UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 13, 1998
Integrated Spatial Information Solutions, Inc.
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(Exact name of registrant as specified in its charter)
Colorado 0-14273 84-0868815
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
200 West Forsyth St., Suite 800, Jacksonville, FL 32202
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(Address of principal executive offices and Zip Code)
Registrant's telephone number, including area code: (904)-346-1319
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N/A
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(Former name or former address, if changed since last report.)
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Item 5. Other Information
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I.
Integrated Spatial Information Solutions, Inc. ("Company") has entered into
subscription agreements for the sale of a total of $2,050,000 of its securities,
which will result in net proceeds to the Company of approximately $1,775,000
after transaction costs. A total of $750,000, less commissions, costs and escrow
reserve, has been completed, and a total of $1,300,000 has been deposited into
an escrow account. Of those escrowed funds, $825,000, less commissions and
costs, will be released when the Company files the necessary registration
statement, and $475,000 will be released upon the effectiveness of the
registration statement, as described in this report and the exhibits to this
report.
In a related matter, the NASDAQ Listing Qualifications Panel has granted
the Company an extension to continue trading the Company's common stock on the
NASDAQ SmallCap Market. The extension allows the Company until September 1,
1998, to file the registration statement as required under the subscription
agreement, and until October 15, 1998, to make a public filing with the SEC and
NASDAQ evidencing a minimum of $2.5 million in net tangible assets. The Company
must also demonstrate compliance with all requirements for continued listing.
The private placements are components of a plan submitted by the Company to
the NASDAQ Panel to achieve and sustain compliance with the minimum listings for
the SmallCap Market. Management has maintained a dialogue with the NASDAQ Panel,
believes the filing of this Report fulfills the initial reporting requirement,
and believes that the Company can, based on its past performance, the structure
of the private placements and other elements of its compliance plan, satisfy the
requirements for continued listing on the SmallCap Market.
Background:
The subscription agreements mentioned above include the private sale of the
Company's Series A 6% Cumulative Convertible Preferred Stock $.001 par value
("Series A Preferred"), to two unaffiliated entities for a total price of $2
million. The subscription agreements mentioned above also include the private
sale of 57,142 shares of common stock for a total of $50,000, which has been
completed with two accredited investors in separate transactions.
The Company will issue a total of 2,000 restricted shares of Series A
Preferred each with a Stated Value of $1,000 per share. The Series A Preferred
has no voting rights. The holders of the Series A Preferred Stock have a
preferred right to payment in the event of dissolution, liquidation or
winding-up of the Company. The Series A Preferred has a preferential cumulative
dividend at the rate of 6% simple interest per year payable quarterly when, as
and if declared. The Company may elect to pay the dividends in additional shares
of Series A Preferred Stock.
The Company deposited $100,000 of the net proceeds from the first tranche
into the escrow account, as a contingency to compensate the purchasers if they
incur costs and expenses associated with the purchasers' enforcement of any
rights under the subscription agreement. The expenses escrow is released to the
Company when all the Series A Preferred and accrued dividends have been
converted into free trading Common Stock or otherwise redeemed.
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The Company has agreed to file a registration statement ("Registration
Statement") with the U.S. Securities and Exchange Commission ("SEC"), to permit
the public sale of the Common Stock issuable upon conversion of the Series A
Preferred and upon exercise of the warrants issued to the purchasers and the
placement agents. The second tranche in the amount of $825,000 will be released
when the Company files the Registration Statement. The Company has agreed with
the NASDAQ Panel to file the Registration Statement on or before August 31,
1998.
The third tranche in the amount of $475,000 will be released from escrow to
the Company if the above described registration statement is declared effective
within 90 days from the date it is filed with the SEC.
If the Registration Statement is not filed with the SEC as required, funds
for the second tranche are returned to the purchasers at their option and the
purchasers are entitled to damages from the Company for a Non-Registration Event
as set forth below. If the Registration Statement is not declared effective as
required, funds for the third tranche are returned to the purchasers at their
option and the purchasers are entitled to damages from the Company for a
Non-Registration Event as set forth below.
If the Company does not file the Registration Statement as required, or if
the Registration Statement is not declared effective by the SEC as required
(collectively a "Non-Registration Event"), the investors are entitled to
liquidated damages, the dividend rate of 6% becomes 15% from and after the
occurrence of such event, and at the option of the holder, the outstanding share
of Series A Preferred Stock shall be redeemed by the Corporation at its Stated
Value and accrued dividends plus 8% on an annualized basis of the redemption
amount.
The holders of shares of Series A Preferred have the right after sixty (60)
days from the respective closing date of each tranche, to convert such shares
into shares of Common Stock. Management believes this staggered conversion
schedule may facilitate the conversion into common stock over a greater period
of time. The Company and the holder do not have the right to convert the Series
A Preferred if at the time of conversion such holder would be the beneficial
owner of more than 9.99% of the Company's common stock.
The Series A Preferred associated with the first two tranches can not be
converted into free trading common stock until the Registration Statement is
declared effective or until the Rule 144 holding period is satisfied. The Series
A Preferred in the final tranche can not be converted into free trading common
stock until 60 days after the Registration Statement is declared effective or
until the Rule 144 holding period is satisfied.
The conversion price of the Series A Preferred is equal to the lesser of:
(i) 105% of the average of the closing bid price of the Company's common stock
for the five (5) trading days immediately preceding the date of the first
closing under the subscription agreement for the Series A Preferred Stock; or
(ii) 20% below the average of the three lowest closing bid prices for the ten
trading days immediately preceding the conversion of the respective shares of
Series A Preferred Stock. The Series A Preferred is subject to mandatory
conversion two years from the date issued.
The number of shares of Common Stock that may be issued upon conversion of
the Series A Preferred is not known in advance, because the Conversion Price
takes into account the closing bid prices for the Common Stock at the time of
conversion. The NASDAQ Marketplace Rules require the Company to obtain
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shareholder approval prior to issuing shares of its common stock in certain
circumstances. Since it is not possible to determine in advance the exact number
of shares of common stock that may be issued upon conversion of the Series A
Preferred Stock, it is possible that such NASDAQ Marketplace Rule could apply to
the issuance of Common Stock upon conversion of Preferred Stock. If so, the
Company would be required to obtain shareholder approval prior to issuing the
amount of shares of Common Stock to which the NASDAQ Marketplace Rules apply.
If the Company may not issue shares of Common Stock upon conversion of the
Series A Preferred when requested by the holder, the Company must redeem the
Series A Preferred at the price specified in the subscription agreement.
Other than in connection with mergers and acquisitions transactions that
are part of the Company's business plans, until 120 days after the effective
date of the Registration Statement the purchasers have the rights of first
refusal to purchase securities of the Company, and the Company has agreed not to
issue any securities that could be free trading prior to all the Common Stock
underlying the Series A Preferred and the Warrants issued in connection with the
offering of the Series A Preferred.
The Company also agreed to issue to the purchasers of the Series A
Preferred, warrants to buy a total of 400,000 shares of the Company's no par
value common stock ("Common Stock") exercisable for two years at 105% of the
market price on the day prior to closing. These warrants will be issued
proportionately at the closing of each tranche in proportion to the funds
received by the Company at the closings.
The Company agreed to pay the placement agents for the Series A Preferred
Stock a commission of twelve percent of the total offering price, and warrants
to purchase a total of 300,000 shares of Common Stock exercisable for three
years at the per share equal to the market price on the day prior to the first
closing. The commissions and warrants are proportionately released at the
closing of each tranche.
II.
On August 13, 1998, the Company filed an Amendment to Article V, Section 6
of its Articles of incorporation, pertaining to the previously authorized class
of Series A Preferred Stock, to facilitate the sale of the Series A Preferred
Stock discussed above. No shares of Series A Preferred Stock were issued or
outstanding when the Amendment was filed.
Item 7. Exhibits
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1. Articles of Amendment to Article V, Section 6 of the Articles of
Incorporation of the Company, filed with the Colorado Secretary of State on
August 13, 1998, and Certificate of Correction filed with the Secretary of State
on August 18, 1998.
2. Form of Common Stock Purchase Warrant
3. Form of Subscription Agreement for Series A Preferred Stock
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4. Unaudited condensed and consolidated balance sheet at June 30, 1998,
with pro forma adjustments.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Integrated Spatial Information Solutions, Inc.
Date: August 20, 1998 /s/ Frederick G. Beisser
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Frederick G. Beisser, Vice President
Articles of Amendment to the Articles of Incorporation
of Integrated Spatial Information Solutions, Inc.
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
First: The name of the corporation is Integrated Spatial Information
Solutions, Inc.
Second: The following amendment to the Articles of Incorporation was duly
adopted by the Board of Directors on July 15, 1998 without shareholder action,
as prescribed by Section 7-106-102 of the Colorado Business Corporation Act, and
shareholder action was not required.
Article V, Section 6 of the Articles of Incorporation are amended to read
as follows:
6. Series A 6% Cumulative Convertible Preferred Stock $.001 par value.
The Corporation shall have 1,000,000 shares designated as Series A 6%
Cumulative Convertible Preferred Stock $.001 par value, as part of the
authorized class of preferred shares. Set forth hereinafter is a statement of
the voting powers, preferences, limitations, restrictions, and relative rights
of shares of Series A 6% Cumulative Convertible Preferred Stock $.001 par value:
1. Designation: Number of Shares. The designation of said series of
Preferred Stock shall be Series A 6% Cumulative Convertible Preferred Stock (the
"Series A Preferred Stock"). The number of shares of Series A Preferred Stock
shall be 1,000,000. Each share of Series A Preferred Stock shall have a stated
value equal to $1,000 (as adjusted for any stock dividends, combinations or
splits with respect to such shares) (the "Stated Value").
