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EXHIBIT 10.35
SUBSCRIPTION AGREEMENT
Dear Subscriber:
You (the "Subscriber") hereby agree to purchase, and iBIZ Technology
Corp., a Florida corporation (the "Company") hereby agrees to issue and to sell
to the Subscriber, 8% Convertible Notes (the "Notes") convertible in accordance
with the terms thereof into shares of the Company's $.001 par value common stock
(the "Company Shares") for the aggregate consideration as set forth on the
signature page hereof ("Purchase Price"). The form of Notes is annexed hereto as
Exhibit A. (The Company Shares included in the Securities (as hereinafter
defined) are sometimes referred to herein as the "Shares" or "Common Stock").
(The Notes, the Company Shares, Common Stock Purchase Warrants ("Warrants")
issuable to the recipients identified on Schedule B hereto, the Common Stock
issuable upon exercise of the Warrants, and the Put Securities (as herein
defined) are collectively referred to herein as, the "Securities"). Upon
acceptance of this Agreement by the Subscriber, the Company shall issue and
deliver to the Subscriber the Note against payment, by federal funds (U.S.) wire
transfer of the Purchase Price. The aggregate Purchase Price of Notes to be
issued to Subscribers purchasing Notes is One Million Dollars ($1,000,000). The
aggregate Put Note Purchase Price (as defined in Section 11.1(a) hereof) of Put
Notes to be issued to Subscribers purchasing Put Notes is Four Million Dollars
($4,000,000).
The following terms and conditions shall apply to this
subscription.
1. Subscriber's Representations and Warranties. The Subscriber
hereby represents and warrants to and agrees with the Company that:
(a) Information on Company. The Subscriber has been
furnished with the Company's Form 10-KSB for the year ended October 31, 1999 as
filed with the Securities and Exchange Commission (the "Commission") together
with all subsequently filed forms 10-QSB, and Forms SB-2 and amendments thereto
filed January 11, 2000, January 31, 2000, April 17, 2000, July 28, 2000 and
September 25, 2000 (hereinafter referred to as the "Reports"). In addition, the
Subscriber has received from the Company such other information concerning its
operations, financial condition and other matters as the Subscriber has
requested, and considered all factors the Subscriber deems material in deciding
on the advisability of investing in the Securities (such information in writing
is collectively, the "Other Written Information").
(b) Information on Subscriber. The Subscriber, and if
a partnership, limited liability company or any other "pass-through" entity, all
of the Subscriber's equity holders are "accredited investors", as such term is
defined in Regulation D promulgated by the Commission under the Securities Act
of 1933, as amended (the "1933 Act"), is experienced in investments and business
matters, has made investments of a speculative nature and has purchased
securities of United States publicly-owned companies in private placements in
the past and, with its representatives, has such knowledge and experience in
financial, tax and other business matters as to enable the Subscriber to utilize
the information made available by the Company to evaluate the merits and risks
of and to make an informed investment decision with respect to the proposed
purchase, which represents a speculative investment. The Subscriber has the
authority and is duly and legally qualified to purchase and own the Securities.
The Subscriber is able to bear the risk of such investment for an indefinite
period and to afford a complete loss thereof. The information set forth on the
signature page hereto regarding the Subscriber is accurate.
(c) Purchase of Note. On the Closing Date, the
Subscriber will purchase the Note for its own account and not with a view to any
distribution thereof.
(d) Compliance with Securities Act. The Subscriber
understands and agrees that the Securities have not been registered under the
1933 Act, by reason of their issuance in a transaction that does not require
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registration under the 1933 Act (based in part on the accuracy of the
representations and warranties of Subscriber contained herein), and that such
Securities must be held unless a subsequent disposition is registered under the
1933 Act or is exempt from such registration.
(e) Company Shares Legend. The Company Shares, and
the shares of Common Stock issuable upon the exercise of the Warrants, shall
bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THESE SHARES MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
SECURITIES ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO IBIZ TECHNOLOGY CORP. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(f) Warrants Legend. The Warrants shall bear the
following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO IBIZ TECHNOLOGY CORP. THAT SUCH REGISTRATION
IS NOT REQUIRED."
(g) Note Legend. The Note shall bear the following
legend:
"THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE
COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO IBIZ TECHNOLOGY CORP. THAT SUCH REGISTRATION IS NOT REQUIRED."
(h) Communication of Offer. The offer to sell the
Securities was directly communicated to the Subscriber. At no time was the
Subscriber presented with or solicited by any leaflet, newspaper or magazine
article, radio or television advertisement, or any other form of general
advertising or solicited or invited to attend a promotional meeting otherwise
than in connection and concurrently with such communicated offer.
(i) Correctness of Representations. The Subscriber
represents that the foregoing representations and warranties are true and
correct as of the date hereof and, unless the Subscriber otherwise notifies the
Company prior to the Closing Date (as hereinafter defined), shall be true and
correct as of the Closing Date. The foregoing representations and warranties
shall survive the Closing Date.
2. Company Representations and Warranties. The Company
represents and warrants to and agrees with the Subscriber that:
(a) Due Incorporation. The Company and each of its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the respective jurisdictions of their incorporation
and have the requisite corporate power to own their properties and to carry on
their business as now being conducted. The Company and each of its subsidiaries
is duly qualified as a foreign corporation to do business and is in good
standing in each jurisdiction where the nature of the business conducted or
property owned by it makes such qualification necessary, other than those
jurisdictions in which the failure to so qualify would not have a material
adverse effect on the business, operations or prospects or condition (financial
or otherwise) of the Company.
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(b) Outstanding Stock. All issued and outstanding
shares of capital stock of the Company and each of its subsidiaries has been
duly authorized and validly issued and are fully paid and non-assessable.
(c) Authority; Enforceability. This Agreement has
been duly authorized, executed and delivered by the Company and is a valid and
binding agreement enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity; and the Company has full
corporate power and authority necessary to enter into this Agreement and to
perform its obligations hereunder and all other agreements entered into by the
Company relating hereto.
(d) Additional Issuances. As of the Closing Date,
there will not be outstanding agreements or preemptive or similar rights
affecting the Company's common stock or equity and no outstanding rights,
warrants or options to acquire, or instruments convertible into or exchangeable
for, or agreements or understandings with respect to the sale or issuance of any
shares of common stock or equity of the Company or other equity interest in any
of the subsidiaries of the Company, except as described in the Reports or Other
Written Information.
(e) Consents. As of the Closing Date, no consent,
approval, authorization or order of any court, governmental agency or body or
arbitrator having jurisdiction over the Company, or any of its affiliates, the
NASD, NASDAQ or the Company's Shareholders will be required for execution of
this Agreement, and all other agreements entered into by the Company relating
thereto, including, without limitation issuance and sale of the Securities, and
the performance of the Company's obligations hereunder.
(f) No Violation or Conflict. Assuming the
representations and warranties of the Subscriber in Paragraph 1 are true and
correct and the Subscriber complies with its obligations under this Agreement,
neither the issuance and sale of the Securities nor the performance of its
obligations under this Agreement and all other agreements entered into by the
Company relating thereto by the Company will:
(i) violate, conflict with, result in a
breach of, or constitute a default (or an event which with the giving of notice
or the lapse of time or both would be reasonably likely to constitute a default)
under (A) the articles of incorporation, charter or bylaws of the Company or any
of its affiliates, (B) to the Company's knowledge, any decree, judgment, order,
law, treaty, rule, regulation or determination applicable to the Company or any
of its affiliates of any court, governmental agency or body, or arbitrator
having jurisdiction over the Company or any of its affiliates or over the
properties or assets of the Company or any of its affiliates, (C) the terms of
any bond, debenture, note or any other evidence of indebtedness, or any
agreement, stock option or other similar plan, indenture, lease, mortgage, deed
of trust or other instrument to which the Company or any of its affiliates is a
party, by which the Company or any of its affiliates is bound, or to which any
of the properties of the Company or any of its affiliates is subject, or (D) the
terms of any "lock-up" or similar provision of any underwriting or similar
agreement to which the Company, or any of its affiliates is a party; or
(ii) result in the creation or imposition of
any lien, charge or encumbrance upon the Securities or any of the assets of the
Company, or any of its affiliates.
(g) The Securities. The Securities upon issuance:
(i) are, or will be, free and clear of any
security interests, liens, claims or other encumbrances, subject to restrictions
upon transfer under the 1933 Act and State laws;
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(ii) have been, or will be, duly and validly
authorized and on the date of issuance and on the Closing Date, as hereinafter
defined, and the date the Note is converted, and the Warrants are exercised, the
Securities will be duly and validly issued, fully paid and nonassessable (and if
registered pursuant to the 1933 Act, and resold pursuant to an effective
registration statement will be free trading and unrestricted, provided that the
Subscriber complies with the Prospectus delivery requirements);
(iii) will not have been issued or sold in
violation of any preemptive or other similar rights of the holders of any
securities of the Company; and
(iv) will not subject the holders thereof to
personal liability by reason of being such holders.
