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: December 8, 1998
CHEQUEMATE INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
Utah 76-0279816
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(State or other jurisdiction (I.R.S. Employer
or incorporation) Identification No.)
33-38511-FW
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(Commission File Number)
57 West 200 South, Suite 350
Salt Lake City, UT 84101
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (801) 322-1111
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ITEM 2. Acquisition or Disposition of Assets.
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On December 8, 1998 Chequemate International, Inc. ("registrant")
executed an Asset Purchase Agreement with Coast Communications, Inc., a Nevada
Corporation doing business as Alpha Broadcasting Communications ("seller"). The
two shareholders of Coast Communications, Inc. are Paul LaBarre and Ernest
McKay, both of Mesa, Arizona. Neither shareholder of Coast Communications has
any relationship to the registrant. This has been an at arm length transaction
between the registrant and the seller. A copy of the Asset Purchase Agreement,
exclusive of voluminous or confidential exhibits, is attached to this report.
The registrant purchased equipment necessary to provide "pay per view"
television and movie services to hotels. "Pay per view" services provide hotel
guests with options to watch in-room movies which have recently finished being
shown at theaters but which have not been released to the viewing public in the
form of video tape or DVD disks. The "pay per view" services allow a hotel guest
to choose and view a movie at a certain time during the day. The guest is then
billed by the hotel for this viewing. The hotel then in turn pays the service
provider the contracted rate per room on a monthly basis.
The registrant purchased the assets by delivering $60,000.00 to the
seller at the time of the purchase. These funds were derived from the private
placement of restricted stock of the registrant. The registrant also issued to
the seller 250,000 shares of the registrant's restricted stock, the stock having
an estimated value of $2.00 per share at the time of the execution of the letter
of intent for the purchase. The registrant is also required to pay the seller
$440,000.00 as part of the purchase price. The registrant and the seller agreed
that the registrant would have 18 months to pay the seller this remaining
amount. The registrant will therefore pay the seller monthly payments
representing 10% interest on this outstanding balance. The registrant may pay
the outstanding balance at any time during this 18 month period. The seller also
obtained the right to convert the outstanding amount into restricted common
stock of the registrant at the option of the seller. The agreed upon conversion
price is $2.00 per share.
The registrant has used in part the representations of the seller
regarding revenues derived from the acquired assets to determine the value of
the contracts which were transferred from Alpha Broadcasting Company. Alpha
Broadcasting Company also obtained bids for a sampling of the equipment from two
different supply companies to determine the current market value for the
different pieces of equipment which are held in inventory for the pay per view
business. Based upon the bids which were provided to the seller, the registrant
and the seller were able to determine a per unit value of the uninstalled
equipment which was transferred pursuant to the Asset Purchase Agreement.
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The typical equipment system for a single hotel includes a personal
computer, which has the necessary software to run the complete system. The
computer will keep track of the individual rooms which view a movie, the number
of movies viewed and the total billing charges for the viewed movies. Along with
the computer, the system includes a number of VCR machines. A typical hotel will
have 8 VCRs installed in the system. The VCRs are installed into a permanent
rack. The VCRs are controlled by the computer which has programed play times for
each movie. When a movie starts, the guest can tune into the movie using a
selection box situated on or near the in room television set. The guest selects
the movie at the box, the box then "communicates" the selection to the computer
and the computer turns the appropriate switch, allowing the movie to be shown in
the guest's room.
At the time of the closing of the Agreement, Alpha Broadcasting
Communications had 19 hotels under contract to provide the "pay per view"
services in the states of New Mexico, Nevada, Arizona and California. Alpha was
also working with two other hotels to provide "pay per view" services, but did
not have contracts with these two hotels. This means that Alpha had fully
equipped approximately 3,000 hotel rooms with the necessary equipment to run the
"pay per view" services.
As part of the Agreement, the registrant also purchased equipment which
is not currently being used. The registrant now has the ability to equip
approximately 50 new client hotels with a total of 10,000 new rooms. The
equipment necessary to do this includes the computers, VCRs, racks, television
boxes and necessary accessories to hook up the system at the hotel.
