EXHIBIT 4.12 FORM OF SUBSCRIPTION AGREEMENT FOR DEBENTURE
Equity Growth Systems, inc.
Accredited Investor Subscription Agreement
THE SECURITIES REFERRED TO IN THIS OFFERING MEMORANDUM WILL BE SOLD TO,
AND ACQUIRED BY, THE HOLDER IN A TRANSACTION EXEMPT UNDER SECTION 517.061(11) OF
THE FLORIDA SECURITIES ACT. THE SECURITIES HAVE NOT BEEN REGIS TERED UNDER SAID
ACT IN THE STATE OF FLORIDA, IN ADDITION, ALL FLORIDA RESI DENTS SHALL HAVE THE
PRIVILEGE OF VOIDING THE PURCHASE WITHIN THREE (3) DAYS AFTER THE FIRST TENDER
OF CONSIDERATION IS MADE BY SUCH PURCHASER TO THE IS SUER, AN AGENT OF THE
ISSUER, OR AN ESCROW AGENT OR WITHIN 3 DAYS AFTER THE AVAILABILITY OF THAT
PRIVILEGE IS COMMUNICATED TO SUCH PURCHASER, WHICHEVER OCCURS LATER.
THE CLASS A, SERIES A, CONVERTIBLE, SUBORDINATED DEBENTURES WILL NOT BE
SUBJECT TO THE PROTECTIVE FEATURES OF THE TRUST INDENTURE ACT OF 1939, AS
AMENDED (THE "INDENTURE ACT") PERTAINING TO REQUIRED USE OF AN APPROVED FORM OF
TRUST INDENTURE AND THE EMPLOYMENT OF AN INDEPENDENT TRUSTEE TO PROTECT THE
INTERESTS OF THE DEBENTURE HOLDERS, PURSUANT TO EXEMPTIVE PROVISIONS OF SECTIONS
304(A)(8) AND 304(B) OF THE INDENTURE ACT AND RULE 4a-1 ADOPTED THEREUNDER (REG.
SECTION 260.4a-1). CONSEQUENTLY, ALL OF THE TERMS OF THE CLASS A, SERIES A,
CONVERTIBLE, SUBORDINATED DEBENTURES ARE CONTAINED IN THE DEBENTURE CERTIFICATE
AND EACH DEBENTURE HOLDER WILL BE REQUIRED TO MONITOR COMPLIANCE BY THE
REGISTRANT WITH ITS OBLIGATIONS THEREUNDER DIRECTLY AND TO TAKE ENFORCEMENT
ACTIONS INDIVIDUALLY.
THESE SECURITIES ARE OFFERED IN RELIANCE ON THE EXEMPTION FROM
REGISTRATION REQUIREMENTS IMPOSED BY THE SECURITIES ACT OF 1933, AS AMENDED,
PROVIDED BY SECTION 4(6) THEREOF.
TERMS:
1. General.
(a) (1) This Subscription is part of a limited subscription by accredited
investors, as that term is defined in Rule 501 of Securities and Exchange
Commission (the "Commission") Regulation D promulgated under authority of
the Securities Act of 1933, as amended ("Rule 501", "Regulation D" and the
"Act", respectively) for the acquisition of an aggregate of up to $110,000
in principal of Class A, Series A, convertible, subordinated debentures of
Equity Growth Systems, inc., a publicly held Delaware corporation with a
class of securities currently registered under Section 12 of the Securities
Exchange Act of 1934, as amended, in the form annexed hereto and made a
part hereof as exhibit 1(a)(1) (the "Registrant" and the "Debentures").
(2) The hereinafter described subscriber is an "accredited investor" as
that term is defined in Rule 501 of Regulation D.
240
(3) The issuance of the Debentures is to be effected pursuant to
the exemptive provisions of Section 4(6) of the Act, providing
for the issuance of securities solely to accredited investors
and Sections 304(a)(8) and 304(b) of the Trust Indenture Act
of 1939, as amended (the "Indenture Act").
(4) The Registrant will, immediately following closing on the
first subscription accepted in this limited offering, file a
Form D with the Securities and Exchange Commission, as
required to permit the contemplated subscription.