2. Dividends.
(a) The holders of outstanding shares of Series A Preferred Stock shall be
entitled to receive preferential dividends in cash out of any funds of the
Corporation legally available at the time for declaration of dividends before
any dividend or other distribution will be paid or declared and set apart for
payment on any shares of any Common Stock or other class of stock junior to the
Series A Preferred Stock (the Common Stock and such junior stock being
hereinafter collectively the "Junior Stock") at the rate of 6% simple interest
per annum on the Stated Value per share payable quarterly when as and if
declared; provided however that dividend payments may be made in the sole
discretion of the Board of Directors of the Corporation in additional fully paid
and non assessable shares of Series A Preferred Stock at a rate of one share of
Series A Preferred Stock for each $1,000 of such dividend not paid in cash, and
the issuance of such additional shares shall constitute full payment of such
dividend. In no event shall dividends be paid with Series A Preferred Stock
unless the Common Stock deliverable upon conversion of such Series A Preferred
Stock will be unlegended, freely tradable and freely transferable on the
transfer books of the Corporation on the dates such dividends are payable and
paid to the Holder.
(b) The dividends on the Series A Preferred Stock at the rates provided
above shall be cumulative whether or not earned so that if at any time full
cumulative dividends at the rate aforesaid on all shares of the Series A
Preferred Stock then outstanding from the date from and after which dividends
thereon are cumulative to the end of the quarterly dividend period next
preceding such time shall not have been paid or declared and set apart for
payment, or if the full dividend on all such outstanding Series A Preferred
Stock for the then current dividend period shall not have been paid or declared
and set apart for payment, the amount of the deficiency shall be paid or
declared and set apart for payment (but without interest thereon) before any sum
shall be set apart for or applied by the Corporation or a subsidiary of the
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Corporation to the purchase redemption or other acquisition of the Series A
Preferred Stock or any shares of any other class of stock ranking on a parity
with the Series A Preferred Stock ("Parity Stock") and before any dividend or
other distribution shall be paid or declared and set apart for payment on any
Junior Stock and before any sum shall be set aside for or applied to the
purchase, redemption or other acquisition of Junior Stock.
(c) Dividends on all shares of the Series A Preferred Stock shall begin to
accrue and be cumulative from and after the date of issuance thereof. A dividend
period shall be deemed to commence on the day following a quarterly dividend
payment date herein specified and to end of the next succeeding quarterly
dividend payment date herein specified.
3. Liquidation Rights.
(a) Upon the dissolution, liquidation or winding-up of the Corporation,
whether voluntary or involuntary, the holders of the Series A Preferred Stock
shall be entitled to receive before any payment or distribution shall be made on
the Junior Stock, out of the assets of the Corporation available for
distribution to stockholders, the Stated Value per share of Series A Preferred
Stock and all accrued and unpaid dividends to and including the date of payment
thereof. Upon the payment in full of all amounts due to holders of the Series A
Preferred Stock the holders of the Common Stock of the Corporation and any other
class of Junior Stock shall receive all remaining assets of the Corporation
legally available for distribution. If the assets of the Corporation available
for distribution to the holders of the Series A Preferred Stock shall be
insufficient to permit payment in full of the amounts payable as aforesaid to
the holders of Series A Preferred Stock upon such liquidation, dissolution or
winding-up, whether voluntary or involuntary, then all such assets of the
Corporation shall be distributed to the exclusion of the holders of shares of
Junior Stock ratably among the holders of the Series A Preferred Stock.
(b) Neither the purchase nor the redemption by the Corporation of shares of
any class of stock nor the merger or consolidation of the Corporation with or
into any other corporation or corporations nor the sale or transfer by the
Corporation of all or any part of its assets shall be deemed to be a
liquidation, dissolution or winding-up of the Corporation for the purposes of
this paragraph 3.
4. Conversion into Common Stock. Shares of Series A Preferred Stock shall
have the following conversion rights and obligations:
(a) Subject to the further provisions of this paragraph 4 each holder of
shares of Series A Preferred Stock shall have the right at any time and from
time to time after sixty (60) days from the date on which a share of Series A
Preferred Stock was issued, to convert some or all such shares into fully paid
and non-assessable shares of Common Stock of the Corporation (as defined in
paragraph 4(i) below) determined in accordance with the Conversion Rate provided
in paragraph 4(b) below (the "Conversion Rate"); provided, that the aggregate
Stated Value to be converted shall be at least $10,000 (unless if at the time of
such conversion the aggregate Stated Value of all shares of Series A Preferred
Stock registered to the Holder is less than $10,000, then the whole amount may
be converted).
(b) The number of shares of Common Stock issuable upon conversion of each
share of Series A Preferred Stock shall equal (i) the sum of (A) the Stated
Value per share and (B) accrued and unpaid dividends on such share, divided by
(ii) the Conversion Price. The Conversion Price shall be equal to the lesser of:
(i) 105% of the average of the Closing Bid Price (as hereinafter defined) of the
Corporation's Common Stock for the five (5) trading days immediately preceding
the date of issuance of the respective shares of Series A Preferred Stock; or
(ii) 20% below the average of the three lowest Closing Bid Prices for the ten
trading days immediately preceding the conversion of the respective shares of
Series A Preferred Stock (referred to as the "Look-Back Period"). After 150 days
following the issuance of shares of Series A Preferred, the Look-Back Period for
such respective share will be increased by two days per month for up to a total
of twenty days trading prices to be used in the calculation of the conversion
price. The Closing Bid Price shall mean the closing bid price of the
Corporation's Common Stock as reported by NASDAQ or the principal exchange or
market where traded.
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(c) The holder of any certificate for shares of Series A Preferred Stock
desiring to convert any of such shares may give notice of its decision to
convert the shares into common stock by telecopying an executed and completed
notice of conversion to the Corporation and delivering within three business
days thereafter, the original notice of conversion and the certificate for the
Preferred Stock properly endorsed for or accompanied by duly executed
instruments of transfer (and such other transfer papers as said Transfer Agent
may reasonably require) to the Corporation. Each date on which a notice of
conversion is telecopied to and received by the Corporation in accordance with
the provisions hereof shall be deemed a Conversion Date. The Corporation will
transmit the certificates representing the shares of common stock issuable upon
conversion of any Preferred Stock (together with the Preferred Stock
representing the shares not converted) to the Holder via express courier, by
electronic transfer or otherwise, within three business days after receipt by
the Corporation of the original notice of conversion and the Preferred Stock
representing the shares to be converted. The holder of the shares so surrendered
for conversion shall be entitled to receive (except as otherwise provided
herein) a certificate or certificates which shall be expressed to be fully paid
and non-assessable for the number of shares of Common Stock to which such
stockholder shall be entitled upon such conversion registered in the name of
such holder or in such other name or names as such stockholder in writing may
specify. In the case of any Series A Preferred Stock which is converted in part
only the holder of shares of Series A Preferred Stock shall upon delivery of the
certificate or certificates representing Common Stock also receive a new share
certificate representing the unconverted portion of the shares of Series A
Preferred Stock. Nothing herein shall be construed to give any holder of shares
of Series A Preferred Stock surrendering the same for conversion the right to
receive any additional shares of Common Stock or other property which results
from an adjustment in conversion rights under the provisions of paragraph (d) or
(e) of this paragraph 4 until holders of Common Stock are entitled to receive
the shares or other property giving rise to the adjustment.
In the case of the exercise of the conversion rights set forth in paragraph
4(a) the conversion privilege shall be deemed to have been exercised and the
shares of Common Stock issuable upon such conversion shall be deemed to have
been issued upon the date of receipt by the Corporation for conversion of the
certificate for such shares of Series A Preferred Stock. The person or entity
entitled to receive Common Stock issuable upon such conversion shall, on the
date such conversion privilege is deemed to have been exercised and thereafter,
be treated for all purposes as the record holder of such Common Stock and shall
on the same date cease to be treated for any purpose as the record holder of
such shares of Series A Preferred Stock so converted.
Notwithstanding the foregoing, if the stock transfer books are closed on
the date such shares are received by the Transfer Agent or Corporation, the
conversion privilege shall be deemed to have been exercised and the person or
entity shall be treated as a record holder of shares of Common Stock on the next
succeeding date on which the transfer books are open, but the Conversion Rate
shall be that in effect on the date such conversion privilege was exercised. The
Corporation shall not be required to deliver certificates for shares of its
Common Stock or new certificates for unconverted shares of its Series A
Preferred Stock while the stock transfer books for such respective classes of
stock are duly closed for any purpose; but the right of surrendering shares of
Series A Preferred Stock for conversion shall not be suspended during any period
that the stock transfer books of either of such classes of stock are closed.
Upon the conversion of any shares of Series A Preferred Stock no adjustment
or payment shall be made with respect to such converted shares on account of any
dividend on shares of such stock or on account of any dividend on the Common
Stock, except that the holder of such converted shares shall be entitled to be
paid any dividends declared on shares of Common Stock after conversion thereof.
The Corporation shall not be required, in connection with any conversion of
Series A Preferred Stock, to issue a fraction of a share of its Common Stock nor
to deliver any stock certificate representing a fraction thereof. For
administrative efficiency and simplicity, in the event the number of shares
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issuable to a shareholder results in a fractional share, said number shall be
rounded up to the next higher whole number of shares. No cash shall be paid for
any fractional share.