The seller assigned or obtained consents for the assignment of all
contracts to the registrant prior to the closing of the purchase agreement. The
contractual rights to provide "pay per view" services to the hotels is
considered to be an important component in the registrant's purchase of these
assets.
The registrant intends to carry on the business of the seller in the
"pay per view" hotel business and to significantly expand its market share as
indicated by the purchase of the equipment which is not currently being used.
ITEM 5. Other Events
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On December 21, 1998, the registrant closed a transaction that has
provided net capital proceeds to the registrant of $675,000. These funds have
been raised pursuant to the sale by the registrant of 8% Convertible Debentures
in the aggregate face amount of $750,000. The transaction has been accomplished
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pursuant to a Subscription Agreement between the registrant and Augustine Fund,
L.P., an Illinois limited partnership. Copies of the Subscription Agreement and
a form of the convertible debenture document are attached as exhibits to this
report. The attached copy of the Subscription Agreement includes all exhibits
except for the SEC reports referred to on page A-1 of the Subscription
Agreement. Such SEC reports have previously been filed with the Securities and
Exchange Commission.
In addition to the convertible debentures, the Augustine Fund has
received a warrant to purchase twenty-four thousand seven hundred and
fifty-three (24,753) shares of common stock of the registrant at one hundred and
twenty percent (120%) of the average of the closing bid price of the stock of
the registrant on the five trading days prior to the December 21st closing date.
The warrant expires on December 21, 2001. A copy of the warrant document is
attached as an exhibit to this report.
Pursuant to the Subscription Agreement, the registrant will immediately
prepare and file with the Securities and Exchange Commission a Form S-3
Registration Statement to provide for the federal registration of all shares
which may be issued pursuant to the described transaction, including the common
shares underlying the convertible debentures and the warrant.
Pursuant to the terms of the debentures, Augustine Fund may elect to
convert the debentures to common stock of the registrant at eighty percent (80%)
of the average closing bid price of the common stock of the registrant for the
five trading days prior to the date on which the debenture is presented for
conversion. The debentures provide for a maximum conversion price of $3.64.
At any time prior to the delivery by the Augustine Fund, or its
assignees, of written notice of conversion to common stock, the registrant has
the right to redeem the debentures at a redemption price equal to one hundred
and twenty percent (120%) of the principal amount of the debenture, plus accrued
interest on such principal amount. This redemption right may be exercised as
provided herein at any time during the three year term of the debenture.
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ITEM 7. Financial Statements, Pro Forma, Financial Information and Exhibits.
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(c) Exhibits
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Documents Exhibit No. Page
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Alpha Purchase Agreement 10.1 6
Augustine Fund Subscription Agreement 10.2 36
Form of Debenture 10.3 65
Warrant Document 10.4 75
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed in its behalf by
the undersigned hereunto duly authorized.
DATED this 23rd day of December, 1998.
CHEQUEMATE INTERNATIONAL, INC.
By /s/ Steven B. Anderson
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Steven B. Anderson
Its: Chief Financial Officer
8kcmidec22.491
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Exhibit 10.1
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ALPHA
ASSET PURCHASE AGREEMENT
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This Asset Purchase Agreement (the "Agreement"), dated this
8th day of November, 1998, among CHEQUEMATE INTERNATIONAL, INC., a Utah
corporation ("Chequemate") doing business as C-3D Digital, Inc.; Chequemate's
wholly owned subsidiary Chequemate Technologies, Inc., a Utah corporation
("Buyer"), COAST COMMUNICATIONS, INC., a Nevada corporation, doing business in
Arizona as ALPHA BROADCASTING COMMUNICATIONS ("Seller"); Ernest McKay; and Paul
LaBarre. Ernest McKay and Paul LaBarre are the sole shareholders of the Seller
and are hereafter collectively referred to as the "Shareholders". Seller and
Shareholders are sometimes collectively referred to in this Agreement as
"Selling Parties."
