1) share of the Company's common stock, par value $.001
per share ("COMMON STOCK"), and (ii) three-tenths (3/10) of a five (5) year
warrant to purchase one (1) share of the Company's Common Stock at an initial
exercise price of $1.80 per share (the "WARRANTS" and the Common Stock issuable
upon the exercise of the Warrants the "WARRANT SHARES"), on the terms and
conditions hereinafter set forth, and the Subscriber desires to acquire that
number of Units set forth on the signature page hereof.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants hereinafter set forth, the parties hereto do hereby agree as follows:
1. PURCHASE AND SALE OF THE SECURITIES.
1.1 The Company hereby agrees to issue and to sell to Subscriber, and
Subscriber hereby agrees to purchase from the Company, a number of Units for the
aggregate subscription amount set forth on the signature page hereto. Upon
acceptance of this Subscription Agreement by the Company, the Company shall
issue and deliver to Subscriber Common Stock and Warrant certificates evidencing
the Securities underlying the Units subscribed for against payment in U.S.
Dollars of the Purchase Price (as defined below), reflecting a price of $1.20
per Unit.
1.2 The subscription period will begin as of January 16, 2007 and will
terminate at 5:00 PM Eastern Standard Time on the later of (a) March 15, 2007,
and (b) if the Initial Closing occurs on or prior to March 15, 2007, the date
that is forty-five (45) calendar days after the Initial Closing Date (the
"TERMINATION DATE"), unless extended by the Company. The Units will be offered
on a "best efforts" basis as more particularly set forth in the Amended and
Restated Confidential Private Placement Memorandum dated February 2007 and any
supplements thereto (the "OFFERING MEMORANDUM").
1.3 Placement of Units will be made by Xxxxx Xxxxxx, Carret & Co. (the
"PLACEMENT AGENT"), who will receive certain compensation therefor as provided
in its Engagement Agreement, which is more fully described in the Offering
Memorandum.
1.4 Subscriber understands and acknowledges that this subscription is
part of a proposed placement by the Company of a minimum of $7,005,000 of Units
(the "MINIMUM OFFERING AMOUNT"). Subscriber understands that payments hereunder
as to the Offering will be held in an escrow account established by the Company
pursuant to an escrow agreement (the "ESCROW AGREEMENT") by and among the
Placement Agent, CNSR, the Company and Signature Bank as escrow agent (the
"ESCROW AGENT"), and shall, to the extent received prior to the Initial Closing
Date, be paid over to the Company at the closing of the purchase of the Minimum
Offering Amount in the Offering (the "INITIAL CLOSING") to occur on the Initial
Closing Date (as described in the Memorandum). If the Minimum Offering Amount is
not obtained by the Termination Date or any extended period, the funds held
therein will be returned to the subscribers without interest or deduction.
1.5 The minimum dollar amount of Units that may be purchased by the
Subscriber is $27,000 unless CNSR and PubCo waive the requirement. The
consummation of the Offering is subject to the satisfaction of a number of
conditions, as further described in the Offering Memorandum, one or more of
which conditions may not occur.
1.6 Subscriber has delivered and paid concurrently herewith the
purchase price (the "PURCHASE Price") set forth on the signature page hereof
required to purchase the Units subscribed for hereunder which amount has been
paid in U.S. Dollars by wire transfer or check, subject to collection, to the
order of "Signature Bank, Strativation, Inc. Escrow Account."
1.7 The certificates for the Common Stock together with the
accompanying Warrants bearing the name of the Subscriber will be delivered by
the Company no later than fifteen (15) days following the Closing Date. The
Subscriber hereby authorizes and directs the Company to deliver the securities
to be issued to such Subscriber pursuant to this Subscription Agreement to the
residential or business address indicated in the Investor Questionnaire.
1.8 The Company and/or CNSR may, in their sole discretion, reject any
subscription, in whole or in part, or terminate or withdraw the Offering in its
entirety at any time prior to a closing in relation thereto. Neither the Company
nor the Placement Agent shall be required to allocate among investors on a pro
rata basis in the event of an over-subscription.
2. REPRESENTATIONS AND COVENANTS OF SUBSCRIBER
2.1 The Subscriber recognizes that the purchase of Units involves a
high degree of risk in that (i) the Company will need additional capital but has
no assurance of additional necessary capital; (ii) an investment in the Company
is highly speculative and only investors who can afford the loss of their entire
investment should consider investing in the Company and the Units; (iii) an
investor may not be able to liquidate his investment; (iv) transferability of
the securities comprising the Units is extremely limited; (v) an investor could
sustain the loss of his entire investment; and (vi) the Company is and will be
subject to numerous other risks and uncertainties, including without limitation,
significant and material risks relating to the Company's business and the
business and operations of CNSR, and the industries and markets in which the
Company will compete, as well as risks associated with the Offering, the Merger
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and the other transactions contemplated herein, in the Offering Memorandum and
in the Merger Agreement, all as more fully set forth herein and in the Offering
Memorandum. For the avoidance of doubt, all references to the Company in this
Section 2.1 include the Company's business and operations after it acquires the
business and operations of CNSR through the Merger.
2.2 The Subscriber represents that he, she or it is an "accredited
investor" as such term is defined in Rule 501 of Regulation D promulgated under
the Act, as indicated by his responses to the Investor Questionnaire, the form
of which is attached hereto as EXHIBIT A, and that he, she or it is able to bear
the economic risk of an investment in the Units. The Subscriber must complete
the Investor Questionnaire to enable the Company and CNSR to access the
Subscriber's eligibility for the Offering.
2.3 The Subscriber acknowledges that he, she or it has prior investment
experience, including without limitation, investment in non-listed and
non-registered securities, or he, she or it has employed the services of an
investment advisor, attorney or accountant to read all of the documents
furnished or made available by the Company or CNSR both to him, her or it and to
all other prospective investors in the Units and to evaluate the merits and
risks of such an investment on his behalf, and that he, she or it recognizes the
highly speculative nature of this investment.
2.4 The Subscriber acknowledges receipt and careful review of the
Offering Memorandum, this Subscription Agreement, the form of Warrant and the
attachments hereto and thereto (collectively, the "OFFERING DOCUMENTS") and
hereby represents that he, she or it has been furnished or given access by the
Company or CNSR during the course of this Offering with or to all information
regarding the Company and CNSR and their respective financial conditions and
results of operations which he, she or it had requested or desired to know; that
all documents which could be reasonably provided have been made available for
his inspection and review; that he, she or it has been afforded the opportunity
to ask questions of and receive answers from duly authorized representatives of
the Company and CNSR concerning the terms and conditions of the Offering, and
any additional information which he, she or it had requested. The Subscriber
further represents and acknowledges that the Subscriber has not seen or received
any advertisement or general solicitation with respect to the sale of any of the
securities of the Company, including, without limitation, the Units.
2.5 The Subscriber acknowledges that this Offering of Units may involve
tax consequences, and that the contents of the Offering Documents do not contain
tax advice or information. The Subscriber acknowledges that he, she or it must
retain his own professional advisors to evaluate the tax and other consequences
of an investment in the Units.