(b) (1) Current information concerning the Registrant is contained
on the SEC's EDGAR web site on the Internet, including
certified financial statements for the period ended December
31, 1998, and unaudited quarterly updates thereto for the
period ended March 31, 1999, all of which is hereby
incorporated by reference herein (the "34 Act Reports").
2. Annexed hereto and made a part hereof as exhibit 1(b)(2) is a
draft of a current report on Form 8-KSB (the "American
Internet 8-KSB")that the Registrant intends to file with the
Commission within fifteen days after it acquires the American
Internet Subsidiaries (as defined therein), the American
Internet 8-KSB being, for purposes of this Agreement, being
deemed one of the 34 Act Reports.
(c) (1) The proceeds of this limited offering are to be used to
comply with obligations of the Registrant to provide $100,000
in working and expansion capital in conjunction with closing
on the acquisition of American Internet Technical Center, Inc.
("American Internet"), as described in the Registrant's report
on Form 10-KSB for the year ended December 31, 1998, and for
working capital for the Registrant.
(2) The Registrant may elect to borrow funds required for the
purposes identified in Section 1(a)(1) and to repay such loans
using proceeds of this limited offering.
(3) (A) The Registrant's management is of the opinion
that the net proceeds from the offering ($110,000)
would be sufficient to permit the Registrant to close
on the acquisition of American Internet, but that it
will require substantial additional capital in order
to effect other acquisitions and to properly
capitalize American Internet, which it intends to
obtain through a private placement of up to
$2,000,000 in its securities following closing on the
American Internet transaction.
(2) No assurances can be provided that required capital will
be available in the future.
(4) (1) The Registrant may temporarily invest any unexpended
balances on hand in government securities,
certificates of deposit, money market funds.
241
(2) The Registrant intends to make such investments only
temporarily in order to avoid any requirement to
register the Registrant under the Investment Company
Act of 1940.
(3) Any income realized from investment of the net
proceeds of this limited offering will be general
revenues of the Registrant.
(5) The Registrant will provide reports on the actual use of
proceeds on a quarterly basis until all proceeds have been
expended, in its quarterly reports to the Commission on Form
10- QSB.
(d) Certain risks associated with this limited offering are disclosed in
exhibit 1(d) annexed hereto and made a part hereof (the "Material Risk
Factors") and prospective investors must carefully review such exhibit
prior to making an investment decision.
(5) The Registrant will not pay any commissions or grant of any discounts
in conjunction with this limited offering.
2. Subscription Consideration.
(a) The undersigned Accredited Subscriber hereby subscribes $_____________
in principal amount of the Debentures and will tender payment in full
therefor immediately following receipt of an executed copy of this
Agreement evincing acceptance of this subscription by the Registrant.
(b) Within 72 hours after receipt of payment for the Debentures, the
Registrant's transfer agent will issue and deliver to the Accredited
Subscriber, at the Registrant's expense, a certificate for the
Debentures.
3. Accredited Subscriber's Representations, Warranties and Covenants.
As a material inducement to the Registrant's consideration of the
Accredited Subscriber's offer to acquire Debenture(s), the Accredited Subscriber
represents, warrants and covenants to the Registrant, as follows:
(a) The Accredited Subscriber is familiar with the requirements for
treatment as an "accredited investor" under Regulation D and Section
4(6) of the Securities Act of 1933, as amended (the "Act") and meets
one or more of the definitions of an "accredited investor" contained in
Rule 501 promulgated under authority of the Act and has, alone or
together with his Offeree's Representative, if any, (as hereinafter
defined) such knowledge and experience in financial matters that the
Accredited Subscriber is capable of evaluating the relative risks and
merits of this subscription (the text of Rule 501 being set forth, in
full, in the Debentures);
242
(b) The Accredited Subscriber acknowledges that he, she or it has, based on
his, her or its own substantial experience, the ability to evaluate the
transactions contemplated hereby and the merits and risks thereof in
general and the suitability of the transaction for the Accredited
Subscriber in particular;
(c) (1) The Accredited Subscriber understands that the offer and
issuance of the Debentures is being made in reliance on the
Accredited Investor's representation that he, she or it has
reviewed all of the Registrant's reports filed with the
Commission during the past 12 months and posted on the
Commission's Internet web site (www.sec.gov) and has become
familiar with the information disclosed therein, including
that contained in exhibits filed with such reports concerning
the proposed acquisition of American Internet.