(h) Litigation. There is no pending or, to the best
knowledge of the Company, threatened action, suit, proceeding or investigation
before any court, governmental agency or body, or arbitrator having jurisdiction
over the Company, or any of its affiliates that would affect the execution by
the Company or the performance by the Company of its obligations under this
Agreement, and all other agreements entered into by the Company relating hereto.
(i) Reporting Company. The Company is a publicly-held
company whose common stock is registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"). The Company's
common stock is trading on the NASD OTC Bulletin Board ("Bulletin Board").
Pursuant to the provisions of the 1934 Act, the Company has timely filed all
reports and other materials required to be filed thereunder with the Securities
and Exchange Commission during the preceding twelve months.
(j) No Market Manipulation. The Company has not
taken, and will not take, directly or indirectly, any action designed to, or
that might reasonably be expected to, cause or result in stabilization or
manipulation of the price of the common stock of the Company to facilitate the
sale or resale of the Securities or affect the price at which the Securities may
be issued.
(k) Information Concerning Company. The Reports and
Other Written Information contain all material information relating to the
Company and its operations and financial condition as of their respective dates
which information is required to be disclosed therein. Since the date of the
financial statements included in the Reports, and except as modified in the
Other Written Information, there has been no material adverse change in the
Company's business, financial condition or affairs not disclosed in the Reports.
The Reports and Other Written Information do not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading.
(l) Dilution. The number of Shares issuable upon
conversion of the Note may increase substantially in certain circumstances,
including, but not necessarily limited to, the circumstance wherein the trading
price of the Common Stock declines prior to conversion of the Note. The
Company's executive officers and directors have studied and fully understand the
nature of the Securities being sold hereby and recognize that they have a
potential dilutive effect. The board of directors of the Company has concluded,
in its good faith business judgment, that such issuance is in the best interests
of the Company. The Company specifically acknowledges that its obligation to
issue the Shares upon conversion of the Note and exercise of the Warrants is
binding upon the Company and enforceable, except as otherwise described in this
Subscription Agreement or the Note, regardless of the dilution such issuance may
have on the ownership interests of other shareholders of the Company.
(m) Stop Transfer. The Securities are restricted
securities as of the date of this Agreement. The Company will not issue any stop
transfer order or other order impeding the sale and delivery of the Securities,
except as may be required by federal securities laws.
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(n) Defaults. Neither the Company nor any of its
subsidiaries is in violation of its Articles of Incorporation or ByLaws. Neither
the Company nor any of its subsidiaries is (i) in default under or in violation
of any other material agreement or instrument to which it is a party or by which
it or any of its properties are bound or affected, which default or violation
would have a material adverse effect on the Company, (ii) in default with
respect to any order of any court, arbitrator or governmental body or subject to
or party to any order of any court or governmental authority arising out of any
action, suit or proceeding under any statute or other law respecting antitrust,
monopoly, restraint of trade, unfair competition or similar matters, or (iii) to
its knowledge in violation of any statute, rule or regulation of any
governmental authority which violation would have a material adverse effect on
the Company.
(o) No Integrated Offering. Except as described on
Schedule 2(o) hereto, neither the Company, nor any of its affiliates, nor any
person acting on its or their behalf, has directly or indirectly made any offers
or sales of any security or solicited any offers to buy any security under
circumstances that would cause the offering of the Securities pursuant to this
Agreement to be integrated with prior offerings by the Company for purposes of
the 1933 Act or any applicable stockholder approval provisions, including,
without limitation, under the rules and regulations of the Bulletin Board, as
applicable. Neither the Company nor any of its affiliates or subsidiaries will
take any action or steps that would cause the offering of the Securities to be
integrated with other offerings.
(p) No General Solicitation. Neither the Company, nor
any of its affiliates, nor to its knowledge, any person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the Act) in connection with the offer
or sale of the Securities.
(q) Listing. The Company's Common Stock is listed for
trading on the Bulletin Board and satisfies all requirements for the
continuation of such listing. The Company has not received any notice that its
common stock will be delisted from the Bulletin Board or that the Common Stock
does not meet all requirements for the continuation of such listing.
(r) No Undisclosed Liabilities. The Company has no
liabilities or obligations which are material, individually or in the aggregate,
which are not disclosed in the Reports and Other Written Information, other than
those incurred in the ordinary course of the Company's businesses since July 31,
2000 and which, individually or in the aggregate, would not reasonably be
expected to have a material adverse effect on the Company's financial condition.
(s) No Undisclosed Events or Circumstances. Since
July 31, 2000, no event or circumstance has occurred or exists with respect to
the Company or its businesses, properties, prospects, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure in the Reports prior to the date hereof by the Company but which has
not been disclosed in the Reports.
(t) Correctness of Representations. The Company
represents that the foregoing representations and warranties are true and
correct as of the date hereof in all material respects, will be true and correct
as of the Closing Date, and, unless the Company otherwise notifies the
Subscriber prior to the Closing Date, shall be true and correct in all material
respects as of the Closing Date. The foregoing representations and warranties
shall survive the Closing Date.
3. Regulation D Offering. This Offering is being made pursuant
to the exemption from the registration provisions of the Securities Act of 1933,
as amended, afforded by Rule 506 of Regulation D promulgated thereunder. On the
Closing Date, the Company will provide an opinion acceptable to Subscriber from
the Company's legal counsel opining on the availability of the Regulation D
exemption as it relates to the offer and issuance of the Securities. A form of
the legal opinion is annexed hereto as Exhibit C. The Company will provide, at
the Company's
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expense, such other legal opinions in the future as are reasonably necessary for
the conversion of the Note and exercise of the Warrants.
4. Reissuance of Securities. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Sections 1(e) and 1(f) above at such time as (a) the holder thereof is permitted
to and disposes of such Securities pursuant to Rule 144(d) and/or Rule 144(k)
under the 1933 Act in the opinion of counsel reasonably satisfactory to the
Company, or (b) upon resale subject to an effective registration statement after
the Securities are registered under the 1933 Act. The Company agrees to
cooperate with the Subscriber in connection with all resales pursuant to Rule
144(d) and Rule 144(k) and provide legal opinions necessary to allow such
resales provided the Company and its counsel receive all reasonably requested
representations from the Subscriber and selling broker, if any. If the Company
fails to remove any legend as required by this Section 4 (a "Legend Removal
Failure"), then beginning on the tenth (10th) day following such failure, the
Company continues to fail to remove such legend, the Company shall pay to each
Subscriber or assignee holding shares subject to a Legend Removal Failure an
amount equal to one percent (1%) of the Purchase Price of the shares subject to
a Legend Removal Failure per day that such failure continues. If during any
twelve (12) month period, the Company fails to remove any legend as required by
this Section 4 for an aggregate of thirty (30) days, each Subscriber or assignee
holding Securities subject to a Legend Removal Failure may, at its option,
require the Company to purchase all or any portion of the Securities subject to
a Legend Removal Failure held by such Subscriber or assignee at a price per
share equal to 120% of the applicable Purchase Price.
5. Redemption. The Company may not redeem the Securities
without the consent of the holder of the Securities except as otherwise
described herein.
6. Fees/Warrants.
(a) The Company shall pay to counsel to the
Subscriber its fees, up to a maximum of $35,000 (of which $7,500 has been paid)
for services rendered to Subscribers in connection with this Agreement and the
other Subscription Agreements for aggregate subscription amounts of up to
$1,000,000 (the "Initial Offering"), and aggregate Put Purchase Price (defined
in Section 11.1(a) hereto) of $4,000,000, and acting as escrow agent for the
Initial Offering. The Company will pay to the Finders identified on Schedule B
hereto a cash fee in the amount of: ten percent (10%) of the initial $3,000,000
of Purchase Price and aggregate Put Purchase Price, and set forth on the
signature page hereto ("Finder's Fee") and of the actual cash proceeds received
by the Company in connection with the exercise of the Warrants issued in
connection with the Initial Offering ("Initial Warrants"), and Warrants issuable
in connection with the Put ("Put Warrants") ("Warrant Exercise Compensation");
7% of the following $8,000,000 of such actual cash proceeds; and 5% of all cash
proceeds thereafter. Collectively, the Initial Warrants and Put Warrants are
referred to herein as Warrants. The Finder's Fee must be paid each Closing Date
and Put Closing Date with respect to the Notes issued on such date. The Warrant
Exercise Compensation must be paid within ten (10) days of Warrant exercise to
the Finders identified on Schedule B hereto. The Finder's Fee and legal fees
will be payable out of funds held pursuant to a Funds Escrow Agreement to be
entered into by the Company, Subscriber and an Escrow Agent. On the Closing
Date, the Company will pay the entity identified on Schedule B hereto, the sum
of $2,500 as a non-accountable expense allowance ("Non-Accountable Expense
Allowance").