2.6 The Subscriber acknowledges that this Offering of Units has not
been reviewed or approved by the United States Securities and Exchange
Commission ("SEC") because the Offering is intended to be a nonpublic offering
pursuant to Section 4(2) of the Act. The Subscriber represents that the Units
are being purchased for his own account, for investment and not for distribution
or resale to others. The Subscriber agrees that he, she or it will not sell or
otherwise transfer any of the securities comprising the Units unless they are
registered under the Act or unless an exemption from such registration is
available and, upon the Company's request, the Company receives an opinion of
counsel reasonably satisfactory to the Company confirming that an exemption from
such registration is available for such sale or transfer.
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2.7 The Subscriber understands that the Units have not been registered
under the Act by reason of a claimed exemption under the provisions of the Act
which depends, in part, upon his investment intention. The Subscriber realizes
that, in the view of the SEC, a purchase now with the intention to distribute
would represent a purchase with an intention inconsistent with his
representation to the Company, and the SEC might regard such a distribution as a
deferred sale to which such exemption is not available.
2.8 The Subscriber understands that Rule 144 (the "RULE") promulgated
under the Act requires, among other conditions, a one year holding period prior
to the resale (in limited amounts) of securities acquired in a non-public
offering, such as the Offering, without having to satisfy the registration
requirements under the Act. Except as specifically set forth in SECTION 4.10
hereof, the Subscriber understands that the Company makes no representation or
warranty regarding its fulfillment in the future of any reporting requirements
under the Securities Exchange Act of 1934, as amended (the "EXCHANGE Act"), or
its dissemination to the public of any current financial or other information
concerning the Company, as is required by Rule 144 as one of the conditions of
its availability. The Subscriber consents that the Company may, if it desires,
permit the transfer of the Common Stock included in the Units or issuable upon
the exercise of the Warrants out of his name only when his request for transfer
is accompanied by an opinion of counsel reasonably satisfactory to the Company
that neither the sale nor the proposed transfer results in a violation of the
Act, any applicable state "blue sky" laws or any applicable securities laws of
any other country, province or jurisdiction (collectively, "SECURITIES Laws").
The Subscriber agrees to hold the Company, CNSR and their respective directors,
officers and controlling persons and their respective heirs, representatives,
successors and assigns harmless and to indemnify them against all liabilities,
costs and expenses incurred by them as a result of any misrepresentation made by
him, her or it contained herein or in the Investor Questionnaire or any sale or
distribution by the undersigned Subscriber in violation of any Securities Laws.
2.9 The Subscriber consents to the placement of one or more legends on
any certificate or other document evidencing his Units and the Common Stock or
Warrants included in the Units or issuable upon the exercise of the Warrants
stating that they have not been registered under the Act and are subject to the
terms of this Subscription Agreement, and setting forth or referring to the
restrictions on the transferability and sale thereof.
2.10 The Subscriber understands that the Company and CNSR will review
this Subscription Agreement and the Investor Questionnaire and, if the
Subscriber is a natural person, the Company and CNSR are hereby given authority
by the undersigned to call his bank or place of employment. The Subscriber
further authorizes the Company and CNSR to review the financial standing of the
Subscriber; and the Subscriber agrees that the Company and CNSR reserve the
unrestricted right to reject or limit any subscription and to close the offer at
any time.
2.11 The Subscriber hereby represents that the address of Subscriber
furnished by him, her or it at the end of this Subscription Agreement and in the
Investor Questionnaire is the undersigned's principal residence if he or she is
an individual or its principal business address if it is a corporation or other
entity.
2.12 The Subscriber acknowledges that if the Subscriber is a Registered
Representative of a National Association of Securities Dealers, Inc. ("NASD")
member firm, he, she or it must give such firm the notice required by the NASD
Conduct Rules, or any applicable successor rules of the NASD, receipt of which
must be acknowledged by such firm on the signature page
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hereof. The Subscriber shall also notify the Company if the Subscriber or any
affiliate of Subscriber is a registered broker-dealer with the SEC, in which
case the Subscriber represents that the Subscriber is purchasing the Units in
the ordinary course of business and, at the time of purchase of the Units, has
no agreements or understandings, directly or indirectly, with any person to
distribute the Units or any portion thereof.
2.13 The Subscriber hereby represents that, except as set forth in the
Offering Documents, no representations or warranties have been made to the
Subscriber by either the Company or CNSR or their agents, employees or
affiliates and in entering into this transaction, the Subscriber is not relying
on any information, other than that contained in the Offering Documents.
2.14 The Subscriber agrees that he, she or it will purchase securities
in the Offering only if his intent at such time is to make such purchase for
investment purposes and not with a view toward resale.
2.15 If the undersigned Subscriber is a partnership, corporation, trust
or other entity, such partnership, corporation, trust or other entity further
represents and warrants that: (i) it was not formed for the purpose of investing
in the Company; (ii) it is authorized and otherwise duly qualified to purchase
and hold the Units; and (iii) that this Subscription Agreement has been duly and
validly authorized, executed and delivered and constitutes the legal, binding
and enforceable obligation of the undersigned.
2.16 If the Subscriber is not a United States person, such Subscriber
hereby represents that it has satisfied itself as to the full observance of the
laws of its jurisdiction in connection with any invitation to subscribe for the
Units or any use of this Subscription Agreement, including (i) the legal
requirements within its jurisdiction for the purchase of the Units, (ii) any
foreign exchange restrictions applicable to such purchase, (iii) any
governmental or other consents that may need to be obtained, and (iv) the income
tax and other tax consequences, if any, that may be relevant to the purchase,
holding, redemption, sale or transfer of the Units. Such Subscriber's
subscription and payment for, and his or her continued beneficial ownership of
the Units and of the shares of Common Stock included therein or issuable upon
the exercise of the Warrants, will not violate any applicable securities or
other laws of the Subscriber's jurisdiction.
2.17 The undersigned hereby covenants and agrees that neither it nor
any of its affiliates has or will have an open position (e.g., short sale) in
the Common Stock or any Warrant Shares prior to the Registration Statement (as
defined below) being declared effective by the SEC with the intent of covering
such open position with Common Stock or Warrant Shares being registered in the
Registration Statement. The undersigned hereby acknowledges and understands that
the SEC has taken the position that such an open position would constitute a
violation of Section 5 of the Act.
2.18 The Subscriber acknowledges that (i) the Offering Memorandum
contains material, non-public information concerning the Company within the
meaning of Regulation FD promulgated by the SEC, and (ii) the Subscriber is
obtaining such material, non-public information solely for the purpose of
considering whether to purchase the Units pursuant to a private placement that
is exempt from registration under the Act. In accordance with Regulation FD and
other applicable provisions of the Securities Laws, the Subscriber agrees to
keep such information confidential and not to disclose it to any other person or
entity except the
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Subscriber's legal counsel, other advisors and other representatives who have
agreed (i) to keep such information confidential, (ii) to use such information
only for the purpose set forth above, and (iii) to comply with applicable
securities laws with respect to such information. In addition, the Subscriber
further acknowledges that the Subscriber and such legal counsel, other advisors
and other representatives are prohibited from trading in the Company's
securities while in possession of material, non-public information and agrees to
refrain from purchasing or selling securities of the Company until such
material, non-public information has been publicly disseminated by the Company.