(2) The Accredited Subscriber is fully aware of the material risks
associated with becoming an investor in the Registrant and
confirms that he, she or it was previously informed that all
documents, records and books pertaining to this investment
have been available from the Registrant and that all
documents, records and books pertaining to this transaction
requested by the Accredited Subscriber have been made
available to the Accredited Subscriber;
(d) The Accredited Subscriber has had an opportunity to ask questions of
and receive answers from the officers of the Registrant concerning:
(1) the terms and conditions of this Subscription Agreement and
the transactions contemplated hereby, as well as the affairs
of the Registrant and related matters; and
(2) any arrangements or proposed arrangements of the Registrant
relating to any of its Debentures Holders that are not
identical to those relating to all of its Debentures Holders;
(e) The Accredited Subscriber has had an opportunity to obtain additional
information necessary to verify the accuracy of the information
referred to in subparagraphs (a), (b), (c) and (d) hereof, as well as
to supplement the information in the 34 Act Reports, as called for by
Florida Rule 3E-500.005.
(f) The Accredited Subscriber has provided the Registrant with the personal
and business financial information concerning himself which he, she or
it agrees demonstrates the Accredited Subscriber's general ability to
bear the risks of the subject transaction and suitability as a
subscriber in a private offering and the Accredited Subscriber hereby
affirms the correctness of such information;
(g) The Accredited Subscriber acknowledges and is aware that:
243
(1) The Debentures are a speculative investment with no assurance
that the Registrant will be successful, or if successful, that
such success will result in payments to the Accredited
Subscriber or to realization of capital gains by the
Accredited Subscriber on disposition of the Debentures or the
shares of common stock issuable upon conversion thereof; and
(2) The Debentures being subscribed for and the shares of common
stock into which they are convertible have not been registered
under the Securities Act or under any state securities laws,
accordingly the Accredited Subscriber may have to hold such
Debentures or common stock and may not be able to liquidate,
pledge, hypothecate, assign or transfer them;
(h) The Accredited Subscriber has obtained its own oral opinion from his,
her or its legal counsel to the effect that after an examination of the
transactions associated herewith and the applicable law, no action
needs to be taken by either the Accredited Subscriber or the Registrant
in conjunction with this Subscription and the issuance of the
Debentures in conjunction therewith, other than such actions that have
already been taken in order to comply with the securities law
requirements of the Accredited Subscriber's state of domicile; and
(i) (1) The Debentures and the shares of common stock into which they
may be converted will bear restrictive legends and the
Registrant's transfer agent will be instructed not to transfer
the subject securities unless they have been registered
pursuant to Section 5 of the Securities Act of 1933, as
amended, or an opinion of counsel satisfactory to legal
counsel to the Registrant and the Registrant's president has
been provided, to the effect that the proposed transaction is
exempt from registration requirements imposed by the
Securities Act of 1933, as amended, the Securities Exchange
Act of 1934, as amended, and any applicable state or foreign
laws.
(2) The legend shall read as follows: "The securities represented
by this certificate were issued without registration under the
Securities Act of 1933, as amended, or comparable state laws
in reliance on the provisions of Section 4(6) of such act, and
comparable state law provisions. These securities may not be
transferred pledged or hypothecated unless they are first
registered under applicable federal, state or foreign laws, or
the transaction is demonstrated to be exempt from such
requirements to the Registrant's satisfaction."
4. Responsibility.
(a) The officers of the Registrant will endeavor to exercise their best
judgment in the conduct of all matters arising under this Subscription
Agreement; provided, however, that this provision shall not enlarge,
limit or otherwise affect the liability of the Registrant or its
officers.
(b) The Accredited Subscriber shall indemnify and hold harmless the
Registrant; any corporation or entity affiliated with the Registrant;
the officers, directors and employees of any of the foregoing;
244
or any professional adviser thereto, from and against any and all loss,
damage, liability or expense, including costs and reasonable attorney's
fees at trial or on appeal, to which said entities and persons may be
subject or which said entities and persons incur by reason of or in
connection with any misrepresentation made by the Accredited
Subscriber, any breach of any of the Accredited Subscriber's warranties
or the Accredited Subscriber's failure to fulfill any of the covenants
or agreements under this Subscription Agreement.