(d) The Conversion Rate shall be subject to adjustment from time to time as
follows:
(i) In case the Corporation shall at any time (A) declare any dividend
or distribution on its Common Stock or other securities of the Corporation
other than the Series A Preferred Stock, (B) split or subdivide the
outstanding Common Stock, (C) combine the outstanding Common Stock into a
smaller number of shares, or (D) issue by reclassification of its Common
Stock any shares or other securities of the Corporation, then in each such
event the Conversion Rate shall be adjusted proportionately so that the
holders of Series A Preferred Stock shall be entitled to receive the kind
and number of shares or other securities of the Corporation which such
holders would have owned or have been entitled to receive after the
happening of any of the events described above had such shares of Series A
Preferred Stock been converted immediately prior to the happening of such
event (or any record date with respect thereto). Such adjustment shall be
made whenever any of the events listed above shall occur. An adjustment
made to the Conversion pursuant to this paragraph 4(d)(i) shall become
effective immediately after the effective date of the event retroactive to
the record date, if any, for the event.
(e) (i) In case of any merger of the Corporation with or into any
other corporation (other than a merger in which the Corporation is the
surviving or continuing corporation and which does not result in any
reclassification, conversion, or change of the outstanding shares of Common
Stock) then unless the right to convert shares of Series A Preferred Stock
shall have terminated, as part of such merger lawful provision shall be
made so that holders of Series A Preferred Stock shall thereafter have the
right to convert each share of Series A Preferred Stock into the kind and
amount of shares of stock and/or other securities or property receivable
upon such merger by a holder of the number of shares of Common Stock into
which such shares of Series A Preferred Stock might have been converted
immediately prior to such consolidation or merger. Such provision shall
also provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in paragraph (d) of this
paragraph 4. The foregoing provisions of this paragraph 4(e) shall
similarly apply to successive mergers.
(ii) In case of any sale or conveyance to another person or entity of
the property of the Corporation as an entirety, or substantially as an
entirety, in connection with which shares or other securities or cash or
other property shall be issuable, distributable, payable, or deliverable
for outstanding shares of Common Stock, then, unless the right to convert
such shares shall have terminated, lawful provision shall be made so that
the holders of Series A Preferred Stock shall thereafter have the right to
convert each share of the Series A Preferred Stock into the kind and amount
of shares of stock or other securities or property that shall be issuable,
distributable, payable, or deliverable upon such sale or conveyance with
respect to each share of Common Stock immediately prior to such conveyance.
(f) Whenever the number of shares to be issued upon conversion of the
Series A Preferred Stock is required to be adjusted as provided in this
paragraph 4, the Corporation shall forthwith compute the adjusted number of
shares to be so issued and prepare a certificate setting forth such adjusted
conversion amount and the facts upon which such adjustment is based, and such
certificate shall forthwith be filed with the Transfer Agent for the Series A
Preferred Stock and the Common Stock; and the Corporation shall mail to each
holder of record of Series A Preferred Stock notice of such adjusted conversion
price.
(g) In case at any time the Corporation shall propose:
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(i) to pay any dividend or distribution payable in shares upon its
Common Stock or make any distribution (other than cash dividends) to the
holders of its Common Stock; or
(ii) to offer for subscription to the holders of its Common Stock any
additional shares of any class or any other rights; or
(iii) any capital reorganization or reclassification of its shares or
the merger of the Corporation with another corporation (other than a merger
in which the Corporation is the surviving or continuing corporation and
which does not result in any reclassification, conversion, or change of the
outstanding shares of Common Stock); or
(iv) the voluntary dissolution, liquidation or winding-up of the
Corporation;
then, and in any one or more of said cases, the Corporation shall cause at least
fifteen (15) days prior notice of the date on which (A) the books of the
Corporation shall close or a record be taken for such stock dividend,
distribution, or subscription rights, or (B) such capital reorganization,
reclassification, merger, dissolution, liquidation or winding-up shall take
place, as the case may be, to be mailed to the Transfer Agent for the Series A
Preferred Stock and for the Common Stock and to the holders of record of the
Series A Preferred Stock.
(h) So long as any shares of Series A Preferred Stock shall remain
outstanding and the holders thereof shall have the right to convert the same in
accordance with provisions of this paragraph 4 the Corporation shall at all
times reserve from the authorized and unissued shares of its Common Stock a
sufficient number of shares to provide for such conversions.
(i) The term Common Stock as used in this paragraph 4 shall mean Common
Stock of the Corporation as such stock is constituted at the date of issuance
thereof or as it may from time to time be changed or shares of stock of any
class of other securities and/or property into which the shares of Series A
Preferred Stock shall at any time become convertible pursuant to the provisions
of this paragraph 4.
(j) The Corporation shall pay the amount of any and all issue taxes (but
not income taxes) which may be imposed in respect of any issue or delivery of
stock upon the conversion of any shares of Series A Preferred Stock, but all
transfer taxes and income taxes that may be payable in respect of any change of
ownership of Series A Preferred Stock or any rights represented thereby or of
stock receivable upon conversion thereof shall be paid by the person or persons
surrendering such stock for conversion.
(k) Subject to the provisions of this Sections, if the Corporation at any
time shall issue any shares of Common Stock prior to the conversion of the
entire Stated Value of the Series A Preferred Stock (otherwise than: (i) as
provided in paragraph (d) and (e) of this Paragraph 4; or (ii) pursuant to
options, warrants, or other obligations to issue shares outstanding on the date
hereof as described in filings made by the Corporation prior to the date hereof
with the Securities and Exchange Commission including all shares reserved for
issuance pursuant to the Corporation's existing option and stock plans [(I) and
(ii) above are referred to as the "Existing Option Obligations"]; or (iii) in
connection with mergers, acquisitions, or asset purchases which are part of its
business plan) for a consideration less than the Conversion Price that would be
in effect at the time of such issue, then, and thereafter successively upon each
such issue, the Conversion Price shall be reduced as follows: (I) the number of
shares of Common Stock outstanding immediately prior to such issue shall be
multiplied by the Conversion Price in effect at the time of such issue and the
product shall be added to the aggregate consideration, if any received by the
Corporation upon such issue of additional shares of Common Stock; and (ii) the
sum so obtained shall be divided by the number of shares of Common Stock
outstanding immediately after such issue. Except for the existing Option
Obligations and options that may be issued under any employee incentive stock
option and/or any qualified stock option plan adopted by the Corporation, for
purposes of this adjustment, the issuance of any security of the Corporation
carrying the right to convert such security into shares of Common Stock or of
any warrant, right, or option to purchase Common Stock shall result in an
adjustment to the Conversion Price upon the issuance of shares of Common Stock
upon exercise of such conversion or purchase rights.
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5. Mandatory Conversion.
(a) The shares of Series A Preferred Stock not previously converted into
shares of Common Stock shall be converted into shares of Common Stock without
further action of the Holder on the date that is two years from the date of
issuance thereof, at the Conversion Price and on the conversion terms specified
in paragraph 4(b).
(b) Notice of conversion of Series A Preferred Stock by the Corporation
pursuant to this paragraph 5 shall be given by mail or in such other manner as
may be prescribed by resolution of the Board not less than thirty (30) days
prior to the applicable date of mandatory conversion (the "Conversion Date"). As
applicable, the notice shall specify the number of shares to be converted, the
date fixed for conversion, and the conversion price per share.
(c) The holder of any certificate for shares of Series A Preferred Stock
that is converted pursuant to this Section 5 shall surrender such certificate at
the principal office of any transfer agent for said stock (the "Transfer Agent")
properly endorsed for or accompanied by duly executed instruments of transfer
(and such other transfer papers as said Transfer Agent may reasonably require).
The holder of the shares so surrendered for conversion shall be entitled to
receive (except as otherwise provided herein) a certificate or certificates
which shall be expressed to be fully paid and non-assessable for the number of
shares of Common Stock to which such stockholder shall be entitled upon such
conversion registered in the name of such holder or in such other name or names
as such stockholder in writing may specify.
(d) On and after the applicable Conversion Date and notwithstanding that
any certificate for shares of Series A Preferred Stock so called for conversion
shall not have been surrendered for cancellation, all dividends on the Series A
Preferred Stock called for conversion shall cease to accrue and the shares
represented thereby shall no longer be deemed outstanding and all rights of the
holders thereof as stockholders of the Corporation shall cease and terminate,
except the right to receive the shares of Common Stock upon conversion as
provided herein.
(e) In no event shall a Mandatory Conversion occur at any time unless the
Common Stock to be delivered upon conversion will be immediately upon delivery
and thereafter, issued without restrictive legend and freely transferable on the
transfer books of the Corporation.
6. Voting Rights. The shares of Series A Preferred Stock shall not have
voting rights.
7. Redemption. The Corporation may not redeem the Series A Preferred Stock
without the consent of the Holder of Series A Preferred.
8. Event of Default. The occurrence of any of the following events of
default ("Event of Default") shall, after the applicable period to cure the
Event of Default, cause the dividend rate of 6% described in paragraph 2 hereof
to become 15% from and after the occurrence of such event, and at the option of
the Holder, the outstanding share of Series A Preferred Stock shall be redeemed
by the Corporation at its Stated Value and accrued dividends plus 8% on an
annualized basis of the redemption amount, and the Holder may rescind any
unfilled Notice of Conversion:
(a) The Corporation fails to pay any dividend payment required to be paid
pursuant to the terms of paragraph 2 hereof and such failure continues for a
period of ten (10) days after written notice to the Corporation from the Holder.
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(b) The Corporation breaches any material covenant, term or condition of
the Subscription Agreement entered into between the Corporation and holder
relating to Series A Preferred Stock (the "Subscription Agreement") or in this
Article V Section 6 pertaining to Series A 6% Cumulative Convertible Preferred
Stock, $0.001 Par Value Per Share, and such breach continues for a period of
seven (7) days after written notice to the Corporation from the holder.
(c) Any material representation or warranty of the Corporation made on the
Subscription Agreement, or on any agreement, statement or certificate given in
writing pursuant thereto shall be false or misleading.