(b) The Company will also issue and deliver to the
Warrant Recipients identified on Schedule B hereto, Warrants in the amounts
designated on Schedule B hereto in connection with the Initial Offering and
exercise of the Put. A form of Warrant is annexed hereto as Exhibit D. The per
share "Purchase Price" of Common Stock as defined in the Warrant shall be equal
to one hundred and five percent (105%) of the average of the three lowest
closing bid prices of the Common Stock for the ten (10) trading days preceding
but not including the Closing Date or Put Closing Date, as the case may be, as
reported on the NASD OTC Bulletin Board, NASDAQ SmallCap Market, NASDAQ National
Market System, American Stock Exchange, or New York Stock Exchange (whichever of
the foregoing is at the time the principal trading exchange or market for the
Common Stock, the "Principal Market"), or such
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other principal market or exchange where the Common Stock is listed or traded.
The Company shall issue common stock purchase warrants in connection with the
Section 11.2(e) Put Amount (sometimes referred to herein as "Initial Put
Warrants"). The aggregate number of Common Shares purchasable upon exercise of
the Initial Put Warrants is set forth on Schedule B hereto. The number of Common
Shares issuable upon exercise of the balance of the Put Warrants is equal to 12%
of the Common Shares to be issued upon conversion of the final $2,000,000 of Put
Notes issued in the aggregate to Subscribers to the Initial Offering. The
Initial Warrants must be delivered at the Closing Date. The Put Warrants
issuable in connection with the Section 11.2(e) Amount must be issued and
delivered no later than the date the corresponding Section 11.2(e) Amount Put
Notes are delivered. The remaining Put Warrants must be delivered no later than
the Delivery Date (defined in Section 9.1(b) hereof) in relation to the relevant
Conversion Date. Failure to timely deliver the Warrant Exercise Compensation,
the Warrants or Finder's Fee shall be deemed an Event of Default as defined in
Article III of the Note and Put Note.
(c) The Finder's Fee and legal fees will be paid to
the Finders and attorneys only when, as, and if a corresponding subscription
amount is released from escrow to the Company and out of the escrow proceeds.
All the representations, covenants, warranties, undertakings, and
indemnification, other rights including but not limited to registration rights,
and rights in Section 9 hereof, made or granted to or for the benefit of the
Subscriber are hereby also made and granted to the Warrant Recipients in respect
of the Warrants and Company Shares issuable upon exercise of the Warrants.
(d) The holders of the Warrants are granted all the
rights, undertakings, remedies, liquidated damages and indemnification granted
to the Subscriber in connection with the Note, including but not limited to, the
rights and procedures set forth in Section 9 hereof and the registration rights
described in Section 10 hereof.
7. Covenants of the Company. The Company covenants and agrees
with the Subscriber as follows:
(a) The Company will advise the Subscriber, promptly
after it receives notice of issuance by the Securities and Exchange Commission,
any state securities commission or any other regulatory authority of any stop
order or of any order preventing or suspending any offering of any securities of
the Company, or of the suspension of the qualification of the Common Stock of
the Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
(b) The Company shall promptly secure the listing of
the Company Shares, and Common Stock issuable upon the exercise of the Warrants
upon each national securities exchange, or automated quotation system, if any,
upon which shares of Common Stock are then listed (subject to official notice of
issuance) and shall maintain such listing so long as any other shares of Common
Stock shall be so listed. The Company will maintain the listing of its Common
Stock on a Principal Market, and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
National Association of Securities Dealers ("NASD") and such exchanges, as
applicable. The Company will provide the Subscriber copies of all notices it
receives notifying the Company of the threatened and actual delisting of the
Common Stock from any Principal Market.
(c) The Company shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to the
Subscriber and promptly provide copies thereof to Subscriber.
(d) Until at least two (2) years after the
effectiveness of the Registration Statement on Form SB-2 or such other
Registration Statement described in Section 10.1(iv) hereof, the Company will
(i) cause its Common Stock to continue to be registered under Sections 12(b) or
12(g) of the Exchange Act, (ii) comply in all respects with its reporting and
filing obligations under the Exchange Act, (iii) comply with all reporting
requirements that is applicable to
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an issuer with a class of Shares registered pursuant to Section 12(g) of the
Exchange Act, and (iv) comply with all requirements related to any registration
statement filed pursuant to this Agreement. The Company will not take any action
or file any document (whether or not permitted by the Act or the Exchange Act or
the rules thereunder) to terminate or suspend such registration or to terminate
or suspend its reporting and filing obligations under said Acts until the later
of (y) two (2) years after the effective date of the Registration Statement on
Form SB-2 or such other Registration Statement described in Section 10.1(iv)
hereof, or (z) the sale by the Subscribers and Warrant Recipients of all the
Company Shares, Securities and Put Securities issuable by the Company pursuant
to this Agreement. Until at least two (2) years after the Warrants have been
exercised, the Company will use its commercial best efforts to continue the
listing of the Common Stock on the Bulletin Board and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the NASD and NASDAQ.
(e) The Company undertakes to use the proceeds of the
Subscriber's funds for working capital purposes generally, and as may be
determined by the Company's Board of Directors, acting in their fiduciary
capacity on behalf of the Company, and expenses of this offering.
(f) The Company undertakes to reserve pro rata on
behalf of each holder of a Note, Put Note or Warrant, from its authorized but
unissued Common Stock, at all times that Notes, Put Notes or Warrants remain
outstanding, a number of Common Shares equal to not less than 200% of the amount
of Common Shares necessary to allow each such holder to be able to convert all
such outstanding Notes and Put Notes, at the then applicable Conversion Price
and one Common Share for each Common Share issuable upon exercise of the
Warrants.
8. Covenants of the Company and Subscriber Regarding
Idemnification.
(a) The Company agrees to indemnify, hold harmless,
reimburse and defend Subscriber, Subscriber's officers, directors, agents,
affiliates, control persons, and principal shareholders, against any claim,
cost, expense, liability, obligation, loss or damage (including reasonable legal
fees) of any nature, incurred by or imposed upon Subscriber or any such person
which results, arises out of or is based upon (i) any misrepresentation by
Company or breach of any warranty by Company in this Agreement or in any
Exhibits or Schedules attached hereto; or (ii) after any applicable notice
and/or cure periods, any breach or default in performance by the Company of any
covenant or undertaking to be performed by the Company hereunder, or any other
agreement entered into by the Company and Subscribers relating hereto.
(b) Subscriber agrees to indemnify, hold harmless,
reimburse and defend the Company and each of the Company's officers and
directors at all times against any claim, cost, expense, liability, obligation,
loss or damage (including reasonable legal fees) of any nature, incurred by or
imposed upon the Company or any such person which results, arises out of or is
based upon (i) any misrepresentation by Subscriber in this Agreement or in any
Exhibits or Schedules attached hereto; or (ii) after any applicable notice
and/or cure periods, any breach or default in performance by Subscriber of any
covenant or undertaking to be performed by Subscriber hereunder, or any other
agreement entered into by the Company and Subscribers relating hereto.
(c) The procedures set forth in Section 10.6 shall
apply to the indemnifications set forth in Sections 8(a) and 8(b) above.
9.1. Conversion of Note.
(a) Upon the conversion of the Note or part thereof,
the Company shall, at its own cost and expense, take all necessary action
(including the issuance of an opinion of counsel) to assure that the Company's
transfer agent shall issue stock certificates in the name of Subscriber (or its
nominee) or such other persons as designated by
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Subscriber and in such denominations to be specified at conversion representing
the number of shares of common stock issuable upon such conversion. The Company
warrants that no instructions other than these instructions have been or will be
given to the transfer agent of the Company's Common Stock and that the Shares
will be unlegended, free-trading, and freely transferable, and will not contain
a legend restricting the resale or transferability of the Company Shares
provided the Shares are being sold pursuant to an effective registration
statement covering the Shares to be sold or are otherwise exempt from
registration when sold.
(b) Subscriber will give notice of its decision to
exercise its right to convert the Note or part thereof by telecopying an
executed and completed Notice of Conversion (as defined in the Note) to the
Company. The Subscriber will not be required to surrender the Note until the
Note has been fully converted or satisfied. Each date on which a Notice of
Conversion is telecopied to the Company in accordance with the provisions hereof
shall be deemed a Conversion Date. The Company will or cause the transfer agent
to transmit the Company's Common Stock certificates representing the Shares
issuable upon conversion of the Note (and a Note representing the balance of the
Note not so converted, if requested by Subscriber) to the Subscriber via express
courier for receipt by such Subscriber within five (5) business days after
receipt by the Company of the Notice of Conversion (the "Delivery Date"). To the
extent that a Subscriber elects not to surrender a Note for reissuance upon
partial payment or conversion, the Subscriber hereby indemnifies the Company
against any and all loss or damage attributable to a third-party claim in an
amount in excess of the actual amount then due under the Note.