WITNESSETH:
WHEREAS, Buyer desires to purchase from Seller and Seller
desires to sell to Buyer, on the terms and subject to the conditions of this
Agreement, certain assets and business of Seller;
THEREFORE, in consideration of the mutual covenants,
agreements, representations and warranties contained in this Agreement, the
parties agree as follows:
ARTICLE 1. TRANSFER OF ASSETS
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Subject to the terms and conditions set forth in this
Agreement, Seller agrees to sell, convey, transfer, assign and deliver to Buyer,
and Buyer agrees to purchase from Seller at the Closing described in Article 3
hereof, all of the assets, properties and business of Seller of every kind,
character and description, whether tangible, intangible, real, personal or
mixed, and wherever located (but excluding any assets specifically excluded in
the following Sections of this Article 1), all of which are sometimes
collectively referred to in this Agreement as the "Assets," including, but
without limitation to, the following:
1.1 Contracts. All of the contracts and contract rights
related to these agreements for pay-per-view and cable services to hotel/lodging
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rooms, which agreements are listed in SCHEDULE 1.1 attached hereto (hereinafter
referred to as the "Contracts").
1.2 Equipment. All the machinery, tools, appliances,
furniture, equipment (including essential replacement parts) and other tangible
personal property of every kind and description wherever they may be located
that are owned or leased by Seller, and are utilized in connection with Seller's
operations, a current list of which is attached hereto as Schedule 1.2
(hereinafter referred to collectively as the "Equipment"). At the Closing,
Seller shall deliver to Buyer the equipment as set forth in Schedule 1.2, or
appropriate documents transferring the ownership of the Equipment, free of any
claim or encumbrance. Good and marketable title to all such equipment shall be
transferred on delivery, free and clear of any encumbrances;
1.3 Intangibles. All trade names (including "Alpha
Broadcasting Communications"), trademarks, service marks, copyrights, patents,
patent rights, trade secrets, technical know-how, goodwill and other intangibles
(including (i) tort or insurance proceeds arising out of any damage or
destruction of any of the Assets between the date of this Agreement and the
Closing Date (as hereinafter defined); (ii) all contracts to be assumed by Buyer
pursuant to Article 4 used by Seller in (or owned by Seller and useful in) the
operation of the business, but excluding accounts receivable, accounts payable,
contracts not assumed by Buyer pursuant to Article 4, bank accounts, and tax
deposits;
1.4 Books and records. All papers and records in Seller's
care, custody or control relating to any or all of the above-described Assets
and the operation thereof, including, but not limited to, all blueprints and
specifications, personnel and labor relations records, environmental control
records, sales records, accounting and financial records, maintenance and
production records; and
1.5 Other Assets. All product rights in the equipment and
all improvements thereon. All prepaid expenses relating to any of the Assets and
the operation of Seller's business sold pursuant to this Agreement.
ARTICLE 2. PURCHASE PRICE
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2.1 Payment of Purchase Price. In consideration for the
transfer and assignment by Seller of the Assets, and in consideration of the
representations, warranties and covenants of the Selling Parties set forth
herein, Chequemate and Buyer on the conditions set forth herein and subject to
the provisions in Article 9 state that:
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(a) Chequemate shall issue 250,000 shares of Chequemate's
restricted common stock ( hereinafter referred to as the "Shares") to
the Seller at the time of Closing.
(b) The Buyer shall pay to the Seller the sum of $60,000.00 in
cash at the time of the closing.
(c) The Buyer shall pay the Seller, each month for the 18
months following the Closing, an amount equal to the monthly interest
on the outstanding balance of the purchase price ($440,000.00). The
Buyer and the Seller agree that the annual rate of interest on the
outstanding balance of the purchase price shall be ten percent (10%).
(d) The Buyer shall pay the Seller the sum of $440,000.00 18
months after the Closing. This payment shall be the final payoff of the
purchase price by the Buyer.