(d) The Corporation shall make an assignment of a substantial part of its
property or business for the benefit of creditors, or apply for or consent to
the appointment of a receiver or trustee for it or for a substantial part of its
property or business, or such a receiver or trustee shall otherwise be
appointed.
(e) Any money judgment, writ or similar process, other than for matters
disclosed in the reports filed with the U.S. Securities and Exchange Commission
by the Corporation as of the date of this Amendment, shall be entered against
the Corporation or its property or other assets for more than $100,000, and is
not vacated, bonded or stayed within 60 days.
(f) Bankruptcy, insolvency, reorganization or liquidation proceedings or
other proceedings or relief under any bankruptcy law or any law for the relief
of debtors shall be instituted by or against the Corporation, and is not
dismissed, vacated, or stayed within 60 days of such filing.
(g) The failure to maintain a listing of the Common Stock on one of the
American Stock Exchange, the NASDAQ SmallCap Market, or the OTC Bulletin Board
market (or successor market, if any) or, if listed on the OTC Bulletin Board,
the failure to be in compliance with the listing requirements of the OTC
Bulletin Board or such successor market. If the Common Stock is listed on the
OTC Bulletin Board market, the Corporation shall have at least three market
makers for its Common Stock within 7 days of such listing and thereafter, and
shall have 2 additional market makers within 45 days of such listing, for a
total of five market makers.
(h) A concession by the Corporation of a default under any one or more
obligations, other than for matters disclosed in the reports filed with the U.S.
Securities and Exchange Commission by the Corporation as of the date of this
Amendment, in an aggregate monetary amount in excess of $100,000.
(i) An order entered by a court of competent jurisdiction, or by the
Securities and Exchange Commission, or by the National Association of Securities
Dealers, preventing purchase and sale transactions in the Corporation's Common
Stock for more than three business days.
(j) The Corporation's failure to timely deliver Common Stock to the holder
pursuant to paragraph 4 hereof or the Subscription Agreement.
(k) The occurrence of a Registration Default as described in Section
10.2(j) of the Subscription Agreement.
(l) The failure to obtain shareholder approval, if required under NASDAQ
Marketplace Rules, for the issuance of Common Stock upon the conversion of the
Series A Preferred Stock, but such Event of Default shall apply only to Series A
Preferred that can not be converted into Common Stock.
9. Status of Converted or Redeemed Stock. In case any shares of Series A
Preferred Stock shall be redeemed or otherwise repurchased or reacquired, the
shares so redeemed, converted, or reacquired shall resume the status of
authorized but unissued shares of Preferred Stock and shall no longer be
designated as Series A Preferred Stock.
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10. Additional Restrictions. For as long as any shares of the Series A
Preferred Stock are outstanding, the Corporation will not issue any preferred
stock that is senior to the Series A Preferred Stock, and will not amend the
terms of the Series A Preferred Stock without the consent of the holders of the
Series A Preferred Stock.
Third: The amendment does not effect any exchange, reclassification, or
cancellation of issued shares.
Fourth: The amendment does not effect a change in the amount of stated
capital.
Integrated Spatial Information Solutions, Inc.
Dated August 10, 1998
By: /s/ John Antenucci
-------------------------
John Antenucci, President
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CERTIFICATE OF CORRECTION
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned corporation executes the following Certificate of Correction:
FIRST: The name of the corporation is Integrated Spatial Information
Solutions, Inc., a Colorado corporation.
SECOND: The document being corrected is the Articles of Amendment to the
Articles of Incorporation, filed with the Secretary of State on August 13, 1998.
THIRD: The statement of incorrect information is the following Article V,
Section 6, Paragraph 4(b) of the Articles of Amendment to the Articles of
Incorporation, which contains a typographical error:
(b) The number of shares of Common Stock issuable upon conversion of each
share of Series A Preferred Stock shall equal (i) the sum of (A) the Stated
Value per share and (B) accrued and unpaid dividends on such share, divided by
(ii) the Conversion Price. The Conversion Price shall be equal to the lesser of:
(i) 105% of the average of the Closing Bid Price (as hereinafter defined) of the
Corporation's Common Stock for the five (5) trading days immediately preceding
the date of issuance of the respective shares of Series A Preferred Stock; or
(ii) 20% below the average of the three lowest Closing Bid Prices for the ten
trading days immediately preceding the conversion of the respective shares of
Series A Preferred Stock (referred to as the "Look-Back Period"). After 150 days
following the issuance of shares of Series A Preferred, the Look-Back Period for
such respective share will be increased by two days per month for up to a total
of twenty days trading prices to be used in the calculation of the conversion
price. The Closing Bid Price shall mean the closing bid price of the
Corporation's Common Stock as reported by NASDAQ or the principal exchange or
market where traded.
FOURTH : The statement of corrected information for Article V, Section 6,
Paragraph 4(b) of the Articles of Amendment to the Articles of Incorporation is
as follows:
(b) The number of shares of Common Stock issuable upon conversion of each
share of Series A Preferred Stock shall equal (i) the sum of (A) the Stated
Value per share and (B) accrued and unpaid dividends on such share, divided by
(ii) the Conversion Price. The Conversion Price shall be equal to the lesser of:
(i) 105% of the average of the Closing Bid Price (as hereinafter defined) of the
Corporation's Common Stock for the five (5) trading days immediately preceding
the date of the first closing under the subscription agreement for the shares of
Series A Preferred Stock; or (ii) 20% below the average of the three lowest
Closing Bid Prices for the ten trading days immediately preceding the conversion
of the respective shares of Series A Preferred Stock (referred to as the
"Look-Back Period"). After 150 days following the issuance of shares of Series A
Preferred, the Look-Back Period for such respective share will be increased by
two days per month for up to a total of twenty days trading prices to be used in
the calculation of the conversion price. The Closing Bid Price shall mean the
closing bid price of the Corporation's Common Stock as reported by NASDAQ or the
principal exchange or market where traded.
Integrated Spatial Information Solutions, Inc. Dated August 18, 1998
By: /s/ John C. Antennucci
----------------------------
John C. Antenucci, President
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. 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 AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO INTEGRATED SPATIAL INFORMATION SOLUTIONS, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED.
Right to Purchase ________ Shares of
Common Stock of Integrated Spatial
Information Solutions, Inc. (subject
to adjustment as provided herein)
COMMON STOCK PURCHASE WARRANT
No. A1 August ____, 1998
Integrated Spatial Information Solutions, Inc., a corporation organized
under the laws of the State of Colorado (the "Company"), hereby certifies that,
for value received, __________________, or assigns, is entitled, subject to the
terms set forth below, to purchase from the Company after August ____, 1998 at
any time or from time to time before 5:00 p.m., New York time, on August ____,
2001 (the "Expiration Date"), up to ________ fully paid and nonassessable shares
of Common Stock (as hereinafter defined), $.001 par value per share, of the
Company, at a purchase price of $______ per share (such purchase price per share
as adjusted from time to time as herein provided is referred to herein as the
"Purchase Price"). The number and character of such shares of Common Stock and
the Purchase Price are subject to adjustment as provided herein.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term Company shall include Integrated Spatial Information
Solutions, Inc. and any corporation which shall succeed or assume the
obligations of Integrated Spatial Information Solutions, Inc. hereunder.
(b) The term "Common Stock" includes (a) the Company's Common Stock, $.001
par value per share, as authorized on the date of the Agreement, (b) any other
capital stock of any class or classes (however designated) of the Company,
authorized on or after such date, the holders of which shall have the right,
without limitation as to amount, either to all or to a share of the balance of
current dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and the holders of which
shall ordinarily, in the absence of contingencies, be entitled to vote for the
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election of a majority of directors of the Company (even if the right so to vote
has been suspended by the happening of such a contingency) and (c) any other
securities into which or for which any of the securities described in (a) or (b)
may be converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 5 or otherwise.
1. Exercise of Warrant.
1.1. Number of Shares Issuable upon Exercise. From and after the date
hereof through and including the Expiration Date, the holder hereof shall be
entitled to receive, upon exercise of this Warrant in whole in accordance with
the terms of subsection 1.2 or upon exercise of this Warrant in part in
accordance with subsection 1.3, the number of shares of Common Stock of the
Company identified on Page 1 hereof, subject to adjustment pursuant to Section
4. The Warrant may not be exercised unless the Company has obtained approval of
its shareholders of the issuance of the Common Stock upon exercise of this
Warrant or an exemption from NASDAQ's corporate governance rules as they may
apply.
1.2. Full Exercise. This Warrant may be exercised in full by the
holder hereof by surrender of this Warrant, with the form of subscription
attached as Exhibit A hereto (the Subscription Form") duly executed by such
holder, to the Company at its principal office or at the office of its Warrant
agent (as provided in Section 11), accompanied by payment, in cash or by
certified or official bank check payable to the order of the Company, in the
amount obtained by multiplying the number of shares of Common Stock for which
this Warrant is then exercisable by the Purchase Price (as hereinafter defined)
then in effect.
1.3. Partial Exercise. This Warrant may be exercised in part (but not
for a fractional share) by surrender of this Warrant in the manner and at the
place provided in subsection 1.2 except that the amount payable by the holder on
such partial exercise shall be the amount obtained by multiplying (a) the number
of shares of Common Stock designated by the holder in the Subscription Form by
(b) the Purchase Price then in effect. On any such partial exercise, the
Company, at its expense, will forthwith issue and deliver to or upon the order
of the holder hereof a new Warrant of like tenor, in the name of the holder
hereof or as such holder (upon payment by such holder of any applicable transfer
taxes), may request, the number of shares of Common Stock for which such Warrant
may still be exercised.