(c) The Company understands that a delay in the
delivery of the Shares in the form required pursuant to Section 9 hereof, or the
Mandatory Redemption Amount described in Section 9.2 hereof, beyond the Delivery
Date or Mandatory Redemption Payment Date (as hereinafter defined) could result
in economic loss to the Subscriber. As compensation to the Subscriber for such
loss, the Company agrees to pay late payments to the Subscriber for late
issuance of Shares in the form required pursuant to Section 9 hereof upon
Conversion of the Note or late payment of the Mandatory Redemption Amount, in
the amount of $100 per business day after the Delivery Date or Mandatory
Redemption Payment Date, as the case may be, for each $10,000 of Note principal
amount being converted or redeemed. The Company shall pay any payments incurred
under this Section in immediately available funds upon demand. Furthermore, in
addition to any other remedies which may be available to the Subscriber, in the
event that the Company fails for any reason to effect delivery of the Shares by
the Delivery Date or make payment by the Mandatory Redemption Payment Date, the
Subscriber will be entitled to revoke all or part of the relevant Notice of
Conversion or rescind all or part of the notice of Mandatory Redemption by
delivery of a notice to such effect to the Company whereupon the Company and the
Subscriber shall each be restored to their respective positions immediately
prior to the delivery of such notice, except that late payment charges described
above shall be payable through the date notice of revocation or rescission is
given to the Company.
(d) Nothing contained herein or in any document
referred to herein or delivered in connection herewith shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest or dividends required to be paid or other charges hereunder exceed the
maximum permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Company to the Subscriber and thus refunded
to the Company.
9.2. Mandatory Redemption. In the event the Company is
prohibited from issuing Shares or fails to timely deliver Shares on a Delivery
Date or during the pendency of an Approval Default, or for any reason other than
pursuant to the limitations set forth in Section 9.3 hereof, then at the
Subscriber's election, the Company must pay to the Subscriber five (5) business
days after request by the Subscriber or on the Delivery Date (if requested by
the Subscriber) a sum of money determined by multiplying the principal amount of
the Note designated by the Subscriber by 130%, together with accrued but unpaid
interest thereon ("Mandatory Redemption Payment"). The Mandatory Redemption
Payment must be received by the Subscriber on the same date as the Company
Shares otherwise deliverable or within five (5) business days after request,
whichever is sooner ("Mandatory Redemption Payment Date"). Upon receipt of the
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Mandatory Redemption Payment, the corresponding Note principal and interest will
be deemed paid and no longer outstanding.
9.3. Maximum Conversion. The Subscriber shall not be entitled
to convert on a Conversion Date that amount of the Note or Put Note in
connection with that number of shares of Common Stock which would be in excess
of the sum of (i) the number of shares of Common Stock beneficially owned by the
Subscriber and its affiliates on a Conversion Date, and (ii) the number of
shares of Common Stock issuable upon the conversion of the Note or Put Note with
respect to which the determination of this proviso is being made on a Conversion
Date, which would result in beneficial ownership by the Subscriber and its
affiliates of more than 4.99% of the outstanding shares of Common Stock of the
Company on such Conversion Date. For the purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the
Subscriber shall not be limited to aggregate conversions of only 4.99%. The
Subscriber may void the conversion limitation described in this Section 9.3 upon
75 days prior notice to the Company. The Subscriber may allocate which of the
equity of the Company deemed beneficially owned by the Subscriber shall be
included in the 4.99% amount described above and which shall be allocated to the
excess above 4.99%.
9.4. Injunction - Posting of Bond. In the event a Subscriber
shall elect to convert a Note or part thereof, the Company may not refuse
conversion based on any claim that such Subscriber or any one associated or
affiliated with such Subscriber has been engaged in any violation of law, or for
any other reason, unless, an injunction from a court, on notice, restraining and
or enjoining conversion of all or part of said Note or Put Note shall have been
sought and obtained and the Company posts a surety bond for the benefit of such
Subscriber in the amount of 130% of the amount of the Note or Put Note, which is
subject to the injunction, which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Subscriber to the extent it obtains judgment.
9.5. Buy-In. In addition to any other rights available to the
Subscriber, if the Company fails to deliver to the Subscriber such shares
issuable upon conversion of a Note or Put Note by the Delivery Date and if after
the Delivery Date the Subscriber purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by such
Subscriber of the Common Stock which the Subscriber anticipated receiving upon
such conversion (a "Buy-In"), then the Company shall pay in cash to the
Subscriber (in addition to any remedies available to or elected by the
Subscriber) the amount by which (A) the Subscriber's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (B) the aggregate principal and/or interest amount of the Note
or Put Note for which such conversion was not timely honored, together with
interest thereon at a rate of 15% per annum, accruing until such amount and any
accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For example, if the Subscriber
purchases shares of Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to an attempted conversion of $10,000 of note
principal and/or interest, the Company shall be required to pay the Subscriber
$1,000, plus interest. The Subscriber shall provide the Company written notice
indicating the amounts payable to the Subscriber in respect of the Buy-In.
10.1. Registration Rights. The Company hereby grants the
following registration rights to holders of the Securities.
(i) On one occasion, for a period commencing 121 days
after the Closing Date, but not later than four years after the Closing Date
("Request Date"), the Company, upon a written request therefor from any record
holder or holders of more than 50% of the aggregate of the Company's Shares
issued and issuable upon Conversion of the Note and the Put Notes which are
actually issued (the Common Stock issued or issuable upon conversion or exercise
of the Securities, Put Securities and securities issued or issuable by virtue of
ownership of the Securities, and Put Securities, being, the "Registrable
Securities"), shall prepare and file with the SEC a registration statement under
the Act covering
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the Registrable Securities which are the subject of such request, unless such
Registrable Securities are the subject of an effective registration statement.
In addition, upon the receipt of such request, the Company shall promptly give
written notice to all other record holders of the Registrable Securities that
such registration statement is to be filed and shall include in such
registration statement Registrable Securities for which it has received written
requests within 10 days after the Company gives such written notice. Such other
requesting record holders shall be deemed to have exercised their demand
registration right under this Section 10.1(i). As a condition precedent to the
inclusion of Registrable Securities, the holder thereof shall provide the
Company with such information as the Company reasonably requests. The obligation
of the Company under this Section 10.1(i) shall be limited to one registration
statement.
(ii) If the Company at any time proposes to register
any of its securities under the Act for sale to the public, whether for its own
account or for the account of other security holders or both, except with
respect to registration statements on Forms S-4, S-8 or another form not
available for registering the Registrable Securities for sale to the public,
provided the Registrable Securities are not otherwise registered for resale by
the Subscriber or Holder pursuant to an effective registration statement, each
such time it will give at least 30 days' prior written notice to the record
holder of the Registrable Securities of its intention so to do. Upon the written
request of the holder, received by the Company within 30 days after the giving
of any such notice by the Company, to register any of the Registrable
Securities, the Company will cause such Registrable Securities as to which
registration shall have been so requested to be included with the securities to
be covered by the registration statement proposed to be filed by the Company,
all to the extent required to permit the sale or other disposition of the
Registrable Securities so registered by the holder of such Registrable
Securities (the "Seller"). In the event that any registration pursuant to this
Section 10.1(ii) shall be, in whole or in part, an underwritten public offering
of common stock of the Company, the number of shares of Registrable Securities
to be included in such an underwriting may be reduced by the managing
underwriter if and to the extent that the Company and the underwriter shall
reasonably be of the opinion that such inclusion would adversely affect the
marketing of the securities to be sold by the Company therein; provided,
however, that the Company shall notify the Seller in writing of any such
reduction. Notwithstanding the forgoing provisions, or Section 10.4 hereof, the
Company may withdraw or delay or suffer a delay of any registration statement
referred to in this Section 10.1(ii) without thereby incurring any liability to
the Seller.
(iii) If, at the time any written request for
registration is received by the Company pursuant to Section 10.1(i), the Company
has determined to proceed with the actual preparation and filing of a
registration statement under the 1933 Act in connection with the proposed offer
and sale for cash of any of its securities for the Company's own account, such
written request shall be deemed to have been given pursuant to Section 10.1(ii)
rather than Section 10.1(i), and the rights of the holders of Registrable
Securities covered by such written request shall be governed by Section
10.1(ii).