The Subscriber agrees to indemnify and hold harmless the Company, CNSR and their
respective officers, directors, employees and affiliates and each other person,
if any, who controls any of the foregoing, against any loss, liability, claim,
damage and expense whatsoever (including, but not limited to, any and all
expenses whatsoever reasonably incurred in investigating, preparing or defending
against any litigation commenced or threatened or any claim whatsoever) arising
out of or based upon any false representation or warranty by the Subscriber, or
the Subscriber's breach of, or failure to comply with, any covenant or agreement
made by the Subscriber herein or in any other document furnished by the
Subscriber to the Company, CNSR or their respective officers, directors,
employees or affiliates or each other person, if any, who controls any of the
foregoing in connection with this transaction.
2.19 The Subscriber understands and acknowledges that (i) the Units are
being offered and sold to Subscriber without registration under the Act in a
private placement that is exempt from the registration provisions of the Act
under Section 4(2) of the Act and (ii) the availability of such exemption
depends in part on, and that the Company will rely upon the accuracy and
truthfulness of, the foregoing representations, and such Subscriber hereby
consents to such reliance.
3. REPRESENTATIONS BY THE COMPANY AND CNSR
Except as set forth in the reports filed by the Company pursuant to the
Securities Exchange Act of 1934, as amended (the "SEC REPORTS"), each of the
Company and, as applicable, CNSR, severally represent and warrant to the
Subscriber that:
3.1 ORGANIZATION AND AUTHORITY. The Company and CNSR, and each of their
respective subsidiaries, (i) is a corporation validly existing and in good
standing under the laws of the jurisdiction of its incorporation, (ii) has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as presently conducted, and (iii) has all requisite
corporate power and authority to execute, deliver and perform their obligations
under this Subscription Agreement and the Offering Documents being executed and
delivered by it in connection herewith, and to consummate the transactions
contemplated hereby and thereby.
3.2 QUALIFICATIONS. The Company and CNSR, and each of their respective
subsidiaries, is duly qualified to do business as a foreign corporation and is
in good standing in all jurisdictions where such qualification is necessary and
where failure so to qualify could have a material adverse effect on the
business, properties, operations, condition (financial or other), results of
operations or prospects of the Company and its subsidiaries (after the effective
time of the Merger), taken as a whole.
3.3 CAPITALIZATION OF THE COMPANY. Immediately after the effective time
of the Merger (but before the closing of this Offering), the authorized capital
stock of the Company will consist of 750,000,000 shares of Common Stock, $0.001
par value per share. Of the authorized capital stock of the Company, immediately
after the effective time of the Merger (but before the
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closing of this Offering), there will be outstanding 18,603,191 shares of Common
Stock. Except as a result of the purchase and sale of the Units as contemplated
in the Merger Agreement, or as disclosed in the SEC Reports or the Offering
Documents, there are no additional outstanding options, warrants, script rights
to subscribe to, calls or commitments of any character whatsoever relating to,
or securities, rights or obligations convertible into or exchangeable for, or
giving any person any right to subscribe for or acquire from the Company, any
shares of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any subsidiary is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock. Except as described in the Offering
Documents, the issuance and sale of the Units will not obligate the Company to
issue shares of Common Stock or other securities to any person (other than the
Subscribers) and will not result in a right of any holder of Company securities
to adjust the exercise, conversion, exchange or reset price under such
securities. The shares of the Company's capital stock outstanding immediately
after the effective time of the Merger (but before the closing of the Offering)
are or will be duly authorized and validly issued and are or will be fully paid
and nonassessable. None of the outstanding shares of Common Stock or options,
warrants, or rights or other securities entitling the holders to acquire Common
Stock has been issued in violation of the preemptive rights of any security
holder of the Company. No holder of any of the Company's securities has any
rights, "demand," "piggy-back" or otherwise, to have such securities registered
by reason of the intention to file, filing or effectiveness of the Registration
Statement (as defined below), except as contemplated by the Merger Agreement and
as described in the Offering Documents. The Common Stock and the Warrants to be
issued to the Subscriber have been duly authorized, and when issued and paid for
in accordance with this Subscription Agreement, the Common Stock will be duly
and validly issued, fully paid and non-assessable, and the Warrant Shares, when
issued upon exercise of the Warrants in exchange for the payment in full of the
exercise price for such Warrant Share therein specified, will be duly and
validly issued, fully paid and non-assessable. The Common Stock is eligible for
quotation on the NASD OTC Bulletin Board, the Company and the Common Stock meets
the criteria for continued quotation and trading on the OTC Bulletin Board, and
no suspension of trading in the Common Stock is in effect.
3.4 CORPORATE AUTHORIZATION. The Offering Documents have been duly and
validly authorized by the Company and CNSR. This Subscription Agreement,
assuming due execution and delivery by the Subscriber, and the Warrants, when
the Subscription Agreement and the Warrants are executed and delivered by the
Company, will be, valid and binding obligations of the Company, enforceable in
accordance with their respective terms, except as the enforceability hereof and
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and general principles of equity, regardless of
whether enforcement is considered in a proceeding in equity or at law.
3.5 NON-CONTRAVENTION. The execution and delivery of the Offering
Documents by the Company and CNSR, the issuance of the Units as contemplated by
the Offering Documents and the completion by the Company and CNSR of the other
transactions contemplated by the Offering Documents do not and will not, with or
without the giving of notice or the lapse of time, or both, (i) result in any
violation of any provision of the articles of incorporation or by-laws or
similar instruments of the Company or CNSR or their respective subsidiaries,
(ii) conflict with or result in a breach by CNSR or its subsidiaries of any of
the terms or provisions of, or constitute a
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default under, or result in the modification of, or result in the creation or
imposition of any lien, security interest, charge or encumbrance upon any of the
properties or assets of CNSR or its subsidiaries, pursuant to any agreements,
instruments or documents filed as exhibits to the SEC Reports or any indenture,
mortgage, deed of trust or other agreement or instrument to which CNSR or any of
its subsidiaries is a party or by which CNSR or any of its subsidiaries or any
of its properties or assets are bound or affected, in any such case which would
have a material adverse effect on the business, properties, operations,
condition (financial or other), results of operations or prospects of CNSR and
its subsidiaries, taken as a whole, or the validity or enforceability of, or the
ability of CNSR to perform their obligations under, the Offering Documents,
(iii) violate or contravene any applicable law, rule or regulation or any
applicable decree, judgment or order of any court, United States federal or
state regulatory body, administrative agency or other governmental body having
jurisdiction over CNSR or any of its subsidiaries or any of its properties or
assets that would have a material adverse effect on the business, properties,
operations, condition (financial or other), results of operations or prospects
of the CNSR and its subsidiaries (after the effective time of the Merger), taken
as a whole, or the validity or enforceability of, or the ability of the Company
or CNSR to perform its obligations under, the Offering Documents, or (iv) have
any material adverse effect on any permit, certification, registration,
approval, consent, license or franchise necessary for CNSR or its subsidiaries
(after the effective time of the Merger) to own or lease and operate any of its
properties and to conduct any of its business or the ability of CNSR or its
subsidiaries to make use thereof.