5. Survival of Representations, Warranties and Agreements.
The representations, warranties, covenants and agreements contained
herein shall survive the delivery of and the payment for the Debentures being
subscribed for.
6. Notices.
Any and all notices, designations, consents, offers, acceptances or any
other communication provided for herein shall be given in writing by registered
or certified mail which shall be addressed in the case of the Registrant to
Equity Growth Systems, inc.; 8001 DeSoto Woods Drive; Sarasota, Florida 34243;
and, in the case of the Accredited Subscriber, to the address set forth at the
end of this Agreement, or to the address appearing on the books of the
Registrant or to such other address as may be designated by the Accredited
Subscriber or the Registrant in writing.
Accredited Subscriber Information
Please Print the following Information
Accredited Subscriber's Name: _____________________________________
Accredited Subscriber's Authorized Signatory: * _______________________________
Accredited Subscriber's Address: _____________________________________
Accredited Subscriber's Telephone Number: _____________________________________
Accredited Subscriber's Tax ** Number: _____________________________________
- - ------
* If applicable (e.g., if the Subscriber is a corporation, partnership,
joint venture, etc.)
** FEIN or Social Security number
7. Miscellaneous.
(a) This Agreement shall be governed by, construed and enforced in
accordance within the laws of the State of Delaware, both substantive,
procedural (except for choice of law provisions) and remedial.
(b) The section headings contained herein are for reference purposes only
and shall not in any way affect the meaning or interpretation of this
Agreement.
245
(c) This Agreement shall be binding on and shall inure to the benefit of
the Parties and their respective successors, assigns, executors and
administrators, but this Agreement and the respective rights and
obligations of the Parties hereunder shall not be assumable by any
Party hereto without the prior written consent of the other.
(d) This Agreement represents the entire understanding and agreement
between the Parties hereto with respect to the subject matter hereof;
and cannot be amended, supplemented or modified except by an instrument
in writing signed by the Party against whom enforcement of any such
amendment, supplement or modification is sought.
(e) The failure of any provision of this Agreement shall in no manner
affect the right to enforce the other provisions of same, and the
waiver of any Party of any breach of any provision of this Agreement
shall not be construed to be a waiver by such Party of any succeeding
breach of such provision or waiver by such Party of any breach of any
provision.
IN WITNESS WHEREOF, I have executed this Agreement on behalf of the
Accredited Subscriber this ___ day of June, 1999.
Accredited Subscriber
------------------------------------------.
(Print or Type Name)
By: _________________________________
(Signature)
Subscription Accepted:
Equity Growth Systems, inc. Dated: June ___, 1999.
By: _______________________
Charles J. Scimeca
President
Attest: _______________________
G. Richard Chamberlin, Esquire
Secretary & General Counsel
246
Exhibit Index
Exhibit Description
1(a)(1) Form of the Debentures
1(b)(2) The American Internet 8-KSB
1(d) Material Risk Factors
3(f) Investment Letter
Exhibit 1(a)(1)
Form of the Debentures
Provided in independent form separate from this Agreement, but the
receipt thereof is hereby acknowledged by the Accredited Subscriber:
Dated: June ___, 1999
---------------------------
Accredited Subscriber's Signature
Exhibit 1(b)(2)
The American Internet 8-KSB
Provided in independent form separate from this Agreement, but the
receipt thereof is hereby acknowledged by the Accredited Subscriber:
Dated: June ___, 1999
---------------------------
Accredited Subscriber's Signature
Exhibit 1(d)
RISK FACTORS
General Warning
The securities offered hereby are speculative and prospective investors
should be aware that they will be subject to a number of material risks,
including the risk factors described below. Accordingly, only persons who
qualify as accredited investors and can afford to lose their entire investment
without a materially adverse impact on their standard of living and financial
security participate in this limited offering. Prospective investors should
carefully consider the following risk factors relating to the Registrant, the
industries in which it operates, general economic factors and the offering
together with the other information and financial data available concerning the
Registrant, its history and its activities which is available through the
Securities and Exchange Commission's (the "Commission") EDGAR system, available
at the Commission's Internet web site (www.sec.gov).