(iv) The Company shall file with the Commission
within 45 days of the Closing Date (the "Filing Date"), and use its reasonable
commercial efforts to cause to be declared effective a Form SB-2 registration
statement (or such other form that it is eligible to use) within 90 days of the
Closing Date in order to register the Registrable Securities for resale and
distribution under the Act. The registration statement described in this
paragraph must be declared effective by the Commission within 90 days of the
Closing Date (as defined herein) ("Effective Date"). The Company will register
not less than a number of shares of Common Stock in the aforedescribed
registration statement that is equal to 200% of the Company Shares issuable at
the Conversion Price that would be in effect on the Closing Date or the date of
filing of such registration statement (employing the Conversion Price which
would result in the greater number of Shares), assuming the conversion of 100%
of the Notes and the Put Notes which are issuable, and one share of common stock
for each common share issuable upon exercise of the Initial Warrants and Put
Warrants which are issuable in connection with the Put, employing the Conversion
Price that would result in the greater number of Shares. The Registrable
Securities shall be reserved and set aside exclusively for the benefit of the
Subscriber and Warrant Recipients, as the case may be, and not issued, employed
or reserved for anyone other than the Subscriber and Warrant Recipients. Such
registration statement will be promptly amended or additional registration
statements will be
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promptly filed by the Company as necessary to register additional Company Shares
to allow the public resale of all Common Stock included in and issuable by
virtue of the Registrable Securities. No securities of the Company other than
the Registrable Securities will be included in the registration statement
described in this Section 10.1(iv), except as set forth on Schedule 10.1 hereto.
10.2. Registration Procedures. If and whenever the Company is
required by the provisions hereof to effect the registration of any shares of
Registrable Securities under the Act, the Company will, as expeditiously as
possible:
(a) prepare and file with the Commission a
registration statement with respect to such securities and use its best efforts
to cause such registration statement to become and remain effective for the
period of the distribution contemplated thereby (determined as herein provided),
and promptly provide to the holders of Registrable Securities copies of all
filings and Commission letters of comment;
(b) prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective until the latest of: (i) six months after the latest
exercise period of the Warrants; (ii) twelve months after the Maturity Date of
the Note or Put Note; or (iii) two years after the Closing Date, or Put Closing
Date and comply with the provisions of the Act with respect to the disposition
of all of the Registrable Securities covered by such registration statement in
accordance with the Seller's intended method of disposition set forth in such
registration statement for such period;
(c) furnish to the Seller, and to each underwriter if
any, such number of copies of the registration statement and the prospectus
included therein (including each preliminary prospectus) as such persons
reasonably may request in order to facilitate the public sale or their
disposition of the securities covered by such registration statement;
(d) use its best efforts to register or qualify the
Seller's Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Seller and in the
case of an underwritten public offering, the managing underwriter shall
reasonably request, provided, however, that the Company shall not for any such
purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction;
(e) list the Registrable Securities covered by such
registration statement with any securities exchange on which the Common Stock of
the Company is then listed;
(f) immediately notify the Seller and each
underwriter under such registration statement at any time when a prospectus
relating thereto is required to be delivered under the Act, of the happening of
any event of which the Company has knowledge as a result of which the prospectus
contained in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing;
(g) make available for inspection by the Seller, any
underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by the Seller or
underwriter, all publicly available, non-confidential financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all publicly
available, non-confidential information reasonably requested by the seller,
underwriter, attorney, accountant or agent in connection with such registration
statement.
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10.3. Provision of Documents.
(a) At the request of the Seller, provided a demand
for registration has been made pursuant to Section 10.1(i) or a request for
registration has been made pursuant to Section 10.1(ii), the Registrable
Securities will be included in a registration statement filed pursuant to this
Section 10.
(b) In connection with each registration hereunder,
the Seller will furnish to the Company in writing such information and
representation letters with respect to itself and the proposed distribution by
it as reasonably shall be necessary in order to assure compliance with federal
and applicable state securities laws. In connection with each registration
pursuant to Section 10.1(i) or 10.1(ii) covering an underwritten public
offering, the Company and the Seller agree to enter into a written agreement
with the managing underwriter in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature.
10.4. Non-Registration Events. The Company and the Subscriber
agree that the Seller will suffer damages if any registration statement required
under Section 10.1(i) or 10.1(ii) above is not filed within 60 days after
written request by the Holder and not declared effective by the Commission
within 120 days after such request [or the Filing Date and Effective Date,
respectively, in reference to the Registration Statement on Form SB-2 or such
other form described in Section 10.1(iv)], and maintained in the manner and
within the time periods contemplated by Section 10 hereof, and it would not be
feasible to ascertain the extent of such damages with precision. Accordingly, if
(i) the Registration Statement described in Sections 10.1(i) or 10.1(ii) is not
filed within 60 days of such written request, or is not declared effective by
the Commission on or prior to the date that is 120 days after such request, or
(ii) the registration statement on Form SB-2 or such other form described in
Section 10.1(iv) is not filed on or before the Filing Date or not declared
effective on or before the sooner of the Effective Date, or within five days of
receipt by the Company of a communication from the Commission that the
registration statement described in Section 10.1(iv) will not be reviewed, or
(iii) any registration statement described in Sections 10.1(i), 10.1(ii) or
10.1(iv) is filed and declared effective but shall thereafter cease to be
effective (without being succeeded immediately by an additional registration
statement filed and declared effective) for a period of time which shall exceed
30 days in the aggregate per year but not more than 20 consecutive calendar days
(defined as a period of 365 days commencing on the date the Registration
Statement is declared effective) (each such event referred to in clauses (i),
(ii) and (iii) of this Section 10.4 is referred to herein as a "Non-Registration
Event"), then, for so long as such Non-Registration Event shall continue, the
Company shall pay in cash as Liquidated Damages to each holder of any
Registrable Securities an amount equal to two (2%) percent per month or part
thereof during the pendency of such Non-Registration Event, of (i) the principal
of the Notes issued in connection with the Initial Offering, whether or not
converted; (ii) the principal amount of Put Notes actually issued, whether or
not converted, then owned of record by such holder or issuable as of or
subsequent to the occurrence of such Non-Registration Event. Payments to be made
pursuant to this Section 10.4 shall be due and payable immediately upon demand
in immediately available funds. In the event a Mandatory Redemption Payment is
demanded from the Company by the Holder pursuant to Section 9.2 of this
Subscription Agreement, then the Liquidated Damages described in this Section
10.4 shall no longer accrue on the portion of the Purchase Price underlying the
Mandatory Redemption Payment, from and after the date the Holder receives the
Mandatory Redemption Payment. After the Filing Date, it shall also be deemed a
Non-Registration Event to the extent that an amount less than 130% of the amount
of all the Common Stock underlying the Registrable Securities is not included in
an effective registration statement as of and after the Effective Date at the
Conversion Prices in effect from and after the Effective Date. Except in a
No-Review circumstance and provided the Company has filed the registration
statement on or before the Filing Date, in the event the registration statement
described in Section 10.1(iv) hereof is declared effective on or before 30 days
after the Effective Date, Liquidated Damages arising from the Company's failure
to obtain effectiveness on or before the Effective Date shall not be payable by
the Company, nor shall such non-timely effectiveness be an Event of Default
under Article III of the Note in connection only with such default.
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10.5. Expenses. All expenses incurred by the Company in
complying with Section 10, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
reasonable counsel fees) incurred in connection with complying with state
securities or "blue sky" laws, fees of the National Association of Securities
Dealers, Inc., transfer taxes, fees of transfer agents and registrars, and costs
of insurance are called "Registration Expenses". All underwriting discounts and
selling commissions applicable to the sale of Registrable Securities, including
any fees and disbursements of any special counsel to the Seller, are called
"Selling Expenses". The Seller shall pay the fees of its own additional counsel,
if any. The Company will pay all Registration Expenses in connection with the
registration statement under Section 10. All Selling Expenses in connection with
each registration statement under Section 10 shall be borne by the Seller and
may be apportioned among the Sellers in proportion to the number of shares sold
by the Seller relative to the number of shares sold under such registration
statement or as all Sellers thereunder may agree.
10.6. Indemnification and Contribution.
(a) In the event of a registration of any Registrable
Securities under the Act pursuant to Section 10, the Company will indemnify and
hold harmless the Seller, each officer of the Seller, each director of the
Seller, each underwriter of such Registrable Securities thereunder and each
other person, if any, who controls such Seller or underwriter within the meaning
of the 1933 Act, against any losses, claims, damages or liabilities, joint or
several, to which the Seller, or such underwriter or controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such Registrable Securities
was registered under the Act pursuant to Section 10, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Seller, each such
underwriter and each such controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company shall not be liable to the Seller to the extent that any such damages
arise out of or are based upon an untrue statement or omission made in any
preliminary prospectus if (i) the Seller failed to send or deliver a copy of the
final prospectus delivered by the Company to the Seller with or prior to the
delivery of written confirmation of the sale by the Seller to the person
asserting the claim from which such damages arise, (ii) the final prospectus
would have corrected such untrue statement or alleged untrue statement or such
omission or alleged omission, or (iii) to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in conformity
with information furnished by any such Seller, or any such controlling person in
writing specifically for use in such registration statement or prospectus.