3.6 INFORMATION PROVIDED. The Company hereby represents and warrants to
the Subscriber that the information set forth in the Offering Memorandum, the
SEC Reports and any other document provided by the Company (or the Company's
authorized representatives) to the Subscriber in connection with the
transactions contemplated by this Subscription Agreement, does not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they are made, not misleading, it being understood that for purposes of
this Section 3.6, any statement contained in such information shall be deemed to
be modified or superseded for purposes of this Section 3.6 to the extent that a
statement in any document included in such information which was prepared and
furnished to the Subscriber on a later date or filed with the SEC on a later
date modifies or replaces such statement, whether or not such later prepared and
furnished or filed statement so states. CNSR hereby represents and warrants to
the Subscriber that the information set forth in the Offering Memorandum and any
other document provided by CNSR (or CNSR's authorized representatives) to the
Subscriber in connection with the transactions contemplated by this Subscription
Agreement, does not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not misleading.
3.7 ABSENCE OF CERTAIN PROCEEDINGS. CNSR is not aware of any action,
suit, proceeding, inquiry or investigation before or by any court, public board
or body, or governmental agency pending or threatened against or affecting CNSR
or any of its subsidiaries, in any such case wherein an unfavorable decision,
ruling or finding would have a material adverse effect on the business,
properties, operations, condition (financial or other), results of operations or
prospects of the Company or CNSR, or the transactions contemplated by the
Offering Documents or which could adversely affect the validity or
enforceability of, or the authority or ability of the Company or CNSR to perform
its obligations under, the Offering
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Documents; and to the Company's and CNSR's knowledge there is not pending or
contemplated any, and there has been no, investigation by the SEC involving CNSR
or any of its current or former directors or officers.
3.8 COMPLIANCE WITH LAW. Neither CNSR nor any of its subsidiaries is in
violation of or has any liability under any statute, law, rule, regulation,
ordinance, decision or order of any governmental agency or body or any court,
domestic or foreign, except where such violation or liability would not
individually or in the aggregate have a material adverse effect on the business,
properties, operations, condition (financial or other), results of operations or
prospects of CNSR or any of its subsidiaries (after the effective time of the
Merger), taken as a whole; and to the knowledge of CNSR there is no pending
investigation that would reasonably be expected to lead to such a claim.
3.9 TAX MATTERS. CNSR and its subsidiaries have filed all federal,
state and local income and franchise tax returns required to be filed and has
paid all taxes shown by such returns to be due, and no tax deficiency has been
determined adversely to CNSR or any of its subsidiaries which has had (nor does
CNSR or any of its subsidiaries have any knowledge of any tax deficiency which,
if determined adversely to CNSR or any of its subsidiaries, might have) a
material adverse effect on the business, properties, operations, condition
(financial or other), results of operations, or prospects of CNSR or any of its
subsidiaries (after the effective time of the Merger), taken as a whole.
4. REGISTRATION RIGHTS
Subscriber shall have the registration right set forth on Annex A
attached hereto.
5. MISCELLANEOUS
5.1 Any notice or other document required or permitted to be given or
delivered hereunder shall be in writing and sent (i) by fax if the sender on the
same day sends a confirming copy of such notice by a recognized overnight
delivery service (charges prepaid), or (b) by registered or certified mail with
return receipt requested (postage prepaid) or (c) by a recognized overnight
delivery service (with charges prepaid).
If to the Company or to CNS, at:
CNS Response, Inc.
0000 Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxx Xxxx, XX 00000
Attn: President
Tel: (000) 000-0000
Fax: (000) 000-0000
or such other address as it shall have specified to the Subscriber in
writing, with a copy (which shall not constitute notice) to:
Xxxxxx Xxxxxxxx & Markiles LLP
00000 Xxxxxxx Xxxx., 00xx Xxxxx
Xxxxxxx Xxxx, XX 00000
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Attn: Xxxxx Xxxxxxxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
If to the Subscriber, at its address set forth on the
signature page to this Subscription Agreement, or such other address as it shall
have specified to the Company in writing, with a copy (which shall not
constitute notice) to:
Xxxxx Xxxxxx, Carret & Co.
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxx Xxxxx
Tel: (000) 000-0000; Fax: (000) 000-0000
5.2 This Subscription Agreement may be amended through a written
instrument signed by the Subscriber, CNSR and the Company; provided, however,
that the terms of Section 4 of this Subscription Agreement may be amended
without the consent or approval of the Subscriber so long as such amendment
applies in the same fashion to the subscription agreements of all of the other
subscribers for Units in the Offering and at least holders of a majority of the
Units sold in the Offering have given their approval of such amendment, which
approval shall be binding on all holders of Units.
5.3 Notwithstanding the place where this Subscription Agreement may be
executed by any of the parties hereto, the parties expressly agree that all the
terms and provisions hereof shall be construed in accordance with and governed
by the laws of the State of Delaware.
5.4 This Subscription Agreement may be executed in counterparts. It
shall not be binding upon the Company and CNSR unless and until it is accepted
by the Company and CNSR. Upon the execution and delivery of this Subscription
Agreement by the Subscriber, this Subscription Agreement shall become a binding
obligation of the Subscriber with respect to the purchase of Units as herein
provided; subject, however, to the right hereby reserved to the Company to enter
into the same agreements with other subscribers and to add and/or to delete
other persons as subscribers.
5.5 The holding of any provision of this Subscription Agreement to be
invalid or unenforceable by a court of competent jurisdiction shall not affect
any other provision of this Subscription Agreement, which shall remain in full
force and effect.
5.6 It is agreed that a waiver by either party of a breach of any
provision of this Subscription Agreement shall not operate, or be construed, as
a waiver of any subsequent breach by that same party.
5.7 The parties agree to execute and deliver all such further
documents, agreements and instruments and take such other and further action as
may be necessary or appropriate to carry out the purposes and intent of this
Subscription Agreement.
5.8 The Company agrees not to disclose the names, addresses or any
other information about the Subscribers, except as required by law, provided
that the Company may provide information relating to the Subscriber as required
in any registration statement under the Act that may be filed by the Company
pursuant to the requirements of this Subscription Agreement.
10
5.9 The obligation of the Subscriber hereunder is several and not joint
with the obligations of any other subscribers for the purchase of Units in the
Offering (the "Other Subscribers"), and the Subscriber shall not be responsible
in any way for the performance of the obligations of any Other Subscribers.
Nothing contained herein or in any other agreement or document delivered at the
closing of the sale of the Units hereby, and no action taken by the Subscriber
pursuant hereto, shall be deemed to constitute the Subscriber and the Other
Subscribers as a partnership, an association, a joint venture or any other kind
of entity, or create a presumption that the Subscriber and the Other Subscribers
are in any way acting in concert with respect to such obligations or the
transactions contemplated by this Subscription Agreement. The Subscriber shall
be entitled to protect and enforce the Subscriber's rights, including without
limitation the rights arising out of this Subscription Agreement, and it shall
not be necessary for any Other Subscriber to be joined as an additional party in
any proceeding for such purpose. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party. The
Subscriber is not acting as part of a "group" (as that term is used in Section
13(d) of the 0000 Xxx) in negotiating and entering into this Subscription
Agreement or purchasing the Units or acquiring, disposing of or voting any of
the underlying shares of Common Stock or the Warrant Shares. The Company hereby
confirms that it understands and agrees that the Subscriber is not acting as
part of any such group.