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1.4. Fair Market Value. Fair Market Value of a share of Common Stock
as of a particular date (the "Determination Date") shall mean the Fair Market
Value of a share of the Company's Common Stock. Fair Market Value of a share of
Common Stock as of a Determination Date shall mean:
(a) If the Company's Common Stock is traded on an exchange or is
quoted on the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") National Market System or the NASDAQ SmallCap Market, then
the closing or last sale price, respectively, reported for the last business day
immediately preceding the Determination Date.
(b) If the Company's Common Stock is not traded on an exchange or
on the NASDAQ National Market System or the NASDAQ SmallCap Market but is traded
in the over-the-counter market, then the mean of the closing bid and asked
prices reported for the last business day immediately preceding the
Determination Date.
(c) Except as provided in clause (d) below, if the Company's
Common Stock is not publicly traded, then as the Holder and the Company agree or
in the absence of agreement by arbitration in accordance with the rules then
standing of the American Arbitration Association, before a single arbitrator to
be chosen from a panel of persons qualified by education and training to pass on
the matter to be decided.
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation, dissolution
or winding up pursuant to the Company's charter, then all amounts to be payable
per share to holders of the Common Stock pursuant to the charter in the event of
such liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of all of the Warrants are outstanding
at the Determination Date.
1.5. Company Acknowledgment. The Company will, at the time of the
exercise of the Warrant, upon the request of the holder hereof acknowledge in
writing its continuing obligation to afford to such holder any rights to which
such holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights.
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<PAGE>
1.6. Trustee for Warrant Holders. In the event that a bank or trust
company shall have been appointed as trustee for the holders of the Warrants
pursuant to Subsection 3.1, such bank or trust company shall have all the powers
and duties of a warrant agent appointed pursuant to Section 10 and shall accept,
in its own name for the account of the Company or such successor person as may
be entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 1.
2. Delivery of Stock Certificates, etc. on Exercise. The Company agrees
that the shares of Common Stock purchased upon exercise of this Warrant shall be
deemed to be issued to the holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within 10 days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the holder hereof, or as such holder (upon payment by such
holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of duly and validly issued, fully paid and
nonassessable shares of Common Stock (or Other Securities) to which such holder
shall be entitled on such exercise, plus, in lieu of any fractional share to
which such holder would otherwise be entitled, cash equal to such fraction
multiplied by the then Fair Market Value of one full share, together with any
other stock or other securities and property (including cash, where applicable)
to which such holder is entitled upon such exercise pursuant to Section 1 or
otherwise.
3. Adjustment for Reorganization, Consolidation, Merger, etc.
3.1. Reorganization, Consolidation, Merger, etc. In case at any time
or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the holder of this
Warrant, on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Section 5.
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<PAGE>
3.2. Dissolution. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the holders of the Warrants, if exercised, after the
effective date of such dissolution pursuant to this Section 3 to a bank or trust
company having its principal office in New York, NY, as trustee for the holder
or holders of the Warrants.
3.3. Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 5.
4. Extraordinary Events Regarding Common Stock. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4.
The number of shares of Common Stock that the holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be increased to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the numerator
is the Purchase Price that would otherwise (but for the provisions of this
Section 4) be in effect, and (b) the denominator is the Purchase Price in effect
on the date of such exercise.
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5. Chief Financial Officer's Certificate as to Adjustments. In each case of
any adjustment or readjustment in the shares of Common Stock (or Other
Securities) issuable on the exercise of the Warrants, the Company at its expense
will promptly cause its Chief Financial Officer to compute such adjustment or
readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the holder of the Warrant and any
Warrant agent of the Company (appointed pursuant to Section 10 hereof).
6. Reservation of Stock, etc. Issuable on Exercise of Warrant; Financial
Statements. The Company will at all times reserve and keep available, solely for
issuance and delivery on the exercise of the Warrants, all shares of Common
Stock (or Other Securities) from time to time issuable on the exercise of the
Warrant. This Warrant entitles the holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Company's Common Stock.
7. Assignment; Exchange of Warrant. Subject to compliance with applicable
Securities laws, and delivery of such representations and warranties as shall
reasonably be requested by the Company, this Warrant, and the rights evidenced
hereby, may be transferred by any registered holder hereof (a "Transferor") with
respect to any or all of the Shares. On the surrender for exchange of this
Warrant, with the Transferor's endorsement in the form of Exhibit B attached
hereto (the Transferor Endorsement Form"), to the Company, the Company at its
expense but with payment by the Transferor of any applicable transfer taxes)
will issue and deliver to or on the order of the Transferor thereof a new
Warrant or Warrants of like tenor, in the name of the Transferor and/or the
transferee(s) specified in such Transferor Endorsement Form (each a
"Transferee"), calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face or faces of the Warrant
so surrendered by the Transferor.
8. Replacement of Warrant. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any such loss, theft or destruction of this Warrant, on
delivery of an indemnity agreement or security reasonably satisfactory in form
and amount to the Company or, in the case of any such mutilation, on surrender
and cancellation of this Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
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9. Registration Rights and Exercise Limitations.
9.1. Registration Rights. The holder of this Warrant has been granted
certain registration rights by the Company. These registration rights are set
forth in a Subscription Agreement entered into by the Company and a purchaser of
the Company's Preferred Stock ("Subscription Agreement"), at or about the issue
date of this Warrant. The terms of the Subscription Agreement are incorporated
herein by this reference.
9.2. Exercise Limitations. In the event the Company is unable to issue
Common Stock upon exercise of this Warrant, then upon receipt by the Company of
notice that the Holder of this Warrant would exercise this Warrant but for the
Company's inability to issue Common Stock upon exercise of this Warrant, then
the Company will pay to the Holder of this Warrant, in lieu of delivering Common
Stock, a sum equal to the closing ask price of the Company's Common Stock on
NASDAQ SmallCap or such other principal trading market for the Company's Common
Stock on the trading date immediately preceding the date notice is given by the
Holder, less the exercise price of this Warrant for each shares of Common Stock
designated in such notice from the Holder.
10. Warrant Agent. The Company may, by written notice to the each holder of
the Warrant, appoint an agent having an office in New York, NY for the purpose
of issuing Common Stock (or Other Securities) on the exercise of this Warrant
pursuant to Section 1, exchanging this Warrant pursuant to Section 7, and
replacing this Warrant pursuant to Section 8, or any of the foregoing, and
thereafter any such issuance, exchange or replacement, as the case may be, shall
be made at such office by such agent.
11. Transfer on the Company's Books. Until this Warrant is transferred on
the books of the Company, the Company may treat the registered holder hereof as
the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
12. Notices, etc. All notices and other communications from the Company to
the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder or, until any such holder furnishes to the
Company an address, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
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13. Miscellaneous. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of New York. Any dispute relating to this Warrant shall be
adjudicated in New York State. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the terms hereof.
The invalidity or unenforceability of any provision hereof shall in no way
affect the validity or enforceability of any other provision.
IN WITNESS WHEREOF, the Company has executed this Warrant under seal as of
the date first written above.
INTEGRATED SPATIAL INFORMATION
SOLUTIONS, INC.
By:_______________________________
Title:____________________________
Witness:
- ------------------------------
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SUBSCRIPTION AGREEMENT
----------------------
Dear Subscriber:
You (the "Subscriber") hereby agree to purchase, and Integrated Spatial
Information Solutions, Inc., a Colorado corporation (the "Company") hereby
agrees to issue and to sell to the Subscriber, the number of shares of Series A
6% Cumulative Convertible Preferred Stock $.001 Par Value (the "Preferred
Stock") convertible in accordance with the terms thereof into shares of the
Company's no par value common stock (the "Company Shares") as set forth on the
signature page hereof for the aggregate consideration as set forth on the
signature page hereof. The Certificate of Designation of the Rights of the
Preferred Stock is annexed hereto as Exhibit A ("Certificate of Designation").
(The Company Shares are sometimes referred to herein as the "Shares" or "Common
Stock"). (The Preferred Stock, the Company Shares, Warrants issuable to the
Placement Agents, identified on Schedule B hereto, and the Company Shares
issuable upon exercise of the Warrants 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 Preferred Stock against
payment, by federal funds (U.S.) wire transfer of the purchase price of the
Preferred Stock. This Subscription Agreement relates to the offering of a
maximum of 2,000 shares of Preferred Stock.
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 and
has read the Company's Form 10-KSB for the year ended September 30, 1997 and
subsequent Forms 10-QSB and 8-K, each as filed with the U.S. Securities and
Exchange Commission (the "Commission") (collectively, with exhibits thereto,
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 is an "accredited
investor", as such term is defined in Regulation D promulgated by the Commission
under the Securities Act of 1933, as amended, 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
<PAGE>
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.
(c) Purchase of Company Shares. On the Closing Date, the Subscriber
will purchase the Company Shares 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 Securities Act of
1933, as amended (the "1933 Act") by reason of their issuance in a transaction
that does not require registration under the 1933 Act, and that such Securities
must be held unless a subsequent disposition is registered under the 1933 Act or
is exempt from such registration. The Subscriber agrees that if, in the future,
the Subscriber should decide to dispose of any of the Securities acquired by it
pursuant to this Agreement, the Subscriber will do so only pursuant to a
registration statement or by disposition exempt from registration requirements
under the 1933 Act.
(e) Preferred Stock and Company Shares Legend. The Preferred Stock,
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 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO INTEGRATED SPATIAL INFORMATION SOLUTIONS, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(f) Warrants Legend. The Warrants which the Placement Agents are
receiving pursuant to this Agreement 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 OR AN OPINION
OF COUNSEL REASONABLY SATISFACTORY TO INTEGRATED SPATIAL
INFORMATION SOLUTIONS, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED."
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(g) 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 wholly-owned
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation and has the requisite
corporate power to own its properties and to carry on its business as now being
conducted. The Company and each of its wholly-owned 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.