(b) In the event of a registration of any of the
Registrable Securities under the Act pursuant to Section 10, the Seller will
indemnify and hold harmless the Company, and each person, if any, who controls
the Company within the meaning of the Act, each officer of the Company who signs
the registration statement, each director of the Company, each underwriter and
each person who controls any underwriter within the meaning of the Act, against
all losses, claims, damages or liabilities, joint or several, to which the
Company or such officer, director, underwriter or controlling person may become
subject under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement under which such Registrable Securities were
registered under the Act pursuant to Section 10, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereof, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each such
officer, director, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
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that the Seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information pertaining to
such Seller, as such, furnished in writing to the Company by such Seller
specifically for use in such registration statement or prospectus, and provided,
further, however, that the liability of the Seller hereunder shall be limited to
the gross proceeds received by the Seller from the sale of Registrable
Securities covered by such registration statement.
(c) Promptly after receipt by an indemnified party
hereunder of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party hereunder, notify the indemnifying party in writing thereof, but the
omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to such indemnified party other than under this
Section 10.6(c) and shall only relieve it from any liability which it may have
to such indemnified party under this Section 10.6(c), except and only if and to
the extent the indemnifying party is prejudiced by such omission. In case any
such action shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel satisfactory to such indemnified
party, and, after notice from the indemnifying party to such indemnified party
of its election so to assume and undertake the defense thereof, the indemnifying
party shall not be liable to such indemnified party under this Section 10.6(c)
for any legal expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of investigation
and of liaison with counsel so selected, provided, however, that, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be reasonable defenses available to it which are different from
or additional to those available to the indemnifying party or if the interests
of the indemnified party reasonably may be deemed to conflict with the interests
of the indemnifying party, the indemnified parties shall have the right to
select one separate counsel and to assume such legal defenses and otherwise to
participate in the defense of such action, with the reasonable expenses and fees
of such separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable
contribution in the event of joint liability under the Act in any case in which
either (i) the Seller, or any controlling person of the Seller, makes a claim
for indemnification pursuant to this Section 10.6 but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 10.6 provides for indemnification in
such case, or (ii) contribution under the Act may be required on the part of the
Seller or controlling person of the Seller in circumstances for which
indemnification is provided under this Section 10.6; then, and in each such
case, the Company and the Seller will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that the Seller is responsible only for the
portion represented by the percentage that the public offering price of its
securities offered by the registration statement bears to the public offering
price of all securities offered by such registration statement, provided,
however, that, in any such case, (y) the Seller will not be required to
contribute any amount in excess of the public offering price of all such
securities offered by it pursuant to such registration statement; and (z) no
person or entity guilty of fraudulent misrepresentation (within the meaning of
Section 10(f) of the Act) will be entitled to contribution from any person or
entity who was not guilty of such fraudulent misrepresentation.
11.1. Obligation To Purchase.
(a) The Subscriber agrees to purchase from the
Company convertible notes ("Put Notes") in up to the principal amount set forth
on the signature page hereto for up to the aggregate amount of Put Note
principal ("Put Purchase Price") designated on the signature page hereto (the
"Put"). Collectively the Put Notes, Warrants issuable in connection with the
Put, and Common Stock issuable upon conversion of the Put Notes and exercise of
the Warrants
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are referred to as the "Put Securities".) The Warrants issuable in connection
with the Put Notes are referred to herein as Warrants or Put Warrants. Except as
described in Section 11.1(c) hereof, each Put Note will be identical to the Note
except that the Maturity Date will be two years from each Put Closing Date (as
hereinafter defined). The Holders of the Put Securities are granted all the
rights, undertakings, remedies, liquidated damages and indemnification granted
to the Subscriber in connection with the Note, including but not limited to, the
rights and procedures set forth in Section 9 hereof and the registration rights
described in Section 10 hereof.
(b) The agreement to purchase the Put Notes is
contingent on the following any, some or all of which may be waived by the
Subscriber:
(i) As of a Put Date and Put Closing Date
(as hereinafter defined), the Common Shares issuable upon conversion of a Put
Note and exercise of Put Warrants must be included in an effective registration
statement described in Section 10 hereof.
(ii) As of a Put Date and Put Closing Date,
the Company will be a reporting company with the class of Shares registered
pursuant to Section 12(g) of the Securities Exchange Act of 1934.
(iii) No material adverse change in the
Company's business or business prospects shall have occurred after the date of
the most recent financial statements included in the Reports. Material adverse
change is defined as any effect on the business, operations, properties,
prospects, or financial condition of the Company that is material and adverse to
the Company and its subsidiaries and affiliates, taken as a whole, and/or any
condition, circumstance, or situation that would prohibit or otherwise interfere
with the ability of the Company to enter into and perform any of its obligations
under this Agreement, or any other agreement entered into or to be entered into
in connection herewith, in any material respect. There shall not have been a
material negative restatement of the Company's financial statements included in
the Reports.
(iv) An Event of Default as described in
Article III of the Note shall not have occurred.
(v) The execution and delivery to the
Subscriber of a certificate signed by its chief executive officer representing
the truth and accuracy of all the Company's representations and warranties
contained in this Subscription Agreement as of the Put Date, and Put Closing
Date and confirming the undertakings contained herein, and representing the
satisfaction of all contingencies and conditions required for the exercise of
the Put.
(vi) The Company's listing on, and
compliance with the listing requirements of the Principal Market.
(vii) The Company's not having received
notice from the Bulletin Board, or any Principal Market that the Company is not
in compliance with the requirements for continued listing.
(viii) The execution by the Company and
delivery to the Subscriber of all required documents in relation to the Put set
forth in Section 11.2 below and such other documents which may be reasonably
requested by the Subscriber.
(ix) No issuance of an SEC stop trade order.
(x) The Company shall have no knowledge that
any of the foregoing conditions shall not be true and accurate as of a date
fifteen days after a Put Closing Date.
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(c) Subject to the adjustments set forth in the Note,
the Conversion Price of the Put Note shall be as follows:
(i) The Conversion Price of the initial 50%
of the Put Note Purchase Price set forth on the signature page hereto shall be
the lesser of (i) 80% of the average of the three lowest closing bid prices of
the Common Stock on the Principal Market for the twenty-two (22) trading days
prior to the Closing Date, or (ii) 80% of the average of the five lowest closing
bid prices of the Common Stock on the Principal Market for the sixty (60)
trading days prior to the Conversion Date, as defined in the Note. The Maturity
Date of the Put Notes shall be two years from the respective Put Closing Dates.
(ii) The Conversion Price of the balance of
the Put Note Purchase Price shall be 86% of the average of the three lowest
closing bid prices of the Common Stock on the Principal Market for the ten (10)
trading days prior to the Conversion Date.
11.2. Exercise of Put.
(a) The Company's right to exercise the Put commences
on the actual effective date of the registration statement described in Section
10.1(iv) hereof and expires three (3) years after the Effective Date ("Put
Exercise Period").
(b) The Put may be exercised by the Company by giving
the Subscriber written notice of exercise ("Put Notice") not more often than one
time each calendar month during the Put Exercise Period in relation to up to the
maximum principal amount of Put Note that the Subscriber has agreed to purchase
subject to the limits described in this Agreement. The date a Put Notice is
given is a Put Date. Each Put Notice must be accompanied by (i) the officer's
certificate described in Section 11.1(b)(v) above; (ii) a legal opinion relating
to the Put Securities in form reasonably acceptable to Subscriber substantially
similar to the opinion annexed hereto as Exhibit C; (iii) proof of effectiveness
of the registration statement described in Section 10 above, together with five
copies of the prospectus portion thereof; and (iv) such other documents and
certificates reasonably requested by the Subscriber.
(c) Unless otherwise agreed to by the Subscribers,
Put Notices must be given to all Subscribers in proportion to the amounts agreed
to be purchased by all Subscribers undertaking to purchase Put Notes in the
Initial Offering.
(d) Payment by the Subscriber in relation to a Put
Notice relating to a Put must be made within seven (7) business days after
receipt of a Put Notice and the items set forth in Section 11.2(b) above.
Payment will be made against delivery to the Subscriber or an escrow agent to be
agreed upon by the Company and Subscriber, of the Put Securities, and delivery
to the Finders of the Put Commissions relating to the Put being exercised which
the Company may elect to be paid out of funds deposited with the escrow agent.
(e) The Company may exercise the Put subject to the
following limitations:
(i) The Company may not give the Subscriber
a Put Notice in connection with that amount of Put Note which could be converted
as of the Put Date into a number of shares of Common Stock which would be in
excess of the sum of (y) the number of shares of Common Stock beneficially owned
by the Subscriber and its affiliates on such Put Date, and (z) the number of
shares of Common Stock issuable upon the conversion of the Put Note with respect
to which the determination of this proviso is being made on a Put Date, which
would result in beneficial ownership by the Subscriber and its affiliates of
more than 4.99% of the outstanding shares of Common Stock of the Company on such
Put Date. For the purposes of the proviso to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and
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Regulation 13d-3 thereunder. Subject to the foregoing, the Subscriber shall not
be limited to aggregate conversions of only 4.99%. The Subscriber may revoke the
restriction described in this paragraph upon 75 days prior notice to the
Company. The Subscriber shall have the right to determine which of the equity of
the Company deemed beneficially owned by the Subscriber shall be included in the
4.99% described above and which shall be allocated to the excess above 4.99%.