[SIGNATURE PAGE FOLLOWS]
11
SIGNATURE PAGE FOR INDIVIDUALS:
IN WITNESS WHEREOF, Subscriber has caused this Subscription Agreement
to be executed as of the date indicated below.
___________________________ (multiple of 10)
Number of Units Subscribed For
$ __________________________ (at $1.20 per Unit)
Purchase Price
------------------------------------
Print or Type Name
------------------------------------
Signature
------------------------------------
Date
------------------------------------
Social Security Number
------------------------------------------------------------------------------
Address
Please check if applicable and include co-owner's information below (name,
address, social security number):
_______ Joint Tenancy ______ Tenants in Common
Co-Owner:
----------------------------------------------------
----------------------------------------------------
----------------------------------------------------
----------------------------------------------------
S-1
PARTNERSHIPS, CORPORATIONS OR OTHER ENTITIES:
IN WITNESS WHEREOF, Subscriber has caused this Subscription Agreement
to be executed as of the date indicated below.
___________________________ (multiple of 10)
Number of Units Subscribed For
$ __________________________(at $1.20 per Unit)
Purchase Price
------------------------------------
Print or Type Name of Entity
------------------------------------------------------------------------------
Address
------------------------------------ ------------------------------------
Taxpayer I.D. No. Date
------------------------------------ ------------------------------------
Signature Print or Type Name and Indicate
Title or Position with Entity
S-2
IN WITNESS WHEREOF, the Company and CNSR have caused this Subscription
Agreement to be executed, and the foregoing subscription accepted, as of the
date indicated below.
STRATIVATION, INC.
By: __________________________________
Name: Xxxxxxx X. Xxxxxx
Title: Chief Executive Officer and President
Date: _________________
CNS RESPONSE, INC.
By: __________________________________
Name: Xxxxxxx X. Xxxxxx
Title: Chief Executive Officer and President
Date: _________________
S-3
ANNEX A
(TO SUBSCRIPTION AGREEMENT)
REGISTRATION RIGHTS
Strativation, Inc. hereby grants to the Subscriber, as a Holder, the
following registration rights.
1. DEFINITIONS.
Capitalized terms used herein without definition shall have the
respective meanings given such terms as set forth in the Subscription Agreement
between Strativation, Inc., CNSR and the subscriber signatory thereto (the
"SUBSCRIPTION AGREEMENT") or in the Company's Amended and Restated Confidential
Private Placement Memorandum, dated as of February 2007 (as amended or
supplemented).
BUSINESS DAY: Any day other than a day on which banks are
authorized or required to be closed in the State of New York.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated
thereunder.
HOLDER OR HOLDERS: Any holder of the Registrable Securities.
PERSON: Any individual, corporation, partnership, joint
venture, association, joint -stock company, trust,
unincorporated organization or government or other agency or
political subdivision thereof.
PROSPECTUS: The prospectus included in any Registration
Statement (including, without limitation, a prospectus that
discloses information previously omitted from a prospectus
filed as part of an effective registration statement in
reliance upon Rule 430A promulgated under the Securities Act),
as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the
Registrable Securities covered by such Registration Statement,
and all other amendments and supplements to the prospectus,
including post-effective amendments, and all material
incorporated by reference or deemed to be incorporated by
reference in such prospectus.
REGISTRABLE SECURITIES: Each issued and outstanding share of
Common Stock (i) included in the Units, and (ii) issuable upon
exercise of the Warrants included in the Units, until such
time as such shares of Common Stock (a) have been sold
pursuant to, or are subject to, an effective registration
statement under the Act, (b) have been sold pursuant to Rule
144, or (b) may be sold without any time, volume or manner
limitations pursuant to section (k) of Rule 144.
1
RULE 144: Rule 144 promulgated by the Commission pursuant to
the Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the SEC having
substantially the same effect as such Rule.
REGISTRATION STATEMENT: Any registration statement of the
Company that covers any of the Registrable Securities pursuant
to the provisions of this Agreement, including the Prospectus,
amendments and supplements to such registration statements,
including post effective amendments, all exhibits, and all
material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
TRADING DAY: A day on whichever (a) the national securities
exchange, (b) the Nasdaq Stock Market, or (c) such other
securities market, in any such case which at the time
constitutes the principal securities market for the Common
Stock, is open for general trading of securities.
2. REGISTRATION RIGHTS.
(a) AUTOMATIC REGISTRATION. Within 45 days following the
Initial Closing Date (the "FILING Deadline"), the Company shall prepare
and file with the Commission a registration statement on Form SB-2 or
other appropriate registration document under the Act relating to the
resale by the Holders of the Registrable Securities held by all
Holders, and up to 767,103 additional shares of Common Stock held by
persons having similar registration rights (the "INITIAL REGISTRATION
SHARES"). The Company shall use commercially reasonable efforts to
ensure that such Registration Statement (the "INITIAL REGISTRATION
STATEMENT") is declared effective within 150 days of the Initial
Closing Date (the "EFFECTIVENESS DEADLINE"). The Company will agree to
take all actions as are necessary to keep the Initial Registration
Statement effective until the date on which all securities registered
thereunder may be sold without any restriction, under Rule 144 during
any 90-day period in accordance with all rules and regulations
regarding sales of securities pursuant to Rule 144 (the "EFFECTIVENESS
PERIOD"). If: (i) such Initial Registration Statement is not filed on
or prior to the Filing Deadline, (ii) such Initial Registration
Statement is not declared effective by the Commission (or otherwise
does not become effective) on or prior to its Effectiveness Deadline or
(iii) after its effective date, such Initial Registration Statement
ceases for any reason (including without limitation by reason of a stop
order, or the Company's failure to update the Registration Statement),
but excluding the inability of any Holder to sell the Registrable
Securities covered thereby due to market conditions, to remain
continuously effective and available to the Holders as to all
Registrable Securities to which it is required to cover at any time
prior to the date that is one year from the Initial Closing Date, for
an aggregate of more than 30 consecutive Trading Days or for more than
an aggregate of 60 Trading Days in any 12-month period (which need not
be consecutive), (any such failure or breach in clauses (i), (ii) or
(iii) above being referred to as an "EVENT," and, for purposes of
clauses (i) or (ii), the date on which such Event occurs, or for
purposes of clause (iii), the date which such 30 consecutive or 60
Trading Day period (as applicable) is exceeded, being referred to as
"EVENT DATE"), then in addition to any other rights available to the
Holders: on each monthly anniversary of each such Event Date thereof
(if the applicable Event
2
shall not have been cured by such date) until the earlier of the date
the applicable Event is cured and the one-year anniversary of the
Initial Closing Date, the Company shall pay to each Holder an amount in
cash, as liquidated damages and not as a penalty, equal to 1.0% of the
aggregate purchase price paid by such Holder pursuant to the Purchase
Agreement for the Registrable Securities then held by such Holder
(which remedy shall not be exclusive of any other remedies available
under this Agreement) (the "LIQUIDATED DAMAGES"). If the Company fails
to pay any partial liquidated damages pursuant to this Section in full
within ten (10) days after the date payable, the Company will pay
interest thereon at a rate of 8% per annum (or such lesser maximum
amount that is permitted to be paid by applicable law) to the Holder,
accruing daily from the date such partial Liquidated Damages are due
until such amounts, plus all such interest thereon, are paid in full.