(b) Outstanding Stock. All issued and outstanding shares of capital
stock of the Company and each of its wholly-owned 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. There are no outstanding agreements or
preemptive or similar rights affecting the Company's common stock 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.
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(e) Consents. No consent, approval, authorization or order of any
court, governmental agency or body or arbitrator having jurisdiction over the
Company, or any of its affiliates or NASDAQ or the Company's Shareholders is
required for execution of this Agreement, including, without limitation issuance
and sale of the Securities, or the performance of the Company's obligations
hereunder, except as may be required under NASDAQ Marketplace Rule
4310(c)(25)(H).
(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 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 of 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;
(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 Warrants are exercised according to their terms, as the case may be,
the Securities will be duly and validly issued, fully paid and nonassessable,
and if registered pursuant to the 1933 Act, free trading and unrestricted;
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<PAGE>
(iii) will not have been issued or sold in violation of any
preemptive or other similar rights of the holders of any securities of the
Company;
(iv) will not subject the holders thereof to personal liability
by reason of being such holders; and
(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, or which was
not disclosed in the Reports and Other Written Information.
(i) Reporting Company. The Company is a publicly- held company whose
common stock is (and has been for the past 90 days) registered pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as amended (the "1934
Act"). The Company's Common Stock is listed for trading on the NASDAQ SmallCap
Market pursuant to a temporary exemption from the listing requirements, and is
subject to delisting if the Company does not meet the listing requirements.
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 Company
Shares 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 set forth 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 (as
hereinafter defined) 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 Preferred Stock.
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<PAGE>
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 is binding upon the Company and enforceable
regardless of the dilution such issuance may have on the ownership interests of
other shareholders of the Company.
(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 at such time as the
Securities are registered for public sale or an exemption from registration is
available.
(n) Defaults. Neither the Company nor any of its wholly-owned
subsidiaries is in violation of its Certificate of Incorporation or ByLaws.
Except as described in the Reports and Other Written Information, 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 material to its business.
(o) No Integrated Offering. Neither the Comany, 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 NASDAQ SmallCap Market ("NASDAQ SmallCap"), as applicable, nor will the
Company or any of its subsidiaries take any action or steps that would cause the
offering of the Securities to be integrated with other offerings. The Company
has not conducted and will not conduct any offering other than the transactions
contemplated hereby that will be integrated with the issuance of the Securities
solely for purposes of Rule 4460(i) of the NASDAQ Stock Market, Inc.'s
Marketplace Rules.
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<PAGE>
(p) Use of Proceeds. The proceeds of the Subscriber funds to be
released to the Company will be used for working capital, general corporate
purposes and for expenses of this offering.
(q) 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.
(r) Listing. The Company's common stock is quoted on, and listed for
trading on NASDAQ SmallCap pursuant to a temporary exception to the listing
requirements. The Company has received notice from NASDAQ that its Common Stock
will be delisted from NASDAQ unless the Company meets all requirements for the
continuation of such listing.
(s) S-3 Eligibility. The Company currently meets, and will take all
necessary action to continue to meet, the "registrant eligibility" requirements
set forth in the general instructions to Form S-3.
(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 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 such
other legal opinions in the future as are reasonably necessary for the
conversion of the Preferred Stock.
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 dispose of
such Securities pursuant to Rule 144(k) under the Act, or (b) the Securities are
registered under the Act. The Company agrees to cooperate with the Subscriber in
connection with all resales pursuant to Rule 144(d) and provide legal opinions
necessary to allow such resales.
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<PAGE>
5. Redemption. The Company may not redeem the Securities without the
consent of the holder of the Securities.
6. Legal Fees/Commissions. The Company shall pay to counsel to the
Subscriber its fee of $25,000 for services rendered to the Subscriber in
reviewing this Agreement and other subscription agreements for the aggregate
subscription amounts of up to $2,000,000 and acting as Escrow Agent. The Company
will pay a cash commission of twelve percent (12%) of the Purchase Price
designated on the signature page hereto to certain Placement Agents identified
on Schedule B hereto. The commission is payable only when, as, and if the
corresponding subscription amount is released from escrow and received by the
Company. The commissions and legal fees will be payable out of funds held
pursuant to a Funds Escrow Agreement to be entered into by the Company and
Subscriber. The Company will also issue and deliver to the Placement Agents as
additional compensation the Warrants designated on Schedule B hereto. The
Warrants will be issued to the Placement Agents only when, as, and if the
corresponding subscription amount is released from escrow and received by the
Company. All the representations, covenants, warranties and undertakings,
including but not limited to registration rights made or granted to or for the
benefit of the Subscriber are hereby also made and granted to the Placement
Agents in respect of the Warrants and Common Stock issuable upon exercise of the
Warrants.
7.1. 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, Company will use its best efforts to maintain the listing
and trading of its Common Stock on NASDAQ SmallCap, 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 shall promptly provide to each
Purchaser copies of any notices it receives regarding the continued eligibility
of the Common Stock for listing on such exchanges or quotation systems, or any
other exchange or quotation system on which the Common Stock is then listed.
8
<PAGE>
(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 S-3 or such other Registration Statement
described in Section 10.1(iv) hereof, the Company will use its reasonable
efforts (i) to cause its Common Stock to continue to be registered under
Sections 12(b) or 12(g) of the Exchange Act, (ii) to comply in all respects with
its reporting and filing obligations under such Exchange Act, and (iii) to
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, except as permitted
herein, until the later of (i) two (2) years after the effective date of the
Registration Statement on Form S-3 or such other Registration Statement
described in Section 10.1(iv) hereof, or (ii) the sale by the Subscribers of all
the shares of common stock issuable by the Company pursuant to this Agreement.
Until at least one (1) year after the Warrants have been exercised, the Company
will use its commercial best efforts to continue the listing or trading of its
Common Stock on NASDAQ SmallCap 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 and Subscriber agree that until the Company either
obtains shareholder approval of the issuance of the Shares, or an exemption from
NASDAQ's corporate governance rules as they may apply to the Shares (the
"Approval"), the Subscriber may not receive more than the number of Shares
designated on the signature page hereof ("Section 7.2(e) Shares"). The Company
represents that this number together with the aggregate of such amounts
designated for all investors in the $2,000,000 offering to which this
Subscription Agreement relates, is not greater than 19.99% of the shares of
Company's common stock outstanding on the Closing Date. The Company undertakes
to obtain the approval of its shareholders, if necessary, required pursuant to
the NASDAQ's corporate governance rules to allow conversion of all the Preferred
Stock and dividends and exercise of all the Warrants. The Company covenants to
obtain the shareholder approval, if necessary, no later than 60 days from the
effective date of the Registration Statement described in Section 10.1(iv)
hereof. Failure to obtain shareholder approval, if required, on or before such
date shall be deemed an Event of Default pursuant to Section 7 of the
Certificate of Designation, but only to the extent of the Preferred Stock that
may not be converted or Warrants that may not be exercised due to the Company's
failure to obtain such shareholder approval.
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<PAGE>
(f) The Company undertakes to use the proceeds of the Subscribers
funds to implement its acquisition strategy, working capital and expenses of
this offering.
(g) The Company covenants and agrees with the Subscriber that it shall
employ not less than 2.5 percent of the Purchase Price to initiate and conduct
an aggressive investor relations strategy. The Company further agrees to
promptly inform all the Placement Agents as to its compliance with this
undertaking.
7.2. Covenants of Subscriber. The Subscriber covenants and agrees with the
Company that the Subscriber will provide for itself and any beneficial holder of
the Securities, information and documents reasonably required by the Company for
the Company to comply with its governmental and regulatory obligations including
but not limited to the Securities and Exchange Commission, blue sky and NASDAQ
requirements.
8. Covenants of the Company and Subscriber Regarding Idemnifications.
(a) The Company agrees to indemnify, hold harmless, reimburse and
defend Subscriber against any claim, cost, expense, liability, obligation, loss
or damage (including reasonable legal fees) of any nature, incurred by or
imposed upon Subscriber 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 Reports or other
Written Information; or (ii) any breach or default in performance by Company of
any covenant or undertaking to be performed by Company hereunder.
(b) Subscriber agrees to indemnify, hold harmless, reimburse and
defend the Company 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 which results, arises out of or is based
upon (a) any misrepresentation by Subscriber in this Agreement or in any
Exhibits or Schedules attached hereto; or (b) any breach or default in
performance by Subscriber of any covenant or undertaking to be performed by
Subscriber hereunder.
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<PAGE>
9.1. Conversion.
(a) The Preferred Stock will be convertible according to the procedure
set forth in the Certificate of Designation.
(b) The Preferred Stock and accrued dividends will be convertible into
Company Shares at the Subscriber's, or then Holder's election at the Conversion
Price which is the lesser of (i) 105% of the five day average closing bid price
of the Common Stock ending on the trading day before the Closing Date, or (ii)
80% of the average of the three lowest closing bid prices of the Common Stock
for the ten trading days prior to, but not including the Conversion Date (as
defined in the Certificate of Designation) ("Look-Back Period"). The Look-Back
Period will be increased by two trading days for each thirty calendar days
commencing 150 days after the Closing Date, up to a maximum of a twenty (20) day
Lock- Back Period.
(c) The Company understands that a delay in the delivery of the Shares
and Preferred Stock certificates representing the unconverted balance of a
Preferred Stock certificate tendered for conversion beyond the date described
for such delivery set forth in the Certificate of Designation ("Delivery Date")
or Mandatory Conversion Date (as that term is employed in the Certificate of
Designation), or late delivery of a Mandatory Redemption Payment (as defined
herein), as the case may be, 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 delivery of Shares upon Conversion and late
delivery of a Preferred Stock certificate for the unconverted portion of a
Preferred Stock certificate or late delivery of a Mandatory Redemption Payment
in the amount of $100 per business day after the Delivery Date for each $10,000
of Stated Value of Preferred Stock being converted and Preferred Stock
certificate remaining undelivered or Mandatory Redemption Payment not paid. 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 within three business days after
the Delivery Date, the Subscriber will be entitled to revoke the relevant Notice
of Conversion by delivery in 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 of revocation, except
that late payment charges described above shall be payable through the date
notice of revocation is given to the Company.