(ii) The aggregate amount of all Put Notices
to all Subscribers of the Initial Offering may not exceed $4,000,000. The
aggregate maximum principal amount of Put Notes for which Put Notices may be
given during any calendar month to all Subscribers in the Initial Offering may
not exceed ten (10%) of the daily weighted average price of the Common Stock on
the Principal Market as reported by Bloomberg Financial using the AQR function
for the thirty calendar days prior to but not including the Put Date, multiplied
by the reported daily trading volume of the Common Stock for each such day
("Trading Volume Limitation"). The foregoing Trading Volume Limitation
notwithstanding and provided all other preconditions to Put exercise are
satisfied, the Company may exercise the Put for up to the amount designated on
the signature page hereto as "Section 11.2(e) Put Amount" during the first
thirty (30) days following the actual effective date of the registration
statement described in Section 10.1(iv) hereof.
(iii) Anything to the contrary herein
notwithstanding, except for the Section 11.2(e) Put Amount, the Company may not
exercise the Put for aggregate Put amounts from Investors to the Initial
Offering in excess of $1,500,000 during any calendar month.
11.3. Put Finders Fees. The Finders identified on Schedule B
hereto shall receive on each Put Closing Date aggregate Finder's Fees as
described in Section 6 hereof in connection with the closing of each Put as set
forth on Schedule B hereto. Put Finder's Fees shall be payable only in
connection with the Put Purchase Price actually paid by a Subscriber. The Put
Finder's Fees and reasonable legal fees for counsel to the Subscriber shall be
paid at each Put Closing.
11.4. Warrants.
(a) The Company shall issue Put Warrants to the
Warrant Recipients in the amounts designated on Schedule B hereto and as
described in Section 6 of this Subscription Agreement. The Put Warrants will be
in the form of Exhibit D hereto. The Put Warrants will be exercisable
immediately upon issuance and for five years thereafter.
(b) In the event [for any reason except for
Subscriber's unwillingness to purchase greater amounts of Put Notes because of
the beneficial ownership limitations of Section 11.2(e)(i)] Puts in the
aggregate amount of at least $1,000,000 of the Put Note Purchase Prices set
forth on the signature pages to the Subscription Agreement entered into in
connection with the Initial Offering ("Initial Put Amount") has not been
exercised as of the first anniversary of the Effective Date, then the Company
will issue Put Warrants to the Warrant Recipients in an amount determined by:
subtracting the actual amount of Put Note Principal for which Put Notices have
been validly given from the Initial Put Amount (the result being the
"Unexercised Put") and issuing Put Warrants to purchase the amount of Common
Shares which would have been issued had the Unexercised Put been exercised, the
corresponding Put Notes issued, and such Put Notes converted as of the first
anniversary of the Closing Date with such date being the Conversion Date of such
Put Notes.
(c) In the event [for any reason except for
Subscriber's unwillingness to purchase greater amounts of Put Notes because of
the beneficial ownership limitations of Section 11.2(e)(i)] Puts in the
aggregate amount of at least $2,000,000 of the Put Note Purchase Prices set
forth on the signature pages to the Subscription Agreement entered into in
connection with the Initial Offering ("Interim Put Amount") has not been
exercised as of the second anniversary of the Effective Date, then the Company
will issue Put Warrants to the Warrant Recipients in an amount
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determined by: subtracting the actual amount of Put Note Principal for
which Put Notices have been validly given from the Interim Put Amount (the
result being the "Interim Unexercised Put") and issuing Put Warrants to purchase
the amount of Common Shares which would have been issued had the Interim
Unexercised Put been exercised, the corresponding Put Notes issued, and such Put
Notes converted as of the second anniversary of the Closing Date with such being
the Conversion Date of such Put Notes.
(d) In the event [for any reason except for
Subscriber's unwillingness to purchase greater amounts of Put Notes because of
the beneficial ownership limitations of Section 11.2(e)(i)] Puts in the
aggregate amount of $3,000,000 of the Put Note Purchase Prices set forth on the
signature pages to the Subscription Agreement entered into in connection with
the Initial Offering ("Final Put Amount") has not been exercised as of the third
anniversary of the Effective Date, then the Company will issue Put Warrants to
the Warrant Recipients in an amount determined by: subtracting the actual amount
of Put Note Principal for which Put Notices have been validly given and the
amount of Put Note Principal deemed converted pursuant to Sections 11.4(b) and
(c) above from the Final Put Amount (the result being the "Final Unexercised
Put") and issuing Put Warrants to purchase the amount of Common Shares which
would have been issued had the Final Unexercised Put been exercised, the
corresponding Put Notes issued, such Put Notes converted as of the third
anniversary of the Closing Date with such date being the Conversion Date of such
Put Notes.
(f) In the event the Company has properly given a Put
Notice and the Subscriber has wrongfully failed to comply with the Put Notice
then Put Warrants will not be issuable in connection with such defaulted
amounts.
(g) Failure to timely pay Finder's Fees, legal fees
or deliver any Warrants issuable in connection with the Initial Offering and Put
shall be deemed an Event of Default under the Note and a material breach of the
Company's obligations hereunder, for which no notice to cure is required.
11.5 Assignment of Put. Anything to the contrary herein
notwithstanding, the Subscriber may assign to another party, reasonably
acceptable to the Company, either before or after exercise of the Put by the
Company, the Subscriber's obligations and right to pay all or some of the Put
Purchase Price and receive the corresponding Put Securities. Such assignment
must be in writing. The assignment will be effective only if the assignee
consents in writing to be bound by all of the Subscriber's obligations to the
Company in connection with such assignment. Upon an effective assignment, the
assignee will succeed to all of the Subscriber's rights under this Subscription
Agreement, and all other agreements relating to the assigned portion of the Put.
11.6 Adjustments. The Conversion Price and amount of Shares
issuable upon conversion of the Notes and Put Notes shall be adjusted consistent
with customary anti-dilution adjustments.
12. (a) Right of First Refusal. Until the later of 180 days
after the actual effective date of the Registration Statement described in
Section 10.1(iv) hereof, or one year after the Closing Date, the Subscriber
shall be given not less than ten (10) business days prior written notice of any
proposed sale by the Company of its common stock or other securities or debt
obligations except as disclosed in the Reports or Other Written Information or
stock or stock options granted or to be granted in the future pursuant to a
stock option plan approved by the Company's shareholders, to employees or
directors of the Company (these exceptions hereinafter referred to as the
"Excepted Issuances"). The Subscriber shall have the right during the ten (10)
business days following the notice to agree to purchase an amount of Company
Shares in the same proportion as being purchased in the Initial Offering of
those securities proposed to be issued and sold, in accordance with the terms
and conditions set forth in the notice of sale. In the event such terms and
conditions are modified during the notice period, the Subscriber shall be given
prompt notice of such modification and shall have the right during the original
notice period or for a period of ten (10) business days following the notice of
modification, whichever is longer, to exercise such right. In the event the
right of first refusal described in this Section is exercised by the Subscriber
and the Company thereby receives net proceeds from such exercise, then
commissions and
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fees will be paid by the Company to the Finders in the same amounts as would be
payable in connection with the offering described in the notice of sale.
(b) Offering Restrictions. Except with respect to
securities otherwise disclosed in the Reports or Other Written Information or
Excepted Issuances, the Company will not issue any equity, convertible debt or
other securities at a price below the lesser of (i) the Conversion Price, or
(ii) closing price of the Common Stock on the Principal Market on the date of
issuance, conversion and exercise of such offered equity, convertible debt or
other securities prior to the expiration of 180 days after the actual effective
date of the registration statement described in Section 10.1(iv) above (the
"Exclusion Period").
13. Miscellaneous.
(a) Notices. All notices or other communications
given or made hereunder shall be in writing and shall be personally delivered or
deemed delivered the first business day after being telecopied (provided that a
copy is delivered by first class mail) to the party to receive the same at its
address set forth below or to such other address as either party shall hereafter
give to the other by notice duly made under this Section: (i) if to the Company,
to iBIZ Technology Corp., 1919 West Lone Cactus, Phoenix, AZ 85021, telecopier
number: (623) 492-9921, with a copy by telecopier only to: Gammage & Burnham, 2
North Central, 18th Floor, Phoenix, AZ 85021, Attn: Stephen Boatwright, Esq.,
telecopier number: (602) 256-4475, and (ii) if to the Subscriber, to the name,
address and telecopy number set forth on the signature page hereto, with a copy
by telecopier only to Grushko & Mittman, P.C., 551 Fifth Avenue, Suite 1601, New
York, New York 10176, telecopier number: (212) 697-3575.