247
Risks Associated with the Registrant
Development Stage Company
The Registrant recently divested itself of all assets and operations in
order to posture itself to make a complete change in its business strategies, as
a result of which it was reclassified, for accounting purposes, as a development
stage company. The Registrant has entered into an agreement (the "Reorganization
Agreement") to acquire 90% of the capital stock of American Internet Technical
Centers, Inc., a Nevada corporation ("AI Nevada"), which owns 100% of the
capital stock of American Internet Technical Center, Inc., a Florida corporation
("AI Florida;" AI Nevada and AI Florida being collectively hereinafter referred
to as the "Subsidiary") and $100,000 from the proceeds of this limited offering
will be invested by the Registrant in the Subsidiary immediately following
closing on such acquisition. However, it is possible that due to unforseen
circumstances, closing on the Reorganization Agreement will not take place and
the Registrant will remain a publicly held corporation without material business
operations.
Dependence on Future Financing
The Registrant's anticipates that it will raise all or a substantial
portion of the financing required for the Subsidiary and other unrelated
acquisitions through a private placement which the Registrant expects to
undertake during 1999. However, there are no assurances that the Registrant will
succeed in effecting such private placement on favorable terms, if at all, or
that the Registrant will be able to raise sufficient capital from such
undertaking. Even if the Registrant successfully concludes the proposed private
placement, there are no assurances that the Registrant will be able to use those
proceeds to generate new favorable acquisitions or to materially improve the
business and business prospects of any businesses acquired, including the
Subsidiary.
Risks Associated with the Debentures
Arbitrary Conversion Price
The Registrant's management determined the conversion price of the
Debentures unilaterally, based upon management's good faith belief as to the
reasonable minimum value of the Registrant's restricted securities after the
acquisition of the American Internet subsidiaries; however, the conversion price
is not based on the Registrant's assets, book value, or earnings or any other
tangible or objectively verifiable criteria. Accordingly, the conversion price
should not be considered an indication of the actual fair market value of the
Registrant's common stock as if appraised by a disinterested party.
248
Subordination
The Debentures are not secured and instead, are specifically made
subordinate to any other obligations that the Registrant identifies as "Senior
Indebtedness." Consequently, in the event of liquidation of the Registrant, the
Debentures could possibly rank behind all of the Registrant's creditors and
ahead of only the Registrant's common stock. Subordination is essential to the
Registrant and the American Internet subsidiaries because they hope that its
will permit them to obtain debt or line of credit financing to expand their
operations and fund new acquisitions. If successful, such activities would make
it more likely that the terms of the Debentures would be fully complied with.
However, if not successful, subordination will greatly reduce the assets
available for liquidation in the event of a default.
Lack of Protection under Trust Indenture Act of 1939
The Trust Indenture Act of 1939, as amended (the "Indenture Act")
protects holders of public debt by requiring the use of an approved form of
indenture governing the rights and obligations of the parties, and the use of a
trustee to act for the creditors. Because of the small amount of debt involved
and the restricted nature of the Debenture offering, it is subject to exemptions
from the indenture and trustee requirements of the Indenture Act.
No Assurances of a Public Market for Debentures
There is no public market for the Registrant's Debentures nor is one
expected to develop because they have not been registered with the Commission or
the securities regulatory authorities of any state; rather, they are being
issued in reliance on the exemption from registration under the Securities Act
provided by Section 4(6) thereof pertaining to sales solely to "accredited
investors," as that term is defined in Commission Rule 501 of regulation D.
Consequently, it may be difficult or impossible for the holders of the
Debentures to sell pledge, hypothecate or sell them should they desire to do so.
In addition, there are substantial restrictions on the sale or transfer of the
Debentures imposed by federal and state securities laws.
Risks Associated with the Registrant's Common Stock
In the event that the Debentures are converted into common stock, the
holder will be subject to all the risks inherent in investments in common stock
and those that pertain to investments in equity securities of less mature public
companies, including legal impediments to liquidity resulting from "penny stock"
rules as described in Item __, of the Registrant's report on Form 10-KSB for the
year ended December 31, 1998). Such risks include:
(6) Dividends will be paid only when declared by the Registrant's board of
directors out of funds legally available therefore. The Registrant's
Board of Directors will determine future dividend policy based upon the
Registrant's results of operations, financial condition, capital
requirements, and other circumstances. The Registrant currently does
not contemplate paying dividends on the
249
common stock in the foreseeable future since it intends to use all its
earnings, if any, to finance expansion, acquisition, and marketing
campaigns.