(e) Buyer shall assume and discharge, and shall indemnify
Seller against, liabilities and obligations of the Seller under the
contracts or other agreements, if any as specified on SCHEDULE 4, but
only to the extent that such liabilities or obligations accrue on or
after the Closing Date.
ARTICLE 3. THE CLOSING
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The closing of the purchase and sale of the Assets by Seller
to Buyer (the "Closing") shall take place at the offices of Bruce L. Dibb,
attorney at law, which are located at 3ll South State Street, Suite 380, Salt
Lake City, Utah, at 10:00 a.m. local time, on Tuesday, December 1, 1998, or at
such other place and/or time as the parties may agree in writing (the "Closing
Date"). In the event that the conditions specified in this Agreement have not
been fulfilled by such date, Buyer may extend the Closing Date for a period or
periods not exceeding an aggregate of 30 days by giving written notice to the
Selling Parties.
Chequemate shall perform its due diligence inspection of Alpha
Broadcasting Communications; equipment, properties, contracts and all other
items reasonably necessary to complete the inspection on or before the Closing
Date of closing set forth above.
3.1 Selling Parties' Obligations at the Closing. At the
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Closing, Selling Parties shall deliver or cause to be delivered to Buyer:
(a) instruments of assignment and transfer of all of the
Assets of Seller to be transferred hereunder, in form and substance
satisfactory to Buyer's counsel;
(b) instruments of assignment and transfer of all contracts
being transferred by seller to buyer as outlined in SCHEDULE 1.1.
(c) the UCC search reports referred to in paragraph 9.2
hereof; and
(d) the certificate of the President or Secretary of the
Seller confirming that proper minutes and resolutions of the Seller's
Board of Directors and Shareholders have been secured prior to the
Closing whereby the sale of the Assets has been approved.
Simultaneously with the consummation of the transfer, Seller,
through its officers, agents, and employees, shall put Buyer into full
possession and enjoyment of all the Assets to be conveyed and transferred by
this Agreement.
Selling Parties, at any time before or after the closing Date,
shall execute, acknowledge, and deliver any further assignments, conveyances and
other assurances, documents and instruments of transfer, reasonably requested by
Buyer and shall take any other action consistent with the terms of this
Agreement that may reasonably be requested by Buyer for the purpose of
assigning, transferring, granting, conveying and confirming to Buyer, or
reducing to possession, any or all property and assets to be conveyed and
transferred by this Agreement. If requested by Buyer, Selling Parties further
agree to prosecute or otherwise enforce in their own names for the benefit of
Buyer any claims, rights, or benefits that are transferred to Buyer by this
Agreement and that require prosecution or enforcement in either of the Selling
Parties' name. Any prosecution or enforcement of claims, rights, or benefits
under this Section shall be solely at Buyer's expense, unless the prosecution or
enforcement is made necessary by a breach of this Agreement by Selling Parties.
3.2 Buyer's Obligations at Closing. Subject to the provision
of Article 9, at the Closing, Buyer shall deliver to Seller the following
instruments and documents against delivery of the items specified in Section
3.1:
(a) a Chequemate stock certificate issued in the name of Coast
Communications, Inc. for 250,000 shares of restricted common stock; and
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(b) the certificate of the President or Secretary of the Buyer
confirming that proper minutes and resolutions of the Buyer's Board of Directors
have been secured prior to the Closing whereby the purchase of the Assets has
been approved.
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ARTICLE 4. ASSUMPTION OF LIABILITIES
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Buyer is not assuming any debt, liability or obligation of
Seller, whether known or unknown, fixed or contingent, except as herein
specifically otherwise provided. Selling Parties agree to indemnify and hold
Buyer harmless against all debts, claims, liabilities and obligations of Seller
not expressly assumed by Buyer hereunder, and to pay any and all attorneys' fees
and legal costs incurred by Buyer, its successors and assigns in connection
therewith. Buyer shall have the benefit of and shall perform all contracts and
commitments, if any, specifically disclosed in SCHEDULE 1.1, in accordance with
the terms and conditions thereof, except to the extent modifications are
specifically disclosed on such SCHEDULE 1.1.