(b) Closing. The consummation of the transactions
contemplated herein shall take place at the offices of Grushko & Mittman, P.C.,
551 Fifth Avenue, Suite 1601, New York, New York 10176, upon the satisfaction of
all conditions to Closing set forth in this Agreement. The closing date shall be
the date that subscriber funds representing the net amount due the Company from
the Purchase Price are transmitted by wire transfer to the Company (the "Closing
Date"). The closing date for the Put shall be the date on which Subscriber funds
representing the net amount due the Company from the Put Purchase Price is
transmitted to or on behalf of the Company ("Put Closing Date").
(c) Entire Agreement; Assignment. This Agreement
represents the entire agreement between the parties hereto with respect to the
subject matter hereof and may be amended only by a writing executed by both
parties. No right or obligation of either party shall be assigned by that party
without prior notice to and the written consent of the other party.
(d) Execution. This Agreement may be executed by
facsimile transmission, and in counterparts, each of which will be deemed an
original.
(e) Law Governing this Agreement. This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York without regard to principles of conflicts of laws. Any action brought
by either party against the other concerning the transactions contemplated by
this Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. Both parties and the
individuals executing this Agreement and other agreements on behalf of the
Company agree to submit to the jurisdiction of such courts and waive trial by
jury. The prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In the event that any provision of this
Agreement or any other agreement delivered in connection herewith is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any agreement.
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(f) Specific Enforcement, Consent to Jurisdiction.
The Company and Subscriber acknowledge and agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof or thereof, this being
in addition to any other remedy to which any of them may be entitled by law or
equity. Subject to Section 13(e) hereof, each of the Company and Subscriber
hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Nothing in this Section
shall affect or limit any right to serve process in any other manner permitted
by law.
(g) Confidentiality. The Company agrees that it will
not disclose publicly or privately the identity of the Subscriber unless
expressly agreed to in writing by the Subscriber or only to the extent required
by law.
(h) Automatic Termination. This Agreement shall
automatically terminate without any further action of either party hereto if the
Closing shall not have occurred by the tenth (10th) business day following the
date this Agreement is accepted by the Subscriber.
[THIS SPACE INTENTIONALLY LEFT BLANK]
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
IBIZ TECHNOLOGY CORP.
A Florida Corporation
By:_________________________________
Dated: October _____, 2000
Purchase Price: $125,000.00
PUT
Put Note Purchase Price
(including Section 11.2(e) Put Amount): $500,000.00
Section 11.2(e) Put Amount: $250,000.00
ACCEPTED: Dated as of October ____, 2000
CELESTE TRUST REG. - Subscriber
C/o Trevisa-Treuhand-Anstalt
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Landstrasse 8
Furstentums 9496
Balzers, Liechtenstein
Fax: 011-431-534-532895
By:______________________________
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Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
IBIZ TECHNOLOGY CORP.
A Florida Corporation
By:_________________________________
Dated: October _____, 2000
Purchase Price: $175,000.00
PUT
Put Note Purchase Price
(including Section 11.2(e) Put Amount): $700,000.00
Section 11.2(e) Put Amount: $350,000.00
ACCEPTED: Dated as of October ____, 2000
ESQUIRE TRADE & FINANCE, INC. - Subscriber
Trident Chambers
P.O. Box 146
Road Town, Tortola, B.V.I.
Fax: 011-41-41-760-1031
By:______________________________
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Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
IBIZ TECHNOLOGY CORP.
A Florida Corporation
By:_________________________________
Dated: October _____, 2000
Purchase Price: $115,000.00
PUT
Put Note Purchase Price
(including Section 11.2(e) Put Amount): $460,000.00
Section 11.2(e) Put Amount: $330,000.00
ACCEPTED: Dated as of October ____, 2000
THE KESHET FUND L.P. - Subscriber
135 West 50th Street, Suite 1700
New York, NY 10020
Fax: 212-541-4434
By:______________________________
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Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
IBIZ TECHNOLOGY CORP.
A Florida Corporation
By:_________________________________
Dated: October _____, 2000
Purchase Price: $460,000.00
PUT
Put Note Purchase Price
(including Section 11.2(e) Put Amount): $1,840,000.00
Section 11.2(e) Put Amount: $920,000.00
ACCEPTED: Dated as of October ____, 2000
KESHET, L.P.- Subscriber
Ragnall House, 18 Peel Road
Douglas, Isle of Man
1M1 4L2, United Kingdom
Fax: 011-44-1624-661594
By:______________________________
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Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
IBIZ TECHNOLOGY CORP.
A Florida Corporation
By:_________________________________
Dated: October _____, 2000
Purchase Price: $125,000.00
PUT
Put Note Purchase Price
(including Section 11.2(e) Put Amount): $500,000.00
Section 11.2(e) Put Amount: $250,000.00
ACCEPTED: Dated as of October ____, 2000
TALBIYA B. INVESTMENTS LTD. - Subscriber
Ragnall House, 18 Peel Road
Douglas, Isle of Man
1M1 4L2, United Kingdom
Fax: 011-44-1624-661594
By:______________________________
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SCHEDULE B TO SUBSCRIPTION AGREEMENT
- ------------------------------------------------------------------------------------------------
FINDERS INITIAL OFFERING - PUT CASH FINDER'S PUT CASH FINDER'S
CASH FINDER'S FEES FEES 11.2(e) FEES - PROPORTION OF
PUT AMOUNT PUT CASH FINDER'S FEES
- ------------------------------------------------------------------------------------------------
LIBRA FINANCE S.A. $15,000 $30,000 (50% of 50% of Put Cash
P.O. Box 4603 Finder's Fees Finder's Fees
Zurich, Switzerland payable in payable in
Fax: 011-411-201-6262 connection with connection with
investment by investment by
Celeste Trust Reg. Celeste Trust Reg.
and Esquire Trade & and Esquire Trade &
Finance Inc.) Finance Inc.
- ------------------------------------------------------------------------------------------------
ALON ENTERPRISES LTD. $85,000 $170,000 (Balance of Balance of Put Cash
Ragnall House, 18 Peel Road Cash Finder's Fees) Finder's Fees
Douglas, Isle of Man
1M1 4L2, United Kingdom
Fax: 011-44-1624-661594
- ------------------------------------------------------------------------------------------------
TOTAL $100,000 (100%) $200,000 (100%)
- ------------------------------------------------------------------------------------------------
PROPORTIONATE SHARE OF AGGREGATE WARRANTS ISSUABLE
- -------------------------------------------------------------------------------------------------------------
WARRANT RECIPIENTS INITIAL WARRANTS PUT WARRANTS IN CONNECTION WITH PUT WARRANTS **
INITIAL $1,000,000 OF AGGREGATE
PUT FUNDS * ("INITIAL WARRANTS")
- -------------------------------------------------------------------------------------------------------------
TALBIYA B. INVESTMENTS LTD. 175,000 175,000 Warrants issuable in Put Warrants issuable in
Ragnall House, 18 Peel Road connection with investments by connection with
Douglas, Isle of Man The Keshet Fund L.P. and Keshet investments by The Keshet
1M1 4L2, United Kingdom L.P. Fund L.P. and Keshet L.P.
Fax: 011-44-1624-661594
- -------------------------------------------------------------------------------------------------------------
LIBRA FINANCE S.A. 75,000 75,000 Warrants issuable in Put Warrants issuable in
P.O. Box 4603 connection with investments by connection with
Zurich, Switzerland Celeste Trust Reg. and Esquire investments by Celeste
Fax: 011-411-201-6262 Trade & Finance Inc. Trust Reg. and Esquire
Trade & Finance Inc.
- -------------------------------------------------------------------------------------------------------------
TOTAL 250,000 250,000 100%
- -------------------------------------------------------------------------------------------------------------
* Warrants to purchase 1,500,000 Common Shares will be issued pro rata in
connection with the $1,000,000 Initial Offering and $2,000,000 Section 11.2(e)
Put Amounts, payable in the aggregate by all Subscribers to the Initial
Offering.
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** This column describes the Put Warrants issuable in connection with the final
$2,000,000 of Put Purchase Price.
WARRANT EXERCISE COMPENSATION
- ------------------------------------------------------------------------------
FINDERS PROPORTIONATE SHARE OF CASH COMMISSIONS
PAYABLE ON WARRANT EXERCISE
- ------------------------------------------------------------------------------
LIBRA FINANCE S.A. 50% of Cash Commissions payable in connection
P.O. Box 4603 with investments by Celeste Trust Reg. and
Zurich, Switzerland Esquire Trade & Finance Inc.
Fax: 011-411-201-6262
- ------------------------------------------------------------------------------
ALON ENTERPRISES LTD. Balance of Commissions
Ragnall House, 18 Peel Road
Douglas, Isle of Man
1M1 4L2, United Kingdom
Fax: 011-44-1624-661594
- ------------------------------------------------------------------------------
TOTAL 100%
- ------------------------------------------------------------------------------
Recipient of $2,500 Non-Accountable Expense Allowance described in Section 6(a):
KCM LLC.
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