(7) Currently, the Registrant's officers and directors beneficially own
approximately __% of the Registrant's outstanding common stock and, if
all of the Debentures are converted into common stock, will continue to
beneficially own approximately ___% of the Registrant's outstanding
common stock. When added to the outstanding shares beneficially owned
by the Registrant's control group (its consultants, officers and
directors, the officers and directors of its subsidiaries (including
the shares to be issued for the American Internet Subsidiaries), and
their affiliates, collectively hereinafter referred to as the "Control
Group"), the Registrant's Control Group beneficially will own _____% of
the Registrant's outstanding common stock. Based on such ownership, the
Control Group will be in a position to totally control all aspects of
the Registrant's operations, including election of directors, selection
of auditors, approval of charter amendments and benefit plans, etc.
Risks Associated with the American Internet Subsidiaries
The information called for hereby is incorporated by reference from
"Item 2, Risk factors" as contained in the draft of the report on Form 8-KSB
prepared by the Registrant for filing with the Securities and Exchange
Commission within 15 days after closing on the acquisition of the American
Internet Subsidiaries, a copy of which is included as exhibit 1(b)(2) to the
Accredited Investor Subscription Agreement.
Exhibit 3(f)
FORM OF INVESTMENT LETTER
Date:
Charles J. Scimeca
President
Equity Growth Systems, inc.
8001 DeSoto Woods Drive
Sarasota, Florida 34243
Re.: Debentures Subscription
Dear Sir:
I hereby certify and warrant that I am acquiring $_______________ in
principal amount of Class A, Series A, Convertible, Subordinated, Debentures of
Equity Growth Systems, inc. (the "Registrant" and the "Debentures,"
respectively). I hereby certify under penalty of perjury that upon receipt of
the Debentures, I will be acquiring them for my own account for investment
purposes without any intention of selling or distributing all or any part
thereof. I represent and warrant that I qualify as an accredited investor (as
that term is defined in rule 501 of Regulation D promulgated under authority of
the Securities Act of 1933, as amended) and that I am sophisticated in financial
affairs, or have relied on the advice of someone sophisticated in financial
affairs, and I able to bear the economic risks of this investment and I do not
have any reason to anticipate any change in my circumstances, financial or
otherwise, nor any other particular occasion or event which should cause me to
sell or distribute, or necessitate or require my sale or distribution of the
Debentures. No one other than me has any beneficial interest in the Debentures.
250
I further certify that I have consulted with my own legal counsel who,
after having been apprized by me of all the material facts surrounding this
transaction, opined to me, for the benefit of the Registrant, that this
transaction was being effected in full compliance with the applicable securities
laws of my state of domicile.
I agree that I will in no event sell or distribute any of the
Debentures or the shares of common stock into which they are convertible unless
in the opinion of your counsel (based on an opinion of my legal counsel) the
Debentures or common stock may be legally sold without registration under the
Securities Act of 1933, as amended, and/or registration and/or other
qualification under then-applicable State and/or Federal statutes, or the
Debentures or common stock shall have been so registered and/or qualified and an
appropriate prospectus, shall then be in effect.
I am fully aware that the Debentures are being offered and sold by the
Registrant to me in reliance on the exemption provided by Section 4(6) or the
Securities Act of 1933, as amended, which exempts the sale of securities by an
issuer solely to accredited investors and on my certifications and warranties.
In connection with the foregoing, I consent to your legending my
certificates representing the Debentures to indicate my investment intent and
the restriction on transfer contemplated hereby and to your placing a "stop
transfer" order against the Debentures in the Registrant's securities transfer
books until the conditions set forth herein shall have been met.
I acknowledge by my execution hereof that I have had access to your
books, records and properties, and have inspected the same to my full and
complete satisfaction prior to my acquisition of the Debentures. I represent and
warrant that because of my experience in business and investments, I am
competent to make an informed investment decision with respect thereto on the
basis of my inspection of your records and my questioning of your officers.
I further certify that my domicile is located at the following address:
Accredited Subscriber's Name: _____________________________________
Accredited Subscriber's Address: _______________________________________
------------------------------------
Very truly yours,
Accredited Subscriber
251