ARTICLE 5. EXCISE AND PROPERTY TAXES
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Seller shall pay all sales, use and transfer taxes arising out
of the transfer of the Assets and shall pay its portion, prorated as of the
Closing Date, of state and local personal property taxes of the business. Buyer
shall not be responsible for any business, occupation, withholding or similar
tax, or for any taxes of any kind related to any period before the Closing Date.
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF SELLING PARTIES
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Selling Parties, jointly and severally, hereby represent and
warrant to Buyer that the following facts and circumstances are, and except as
contemplated hereby, at all times up to the Closing Date will be true and
correct, and hereby acknowledge that such facts and circumstances constitute the
basis upon which Buyer is induced to enter into and perform this Agreement. Each
warranty set forth in this Article 6 shall survive the Closing and any
investigation made by or on behalf of Buyer.
6.1 Organization, Good Standing and Qualification. Seller is a
corporation duly organized, validly existing, and in good standing under the
laws of Nevada, has all necessary corporate powers to own its properties and to
carry on its business as now owned and operated by it, and is duly qualified to
transact interstate business and is in good standing in all jurisdictions in
which the nature of its business or of its properties makes such qualification
necessary. Coast Communications, Inc. is validly authorized to conduct business
as Alpha Broadcasting Communications in the states of Arizona, California,
Nevada and New Mexico.
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6.2 Capital Structure. The authorized number of shares of
Seller is 2.5 million, all of one class, of which 2.5 million shares (the
"Shares") are issued and outstanding, all of which are owned of record and
beneficially by the Shareholders. All the Shares are validly issued, fully paid,
and nonassessable. There are no outstanding subscriptions, options, rights,
warrants, convertible securities, or other agreements or commitments obligating
Seller to issue or to transfer from treasury any additional shares.
6.3 Financial Statements. SCHEDULE 6.3 to this Agreement sets
forth the unaudited balance sheet of Seller as of November 1, 1998 for the
period of January 1, 1999 until such date, as compiled by Seller. The balance
sheet in SCHEDULE 6.3 is referred to as the "Financial Statements." The
Financial Statements have been prepared in accordance with generally accepted
accounting principles consistently followed by Seller throughout the periods
indicated, and fairly present the financial position of Seller as of the date of
the balance sheet included in the Financial Statements.
6.4 Absence of Specified Changes. Since the November 1, 1998
date of the Financial Statements, there has not been any:
(a) transaction by Seller except in the ordinary course of
business as conducted on that date;
(b) capital expenditure by Seller exceeding $10,000.00;
(c) material adverse change in the financial condition,
liabilities, assets, business or prospects of Seller;
(d) destruction, damage to, or loss of any assets of Seller
(whether or not covered by insurance) that materially and adversely
affects the financial condition, business or prospects of Seller;
(e) labor trouble or other event or condition of any character
materially and adversely affecting the financial condition, business,
assets or prospects of Seller;
(f) change in accounting methods or practices (including,
without limitation, any change in depreciation or amortization
policies or rates) by Seller;
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(g) revaluation by Seller of any of its assets;
(h) sale or transfer of any asset of Seller, except in the
ordinary course of business;
(i) execution, creation, amendment or termination of any
contract, agreement or license to which Seller is a party;
(j) loan by Seller to any person or entity, or guaranty by
Seller of any loan;
(k) waiver or release of any right or claim of Seller, except
in the ordinary course of business;
(l) mortgage, pledge or other encumbrance of any asset of
Seller;
(m) other event or condition of any character that has or
might reasonably have a material and adverse effect on the financial
condition, business, assets or prospects of Seller; or
(n) agreement by Seller to do any of the things described in
the preceding clauses (a) through (m).