(d) Nothing contained herein or in any document referred to herein
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 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.
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9.2. Mandatory Redemption. In the event the Company may not issue Shares on
a Delivery Date because such issuance and delivery would be contrary to NASDAQ's
Corporate Governance Rules, or for any other reason, then the Company must pay
to the Subscriber on the Delivery Date a sum of money determined by multiplying
the number of Shares otherwise deliverable, by the average closing bid prices of
the Shares on the NASDAQ SmallCap Market or such other securities exchange or
other securities market on which the Common Stock is then being traded for the
most recent trading day preceding the Conversion Date ("Mandatory Redemption
Payment"). The Mandatory Redemption Payment must be received by the Subscriber
on the same date as the Shares otherwise deliverable. Upon receipt of the
Mandatory Redemption Payment, the corresponding Preferred Stock will be
cancelled and no longer outstanding, and if the Holder or Escrow Agent is in
possession of the corresponding Preferred Stock, same will be returned to the
Company.
9.3. Maximum Conversion. The Company and Subscriber shall not be entitled
to convert that amount of the Preferred Stock 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 Preferred Stock 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
9.99% of the outstanding shares of Common Stock of the Company. 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, except as otherwise provided
in clause (i) of such proviso.
10. Registration Rights; Procedure; Indemnification.
10.1. Registration Rights. The Company hereby grants the following
registration rights to holders of the Company Shares and the Warrants.
(i) On one occasion, for a period commencing 21 days after the
Closing Date, but not later than three years from the date hereof, 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 issuable upon Conversion of the
Preferred Stock (the Securities and securities issued or issuable by virtue of
ownership of the Securities being, the "Registrable Securities"), shall prepare
and file with the SEC a registration statement under the Act covering 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. 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.
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(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 10 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 10 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, the Company may withdraw 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) except that the Company or
underwriter, if any, may not withdraw such registration or limit the amount of
Registrable Securities included in such registration.
(iv) The Company shall file with the Commission, within twenty
(20) days of the Closing Date ("Filing Date"), and use its reasonable commercial
efforts to cause to be declared effective a Form S-3 registration statement (or
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such other form that it is eligible to use) in order to register the Registrable
Securities and all Shares issuable by virtue of the Preferred Stock 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
Filing Date. The Registrable Securities shall be reserved and set aside
exclusively for the benefit of the Subscriber and Placement Agents, as the case
may be, and not issued, employed or reserved for anyone other than the
Subscriber and Placement Agents, as the case may be. Such registration statement
will be promptly amended or additional registration statements will be promptly
filed by the Company as necessary to register additional Company Shares to allow
conversion of all the Preferred Stock and dividends.
Sixty-five percent (65%) of the Purchase Price, as set forth on
the signature page of this Subscription Agreement shall be held in escrow
pursuant to the Funds Escrow Agreement annexed hereto as Exhibit D until the
acceptance for filing by the Securities and Exchange Commission of the
registration statement described in this Section 10.1(iv) and the declaration of
effectiveness by the Securities and Exchange Commission of such Registration
Statement and if required, obtainment of the Approval described in Section
7.1(e) hereof ("Registration Escrow").
In the event the registration statement relating to the
Registrable Securities is not accepted for filing by the Securities and Exchange
Commission within 20 days from the Closing Date or if the Registration Statement
is not declared effective by the Securities and Exchange Commission within 90
days of the Filing Date, then the Registration Escrow shall be employed as a
non-exclusive remedy, to pay the damages described in Sections 7.1(e) and
10.2(j) of this Subscription Agreement.
In the event the Registration Statement is not accepted for
filing by the Securities and Exchange Commission within 20 days of the Closing
Date, unless otherwise agreed to in writing by the Subscriber, or if the
Approval described in Section 7.1(e) hereof, if required, is not obtained by
such date, then forty-one and one-quarter percent (41.25%) of the Purchase Price
shall be released to the Subscriber. In the event the Registration Statement is
accepted for filing by the Securities and Exchange Commission within 20 days of
the Closing Date, then forty-one and one-quarter percent (41.25%) of the
Purchase Price shall be released to the Company and forty-one and one-quarter
percent (41.25%) of the Preferred Stock shall be released to the Subscriber.
In the event the Registration Statement is not declared effective
within 90 days of the Filing Date, or if the Approval described in Section
7.1(e) hereof, if required, is not obtained within 60 days from the effective
date of the Registration Stateent, unless otherwise agreed to in writing by the
14
<PAGE>
Subscriber, then twenty-three and three-quarter percent (23.75%) of the Purchase
Price shall be released to the Subscriber. In the event the Registration
Statement is declared effective within 90 days of the Filing Date, then 14 days
after the effective date, twenty- three and three-quarter percent (23.75%) of
the Purchase Price shall be released to the Company and twenty-three and
three-quarter percent (23.75%) of the Preferred Stock shall be released to the
Subscriber.
In the event the Company does not comply with the schedule for
registration set forth above, the Company shall not be released from any of its
obligations under this Subscription Agreement or any agreement delivered in
connection herewith including the Company's obligations pursuant to this Section
10 of the Subscription Agreement except that the Company shall no longer be
required to file a registration statement in connection with only those
Securities corresponding to that portion of the Purchase Price released to the
Subscriber and damages shall not accrue to the Subscriber in relation to funds
released to the Subscriber from and after the date that portion of the Purchase
Price is returned to the Subscriber. To the extent any part of the Purchase
Price portion of the Registration Escrow is released to a Subscriber, then that
portion of the Registration Escrow may, at the Subscriber's election, first be
applied in satisfaction of payment by the Company of sums payable to such
Subscriber pursuant to Section 10.2(j) and Section 7.1(e) hereof.
(v) The funds portion of the Registration Escrow will be released
to the Subscriber if the shareholder approval or NASDAQ exemption described in
Section 7.1(e) hereof, if required, is not obtained as specified in this
Agreement, or if the Escrow Agent has not received the corresponding portion of
the Preferred Stock. In the event the Preferred Stock corresponding to the funds
portion of the Registration Escrow is not delivered to the Escrow Agent within
fourteen (14) days of the filing date of the Registration Statement or effective
date of the Registration Statement, as the case may be, then the corresponding
funds portion of the Registration Escrow will be released to the Subscriber. In
no event will any funds be released to the Company unless and until such time as
the Approval described in Section 7.1(e) hereof is obtained in relation to only
that amount of Preferred Stock convertible into Shares which would otherwise be
releasable has such Preferred Stock been converted on the Filing Date or
effective date, as the case may be, at the Conversion Rate that would be in
effect on such date.
(vi) Upon the occurrence of an Event of Default as described in
the Certificate of Designation, or in the event the Company's Shares are not
listed for trading on the NASDAQ SmallCap Market or if the Company is not in
compliance with the listing requirements of the NASDAQ SmallCap Market on either
the filing date of the Registration Statement or the effective date of the
Registration Statement, of if the highest closing bid price of the Common Stock
as reported on NASDAQ SmallCap Market is less than $.87 for any day during the
15
<PAGE>
seven trading days prior to the filing date of the Registration Statement or the
effective date of the Registration Statement, then any Subscriber funds still
held in escrow on such date will be returned to the Subscriber, upon
Subscriber's election, and the Subscriber will have no obligation to purchase
any Preferred Stock from the Company. In such event, the Company will pay to the
Subscriber within five business days of such filing or effective date or the
occurrence of the Event of Default a sum of money equal to 8% on an annualized
basis of the Subscriber funds returned to the Subscriber.
(vii) A sum of money equal to five percent (5%) of the Purchase
Price will be retained in escrow by the Escrow Agent pursuant to the Funds
Escrow Agreement until all the Preferred Stock and accrued dividends have been
converted into free-trading Company Shares or otherwise redeemed ("Expense
Escrow"). This portion of the escrow deposit will be retained for the exclusive
use of the Subscriber to compensate Subscriber for any costs and expenses
associated with the Subscriber's enforcement of any of the Company's obligations
or Subscriber's rights under this Subscription Agreement or other agreements or
document referred to herein.
(viii) Commissions and legal fees described in Section 6 hereof
will be deducted from funds releasable to the Company and paid by the Escrow
Agent to the Placement Agents. The Warrants deliverable to the Placement Agents
will be deposited in escrow with the Escrow Agent and released proportionately
as funds are released to the Company. A corresponding number of Warrants will be
released to the Company as Subscriber funds are released from escrow and
delivered to the Subscriber.
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 hereinafter provided), and promptly provide
to the holders of Registrable Securities copies of all filings and Commission
comment letters;
16
<PAGE>
(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 for
the period specified in paragraph (a) above 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 or, 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.
17
<PAGE>
(h) 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. In the event of a
firm commitment underwritten public offering in which the Registrable Securities
are so included, the lockup, if any, requested by the managing underwriter may
not exceed ninety (90) days after the effective date thereof.
(i) In connection with each registration hereunder, the Seller will
furnish to the Company in writing such information 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.