The partial liquidated damages pursuant to the terms hereof shall apply
on a daily pro-rata basis for any portion of a month prior to the cure
of an Event. Notwithstanding the foregoing, the Liquidated Damages
payable to a Holder associated with all Events (i) shall not exceed in
any 30-day period, an aggregate of 1.0% of the purchase price paid by
such Holder for its Registrable Securities (plus interest accrued
thereon, if applicable) and (ii) shall not accrue after the one-year
anniversary of the Initial Closing Date. For the avoidance of doubt,
any right to receive such cash payment shall be Holder's sole and
exclusive remedy for the failure of the Company to satisfy its
obligations under this Section 2(a).
Notwithstanding anything above to the contrary, if, as a
consequence of receiving comments or objections from the SEC with
respect to the Initial Registration Statement filed pursuant to this
Section 2(a), the Company reasonably determines that, in order to use
Form SB-2 to register the Registrable Securities, the Company must
limit the number of shares of Common Stock being registered, then the
Company may, without penalty, exclude some of the Initial Registration
Shares, on a pro rata basis among all holders of such securities, from
such registration (the "EXCLUDED SECURITIES"). For the purpose of
clarity, the Company shall not be required to (i) register any Excluded
Securities (except as may be provided in Sections 2(b) and 2(c)
hereof), or (ii) pay any Liquidated Damages otherwise due under this
Section 2(a) with respect to any Excluded Securities.
(b) DEMAND REGISTRATION RIGHT. If the Company receives at
any time after the date that is twelve (12) months from the Initial
Closing Date, a written request (a "DEMAND REQUEST") from the holders
of a majority of the outstanding Registrable Securities issued and
outstanding at the time of such Demand Request (the "MAJORITY HOLDERS")
who hold not less than 275,000 Registrable Securities at the time of
such Demand Request, that the Company register any such Registrable
Securities, then the Company shall, within ten (10) days after receipt
of such Demand Request, give written notice of such request ("DEMAND
REQUEST NOTICE") to all Holders of Registrable Securities. Each Demand
Request Notice shall (x) specify the number of Registrable Securities
that the Majority Holders intend to sell or dispose of, (y) state the
intended method or methods of sale or disposition of such Registrable
Securities and, if applicable, (z) specify the expected price range
(net of underwriting discounts and commissions) acceptable to the
Majority Holders to be received for such Registrable Securities. Unless
the Registration Statement covers an underwritten offering, the Company
will agree to
3
take all actions as are necessary to keep any Registration Statement
filed pursuant to this Section 2(b) effective until the date on which
all Registrable Securities thereunder may be sold without any
restriction, under Rule 144 during any 90-day period in accordance with
all rules and regulations regarding sales of securities pursuant to
Rule 144. Each Holder shall respond promptly and accurately to
Company's request at reasonable intervals regarding the amount of
Registrable Securities and any other securities of the Company then
held by such Subscriber or Holder.
The Company shall file, no later than forty-five (45) days
following receipt of a Demand Request (the "DEMAND FILING DATE"), a
Registration Statement (the "DEMAND REGISTRATION STATEMENT") covering
such Registrable Securities which the Company has been so requested to
register by the Majority Holders and any other holders of Registrable
Securities who request, within fifteen (15) days of the mailing of the
Demand Request Notice, that the Company register their Registrable
Securities, providing for the registration under the Securities Act of
such Registrable Securities to the extent necessary to permit the
disposition of such Securities in accordance with the intended method
of distribution specified in such Demand Request, and use its
commercially reasonable efforts to have such Demand Registration
Statement declared effective by the SEC within one hundred fifty (150)
days after the Demand Filing Date. If a registration pursuant to this
Section 2(b) involves an underwritten public offering, any Holder
requesting to be included in such registration may elect, in writing
prior to the effective date of the Registration Statement filed in
connection with such registration, not to register such securities in
connection with such registration.
The Company may delay making a filing of a Demand Registration
Statement in connection with a Demand Request or taking action in
connection therewith by not more than ninety (90) days if the Company
provides a written certificate signed by the Chief Executive Officer
and Chief Financial Officer of the Company to the Holders, prior to the
time it would otherwise have been required to file such Demand
Registration Statement or take such action pursuant to this SECTION
4.2, stating that the Board has determined in good faith that the
filing of such Demand Registration Statement would be seriously
detrimental to the Company or would otherwise materially adversely
affect a financing, acquisition, disposition, merger or other material
transaction (collectively, a "VALID BUSINESS REASON") and that it is
therefore essential to defer the filing of the Demand Registration
Statement; provided, however, that such right to delay a Demand Request
shall be exercised by the Company not more than once in any twelve
(12)-month period and the Company shall only have the right to delay a
Demand Request so long as such Valid Business Reason exists, and during
such time, the Company may not file a registration statement for
securities to be issued and sold for its own account or for that of
anyone other than the Holders.
The Company shall only be obligated to effect one (1) Demand
Request pursuant to this SECTION 4.2.
The Majority Holders shall have the right to cancel a proposed
registration of Registrable Securities pursuant to this Section 2(b)
when the request for cancellation is
4
based upon material adverse information relating to the Company that is
different from the information known to the Majority Holders at the
time of the Demand Request. Such cancellation of a registration shall
be made in writing and shall not be counted as a Demand Request.
(c) PIGGYBACK REGISTRATION. If, at any time after the
date that is six (6) months from the Initial Closing Date, the Company
proposes to register any of its securities under the Securities Act for
sale to the public for its own account or for the account of other
security holders (except with respect to the Initial Registration
Statement, or registration statements on Forms S-4 or S-8 or another
form not available for registering the Registrable Securities for sale
to the public), each such time it will give written notice thereof to
Holders of its intention so to do (such notice to be given at least
fifteen (15) days prior to the filing thereof). Upon the written
request of any such Holder (which request shall specify the number of
Registrable Securities intended to be disposed of by such Holder and
the intended method of disposition thereof), received by the Company
within ten (10) days after giving of any such notice by the Company, to
register any of such Holder's Registrable Securities, the Company will
use its commercially reasonable efforts to cause the Registrable
Securities as to which registration shall have been so requested to be
included in the securities to be covered by the Registration Statement
proposed to be filed by the Company, all to the extent requisite to
permit the sale or other disposition by the Holder (in accordance with
its written request) of such Registrable Securities so registered
("PIGGYBACK REGISTRATION RIGHTS"); PROVIDED, that if, at any time after
giving written notice of its intention to register any securities
pursuant to this Section 2(c) and prior to the effective date of the
Registration Statement filed in connection with such registration, the
Company shall determine for any reason not to register such securities,
the Company shall give written notice to all Holders and, thereupon,
shall be relieved of its obligation to register any Registrable
Securities in connection with such registration. If a registration
pursuant to this Section 2(c) involves an underwritten public offering,
any Holder requesting to be included in such registration may elect, in
writing prior to the effective date of the registration statement filed
in connection with such registration, not to register such securities
in connection with such registration. The foregoing provisions
notwithstanding, the Company may withdraw any registration statement
referred to in this Section 2(c) without thereby incurring any
liability to the Holders.