(j) 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 45 days after request by the Holder and not declared
effective by the Commission within 130 days after such request [or 20 days and
90 days, respectively, after the Closing Date and Filing Date in reference to
the Registration Statement on Form S-3 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 45 days of such
request, or is not declared effective by the Commission on or prior to the date
that is 130 days after such request, or (ii) the registration statement on Form
S-3 or such other form described in Section 10.1(iv) is not filed within 20 days
after the Closing Date or not declared effective within 90 days of the Filing
Date, 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 10.2(j) is referred to herein as a
18
<PAGE>
"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 Securities an amount equal to one (1%) percent for the first month
and three (3%) percent for each month thereafter, or part thereof, of the
Purchase Price of the Preferred Stock and Company Shares then owned of record by
such holder as of immediately following the occurrence of such Non- Registration
Event, unless such Non-Registration Event arises from Subscriber's material
default of Subscriber's obligations hereunder. Payments to be made pursuant to
this Section 10.2(j) shall be due and payable immediately upon demand in
immediately available funds. In the event a mandatory redemption of Preferred
Stock is demanded by the Holder of Preferred Stock pursuant to Section 8 of the
Certificate of Designation, then the Liquidated Damages described in this
Section 10.2(j) shall no longer accrue from and after the date the Holder
receives the payment described in Section 8 of the Certificate of Designation.
In the event the Registration Statement described in Section 10.1(iv) above is
declared effective by the Securities and Exchange Commission within 150 days of
the Filing Date, then such Registration Default will not be deemed an Event of
default solely in connection with Subscriber's rights described in Section 8 of
the Certificate of Designation.
10.3. 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 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, fee of one counsel, if any, to represent all the
Sellers, 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.
10.4. 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 will not be liable in any such case
if and to the extent that any such loss, claim, damage or liability arises out
19
<PAGE>
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, the underwriter 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,
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 proportion of any such loss, claim, damage, liability or expense which is
equal to the proportion that the public offering price of the Registrable
Securities sold by the Seller under such registration statement bears to the
total public offering price of all securities sold thereunder, but not in any
event to exceed the gross proceeds received by the Seller from the sale of
Registrable Securities covered by such registration statement.
20
<PAGE>
(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 10.4(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 10.4(c) 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 10.4(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 10.4 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 10.4 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 10.4; then, and in each such case, the Company and
21
<PAGE>
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, (A) 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 (B) 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. (a) Right of First Refusal. Until 120 days after the effective date of
the Registration Statement on Form S-3 described in Section 10.1(iv) hereof, 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 not in connection with mergers, acquisitions or
the acquisition of assets, or as otherwise disclosed in the Other Written
Information. 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 aggregate offering to which this
Subscription Agreement relates (i.e. $2,000,000 in the aggregate), 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 fees will be paid by the Company to the Placement Agents in the
same amounts as specified in the notice of sale.
(b) Offering Restrictions. Until 120 days after the effective date of
the Registration Statement described in Section 10.1(iv) hereof except for
Existing Option Obligations (as defined in the Certificate of Designation), or
as otherwise disclosed in the Other Written Information, the Company will not
issue any equity, or convertible debt or other securities or conduct any public
or private offering without the consent of the Subscriber if such securities
owned or could be convertible into or be free-trading securities prior to all
the Securities.
22
<PAGE>
12. 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
Integrated Spatial Information Solutions, Inc., Attention: President, 112 E.
Main Street, Frankfort, KY 40601, telecopier number: (502) 226-2758, and (ii) if
to the Subscriber, to the name, address and telecopy number set forth on the
signature page hereto.
(b) Closing. The consummation of the transactions contemplated herein
shall take place at the offices of Grushko & Mittman, 277 Broadway, Suite 801,
New York, New York 10007, 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"). At the
Closing, thirty-five percent (35%) of the total subscription funds shall be paid
to the Company (less applicable commissions and five percent (5%) of the
Purchase Price as the Expense Escrow), the corresponding thirty-five percent
(35%) of the Preferred Stock shall be released to the Subscriber, and the
corresponding thirty-five percent (35%) of the total commissions and Warrants
shall be released to the Placement Agents. The balance of the documents and
funds shall be placed in escrow as provided in this Agreement.
(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.
23
<PAGE>
(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 injuction 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 12(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) 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]
<PAGE>
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.
INTEGRATED SPATIAL INFORMATION SOLUTIONS, INC.
By:________________________________
John Antenucci, President
Dated: August ____, 1998
Purchase Price: $1,000,000
Preferred Shares Purchased: 1,000 (at $1,000 per share)
Section 7.1(e) Shares: 1,150,000
ACCEPTED: Dated as of August ____, 1998
AUSTOST ANSTALT SCHAAN
(a Lichenstein corporation)
7440 Fuerstentum
Lichenstein
Landstrasse 163
Fax: 011-431-534532895
By:____________________________
Thomas Hackl
Director
<PAGE>
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.
INTEGRATED SPATIAL INFORMATION SOLUTIONS, INC.
By:________________________________
John Antenucci, President
Dated: August ____, 1998
Purchase Price: $1,000,000
Preferred Shares Purchased: 1,000 (at $1,000 per share)
Section 7.1(e) Shares: 1,150,000
ACCEPTED: Dated as of August ____, 1998
BALMORE FUNDS S.A.
(a B.V.I. corporation)
P.O. Box 4603
Zurich, Switzerland
Fax: 011-411-201-6262
By:____________________________
Francois Morax
Director
<TABLE>
<CAPTION>
Integrated Spatial Information Solutions, Inc.
Condensed and Consolidated Balance Sheet
Net Tangible
Unaudited Pro Forma Adjustments Pro Forma Assets
6/30/98 Dr. Cr 6/30/98
<S> <C> <C> <C> <C> <C>
Assets
Current:
Cash and cash equivalents $ 172,996 531,078 704,074
Accounts receivable 1,965,153 1,965,153
Costs and profits in excess of billings 280,320 280,320
Prepaid expenses 173,075 173,075
--------------------------------------------------------------
Total current assets 2,591,544 531,078 3,122,622
--------------------------------------------------------------
Property and equipment:
At cost 4,021,982 4,021,982
Less: accumulated depreciation (605,563) (605,563)
--------------------------------------------------------------
Net property and equipment 3,416,419 3,416,419
--------------------------------------------------------------
Other Assets:
Other 154,569 154,569
Capitalized software 197,196 197,196
Goodwill 5,241,858 5,241,858
--------------------------------------------------------------
Total other assets 5,593,623 5,593,623
--------------------------------------------------------------
$ 11,601,586 $ 531,078 $ 12,132,664
==============================================================
Liabilities and Stockholders' Equity
Current:
Notes payable - current portion $ 755,651 $ 755,651
Notes payable - related party 110,029 110,029
Accounts payable 751,568 751,568
Accrued expenses 737,989 737,989
Deferred revenue 174,879 174,879
Obligations under capital leases- current 155,752 155,752
Accrued litigation settlement 478,997 478,997
--------------------------------------------------------------
Total current liabilities 3,164,865 3,164,865
Note payable, less current maturities 429,997 429,997
Obligations under capital leases 1,999,962 1,999,962
--------------------------------------------------------------
Total liabilities 5,594,824 5,594,824
--------------------------------------------------------------
Commitments and Contingencies
Stockholders's Equity:
Common stock, no par value, 2,000,000,000
shares authorized, 11,578,092 shares
issued and outstanding at June 30, 1998 12,984,899 531,078 13,515,977
Additional paid-in capital 2,056,900 2,056,900
Accumulated deficit (9,035,037) (9,035,037)
-------------------------------------------------------------
Total stockholders' equity 6,006,762 531,078 6,537,840
--------------------------------------------------------------
$ 11,601,586 $ 531,078 $ 12,132,664 $1,295,982
==============================================================
Pro Forma Adjustment
The Company is in the process of completing several private placements which will yield $2,050,000 (gross) to the Company. Two
transactions netted $50,000 and a third is being funded in three tranches. The funds from the first stage, $480,000 ($700,000 less
transaction costs and funds deposited in escrow) are reflected in the Pro Forma Adjustment to the June 30, 1998 balance sheet.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The second tranche, in the gross amount of $825,000, will be funded when a Registration Statement is filed by Integrated Spatial
Information Solutions. The impact of this on the June balance sheet is as follows:
Net Tangible
Unaudited Pro Forma Assets
6/30/98 Pro Forma Adjustments 6/30/98
<S> <C> <C> <C> <C> <C>
Cash $ 172,996 531,078 $ 1,430,074
726,000
Goodwill 5,241,858 5,241,858
All other Assets 6,186,732 6,186,732
-------------------------------------------------------------
Total Assets $ 11,601,586 $ 1,257,078 $ -- $ 12,858,664
==============================================================
Total Liabilities $ 5,594,824 $ 5,594,824
Stockholders' Equity
Common Stock 12,984,899 531,078 14,241,977
726,000
Additional paid-in capital 2,056,900 2,056,900
Accumulated Deficit (9,035,037) (9,035,037)
----------------------------------------------------------------
$ 11,601,586 $ -- $1,257,078 $ 12,858,664 $2,021,982
================================================================
The third tranche, in the gross amount of $475,000, will be funded when the registration statement is declared effective by the
SEC. The impact of the completed transaction on the June balance sheet is as follows:
Net Tangible
Unaudited Pro Forma Assets
6/30/98 Pro Forma Adjustments 6/30/98
Cash $ 172,996 531,078 $ 1,948,074
726,000
518,000
Goodwill 5,241,858 5,241,858
All other Assets 6,186,732 6,186,732
-----------------------------------------------------------------
Total Assets $ 11,601,586 $ 1,775,078 $ -- $ 13,376,664
=================================================================
Total Liabilities $ 5,594,824 5,594,824
Stockholders' Equity
531,078
Common Stock 12,984,899 726,000 14,759,977
Additional paid-in capital 2,056,900 2,056,900
Accumulated Deficit (9,035,037) (9,035,037)
-----------------------------------------------------------------
$ 11,601,586 $ -- $1,775,078 $ 13,376,664 $2,539,982
=================================================================
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