3. UNDERWRITING. If a Registration Statement is for a registered
public offering involving an underwriting, the Company shall so advise the
Holder(s) in writing or as a part of the written notice given pursuant to
Section 2(b) or 2(c), as applicable. In such event the right of any Holder to
registration pursuant to Section 2(b) and/or 2(c) shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and any other stockholders of the Company
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company or selling stockholders, as
applicable. Notwithstanding any other provision of this Section 3, if the
underwriter or the Company determines that marketing
5
factors require a limitation of the number of shares to be underwritten, the
underwriter may exclude some or all Registrable Securities from such
registration and underwriting. The Company shall so advise all Holders (except
those Holders who failed to timely elect to distribute their Registrable
Securities through such underwriting or have indicated to the Company their
decision not to do so), and the number of shares of Registrable Securities that
may be included in the registration and underwriting, if any, shall be allocated
among such Holders as follows:
(a) In the event of a registration that is initiated by
the exercise of demand registration rights by the Majority Holders,
then the number of shares that may be included in the registration and
underwriting shall be allocated on a pro rata basis according to the
number of shares requested to be included by all Holders;
(b) In the event of a registration that is initiated by
the Company, the number of shares that may be included in the
registration and underwriting shall be allocated first to the Company
and then, subject to obligations and commitments existing as of the
date hereof, to all selling stockholders, including the Holder(s), who
have requested to sell in the registration on a pro rata basis
according to the number of shares requested to be included; and
(c) In the event of a registration that is initiated by
the exercise of demand registration rights by a stockholder or
stockholders of the Company (other than the Holder(s)), then the number
of shares that may be included in the registration and underwriting
shall be allocated first to such selling stockholders who exercised
such demand and then, subject to obligations and commitments existing
as of the date hereof, to all other selling stockholders, including the
Holder(s), who have requested to sell in the registration, on a pro
rata basis according to the number of shares requested to be included.
No Registrable Securities excluded from the underwriting by reason of
the underwriter's marketing limitation shall be included in such registration.
If any Holder disapproves of the terms of any such underwriting, such Holder may
elect to withdraw therefrom by written notice to the Company and the
underwriter. The Registrable Securities and/or other securities so withdrawn
from such underwriting shall also be withdrawn from such registration; PROVIDED,
HOWEVER, that, if by the withdrawal of such Registrable Securities a greater
number of Registrable Securities held by other Holders may be included in such
registration (up to the maximum of any limitation imposed by the underwriters),
then the Company shall offer to all Holders who have included Registrable
Securities in the registration the right to include additional Registrable
Securities pursuant to the terms and limitations set forth herein in the same
proportion used above in determining the underwriter limitation.
4. REGISTRATION PROCEDURES.
In connection with the registration obligations of the Company
pursuant to the terms and conditions of this Agreement, the Company shall:
6
(a) Prepare and file with the SEC such amendments and
supplements to all Registration Statements and each related Prospectus
as may be necessary to comply with the provisions of the Act with
respect to the disposition of securities covered by such Registration
Statements;
(b) Respond as promptly as reasonably practicable to any
comments received from the SEC with respect to a Registration Statement
or any amendment thereto.
(c) Notify the Holders as promptly as reasonably
practicable and (if requested by any such person) confirm such notice
in writing no later than one trading day following the day (A) when a
Prospectus or any Prospectus supplement or post-effective amendment to
a Registration Statement is proposed to be filed and (B) with respect
to a Registration Statement or any post-effective amendment, when the
same has become effective;
(d) Furnish such number of Prospectuses and other
documents incident thereto, including supplements and amendments, as
the Holder may reasonably request;
(e) Furnish to the Holder, upon request, a copy of all
documents filed with and all correspondence from or to the SEC in
connection with any such registration statement other than
non-substantive cover letters and the like;
(f) Use its reasonable best efforts to avoid the issuance
of, or, if issued, obtain the withdrawal of (i) any order suspending
the effectiveness of a registration statement, or (ii) any suspension
of the qualification (or exemption from qualification) of any of the
Registrable Securities for sale in any jurisdiction, at the earliest
practicable moment; and
(g) Use its reasonable best efforts to comply with all
applicable rules and regulations of the SEC.
Notwithstanding the foregoing, if at any time or from time to time after the
date hereof, the Company notifies a Holder whose shares are registered on a
Registration Statement (a "SELLING HOLDER") in writing of the existence of an
event or circumstance that is not disclosed in such Registration Statement and
that may have a material effect on the Company or its business (a "POTENTIAL
MATERIAL Event"), the Selling Holder shall not offer or sell any Registrable
Securities, or engage in any other transaction involving or relating to the
Registrable Securities, from the time of the giving of notice with respect to a
Potential Material Event until the Company notifies the Selling Holder that such
Potential Material Event either has been added to the Registration Statement by
amendment or supplement or no longer constitutes a Potential Material Event;
PROVIDED, that the Company may not so suspend the right of a Selling Holder for
more than One-Hundred Twenty (120) days during any twelve (12) month period.
5. REGISTRATION EXPENSES.
(a) All expenses incident to the Company's performance
of, or compliance with, the provisions hereof, including without
limitation, all Commission and securities exchange or NASD registration
and filing fees, fees and expenses of compliance with securities or
"blue sky" laws (including fees and disbursements of counsel in
connection
7
with "blue sky" qualifications of the Registrable Securities), printing
expenses, messenger and delivery expenses, internal expenses
(including, without limitation, all salaries and expenses of the
Company's officers and employees performing legal or accounting
duties), fees and expenses incurred in connection with the listing of
the securities to be registered, if any, on each securities exchange on
which similar securities issued by the Company are then listed, fees
and disbursements of counsel for the Company and its independent
certified public accountants (including the expense of any special
audit or "cold comfort" letters required by, or incident to, such
performance), Securities Act liability insurance (if the Company elects
to obtain such insurance), reasonable fees and expenses of any special
experts retained by the Company in connection with such registration,
fees and expenses of other Persons retained by the Company in
connection with each registration hereunder (but not including the fees
and expense of legal counsel retained by a Holder or Holders, or any
underwriting fees, discounts or commissions attributable to the sale of
Registrable Securities) are herein called "Registration Expenses."
(b) The Company will pay all Registration Expenses in
connection with each Registration Statement filed pursuant to Section 2
except as otherwise set forth therein. Other than as specifically
provided for in Section 2(a) hereto, all expenses to be borne by the
Holders in connection with any Registration Statement filed pursuant to
Section 2 (including, without limitation, all underwriting fees,
discounts or commissions attributable to such sale of Registrable
Securities) shall be borne by the participating Holders pro rata in
relation to the number of Units of Registrable Securities to be
registered by each Holder.
6. INDEMNIFICATION; CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless, to the full extent permitted by law, each
Holder, its officers, directors and each Person who controls such
Holder (within the meaning of the Securities Act), and any agent or
investment adviser thereof, against all losses, claims, damages,
liabilities and expenses (including reasonable attorneys' fees and
costs of investigation) arising out of or based upon any untrue or
alleged untrue statement of material fact contained in any Registration
Statement, any amendment or supplement thereto, any Prospectus or
preliminary Prospectus or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, except insofar as the same
arise out of or are based upon any such untrue statement or omission
based upon information with respect to such Holder furnished in writing
to the Company by or on behalf of such Holder expressly for use
therein; PROVIDED that, in the event that the Prospectus shall have
been amended or supplemented and copies thereof as so amended or
supplemented, shall have been furnished to a Holder prior to the
confirmation of any sales of Registrable Securities, such indemnity
with respect to the Prospectus shall not inure to the benefit of such
Holder if the Person asserting such loss, claim, damage or liability
and who purchased the Registrable Securities from such holder did not,
at or prior to the confirmation of the sale of the Registrable
Securities to such Person, receive a copy of the Prospectus as so
amended or supplemented and the untrue statement or omission of a
material fact contained in the Prospectus was corrected in the
Prospectus as so amended or supplemented.
8
(b) INDEMNIFICATION BY HOLDERS OF REGISTRABLE SECURITIES.
In connection with any Registration Statement in which a Holder is
participating, each such Holder will furnish to the Company in writing
such information with respect to the name and address of such Holder
and such other information as may be reasonably required for use in
connection with any such Registration Statement or Prospectus and
agrees to indemnity, to the full extent permitted by law, the Company,
its directors and officers and each Person who controls the Company
(within the meaning of the Securities Act) against any losses, claims,
damages, liabilities and expenses resulting from any untrue statement
of a material fact in the Registration Statement or Prospectus or any
amendment thereof or supplement thereto or necessary to make the
statements therein not misleading, to the extent, but only to the
extent, that such untrue or alleged untrue statement relates to any
information with respect to such Holder so furnished in writing by such
Holder specifically for inclusion in any Prospectus or Registration
Statement; PROVIDED, HOWEVER, that such Holder shall not be liable in
any such case to the extent that prior to the filing of any such
Registration Statement or Prospectus or amendment thereof or supplement
thereto, such Holder has furnished in writing to the Company
information expressly for use in such Registration Statement or
Prospectus or any amendment thereof or supplement thereto which
corrected or made not misleading information previously furnished to
the Company. In no event shall the liability of any Selling Holder
hereunder be greater in amount than the dollar amount of the net
proceeds received by such Selling Holder upon the sale of the
Registrable Securities, sold under such Registration Statement or
Prospectus as contemplated herein, giving rise to such indemnification
obligation.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person
entitled to indemnification hereunder agrees to give prompt written
notice to the indemnifying party after the receipt by such Person of
any written notice of the commencement of any action, suit, proceeding
or investigation or threat thereof made in writing for which such
Person will claim indemnification or contribution pursuant to the
provisions hereof and, unless in the judgment of counsel of such
indemnified party a conflict of interest may exist between such
indemnified party and the indemnifying party with respect to such
claim, permit the indemnifying party to assume the defense of such
claim. Whether or not such defense is assumed by the indemnifying
party, the indemnifying party will not be subject to any liability for
any settlement made without its consent (but such consent will not be
unreasonably withheld). No indemnifying party will consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to
such indemnified party of a release from all liability in respect of
such claim or litigation. If the indemnifying party is not entitled to,
or elects not to, assume the defense of a claim, it will not be
obligated to pay the fees and expenses of more than one counsel (plus
such local counsel, if any, as may be reasonably required in other
jurisdictions) with respect to such claim, unless in the judgment of
any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with
respect to such claim, in which event the indemnifying party shall be
obligated to pay the fees and expenses of such additional counsel or
counsels. For the purposes of this Section 5(c), the term "conflict of
interest" shall mean that there are one or more legal defenses
available to the indemnified party that are different from or
additional to those available to the indemnifying party or such other
indemnified parties, as applicable, which different or additional
defenses make joint representation inappropriate.
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(d) CONTRIBUTION. If the indemnification from the
indemnifying party provided for in this Section 5 is unavailable to an
indemnified party hereunder in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then the indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute
to the amount paid or payable by such indemnified party as a result of
such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the
indemnifying party and indemnified parties in connection with the
actions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The
relative fault of such indemnifying party and indemnified parties shall
be determined by reference to, among other things, whether any action
in question, including any untrue or alleged untrue statement of a
material fact, has been made by, or relates to information supplied by,
such indemnifying party or indemnified parties, and the parties intent,
knowledge, access to information and opportunity to correct or prevent
such action. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above
shall be deemed to include, subject to the limitations set forth in
Section 5(c), any reasonable legal or other fees or expenses reasonably
incurred by such party in connection with any investigation or
proceeding. No Person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) If indemnification is available under this Section 5,
the indemnifying parties shall indemnity each indemnified party to the
full extent provided in Sections 5(a) and (b) without regard to the
relative fault of said indemnifying party or indemnified party or any
other equitable consideration provided for in this Section 5.
7. LIMITATION TO REGISTRATION REQUIREMENT. Notwithstanding
anything else herein to the contrary, the Company shall not be obligated to
effect any registration of the Registrable Securities or take any other action
(i) in any particular jurisdiction in which the Company would be required to
execute a general consent to service of process in effecting such registration,
qualification or compliance unless the Company is already subject to service in
such jurisdiction and except as may be required by the Securities Exchange Act,
or (ii) during any period in which the Company suspends the rights of a
subscriber after giving the Subscriber written notification of a Material Event.
8. TRANSFER OF RIGHTS.
The rights to cause the Company to register Registrable
Securities granted pursuant to the provisions hereof may be transferred or
assigned by any Holder to a transferee or assignee; PROVIDED; HOWEVER, that the
transferee or assignee of such rights assumes the obligations of such transferor
or assignor, as the case may be, hereunder.
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9. INFORMATION BY HOLDER.
The Holder or Holders of Registrable Securities included in
any Registration Statement shall furnish to the Company such information
regarding such Holder or Holders and the distribution of securities by such
Holder or Holders as the Company may request in writing.
10. COMPLIANCE.
Holder covenants and agrees that such Holder will comply with
the prospectus delivery requirements of the Act as applicable to such Holder in
connection with sales of Registrable Securities pursuant to the Registration
Statements required hereunder.
11. AMENDMENT
Except as otherwise provided herein, the provisions hereof may
not be amended, modified or supplemented, and waivers or consents to departures
from the provisions hereof may not be given unless the Company has obtained the
written consent of Holders of at least a majority of the aggregate number of the
Registrable Securities then outstanding.
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