6.5 Tax Returns and Audits. Within the times and in the manner
prescribed by law, Seller has filed all domestic and foreign, federal, state and
local tax returns required by law and has paid all taxes, assessments and
penalties due and payable. There are no present disputes as to taxes of any
nature payable by Seller.
6.6 Inventories. No items included in the Seller's inventories
have been pledged as collateral or are held by the Seller on consignment from
others.
6.7 Other Tangible Personal Property. The Equipment described
in Section 1.2 and SCHEDULE 1.2 of this Agreement constitutes all the items of
tangible personal property owned by, in the possession of, or used by Seller in
connection with the business sold pursuant to this Agreement. The Equipment
listed in SCHEDULE 1.2 constitutes all tangible personal property necessary for
the conduct by Seller of the business as now conducted.
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No Equipment used by Seller in connection with its business to
be sold pursuant to this agreement is held under any lease, security agreement,
conditional sales contract, or other title retention or security arrangement.
6.8 Trade Names, Trademarks and Copyrights. Except as set
forth in SCHEDULE 6.8, Seller does not use any trademark, service mark, trade
name or copyright in its business to be sold pursuant to this Agreement, or own
any trademarks, trademark registrations or applications, trade names, service
marks, copyrights, or copyright registrations or applications. No person (other
than Seller) owns any trademark, trademark registration or application, service
mark, trade name, copyright, or copyright registration or application, the use
of which is necessary or contemplated in connection with the performance of any
of the Contracts.
6.9 Title to Assets. Seller has good and marketable title to
all of the Assets and interests in Assets, whether personal, tangible, and
intangible, which constitute all the Assets and interests in assets that are
used in the business of Seller to be sold pursuant to this Agreement. All the
Assets are free and clear of mortgages, liens, pledges, charges, encumbrances,
equities, claims, easements, rights of way, covenants, conditions, or
restrictions, (i) the lien of current taxes not yet due and payable; and (ii)
possible minor matters that, in the aggregate, are not substantial in amount and
do not materially detract from or interfere with the present or intended use of
any of the Assets, nor materially impair business operations. All tangible
personal property of Seller is in good operating condition and repair, ordinary
wear and tear excepted. Except as set forth on the appropriate SCHEDULE listing
such Assets, neither any officer, nor any director or employee of Seller, nor
any spouse, child or other relative of any of these persons, owns, or has any
interest, directly or indirectly, in any of the personal property owned by or
leased to Seller or any copyrights, patents, trademarks, trade names or trade
secrets licensed by Seller for use in the business to be sold pursuant to this
Agreement. Seller does not occupy any real property in violation of any law,
regulation or decree.
6.10 Customers and Sales. SCHEDULE 1.1 to this Agreement is a
correct and current list of all customers of Seller for the business to be sold
pursuant to this Agreement. Seller has no information and is not aware of any
facts indicating that any of these customers intend to cease doing business with
Seller or materially alter the amount of the business that they are presently
doing with Seller.
6.11 Insurance Policies. SCHEDULE 6.11 to this Agreement is a
description of all insurance policies held by Seller concerning the Assets. All
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these policies are in the respective principal amounts set forth in SCHEDULE
6.11, Seller has maintained and now maintains (i) insurance on all the Assets of
a type customarily insured, covering property damage and loss of income by fire
or other casualty, and (ii) adequate insurance protection against all
liabilities, claims, and risks against which it is customary to insure.
6.12 Other Contracts. Except as set forth in SCHEDULE 1.2, the
Assets are not bound by any distributor's or manufacturer's representative or
agency agreement, any agreement not entered into in the ordinary course of
business, any indenture, mortgage, deed of trust, lease or any agreement that is
unusual in nature, duration or amount. The performance by Buyer of any of the
agreements described on SCHEDULE 1.1 will not result in Buyer becoming bound or
liable under any distributor's or manufacturer's representative or agency
agreement. All contracts which will be assigned to or assumed by Buyer under
this Agreement are valid and binding upon the parties thereto. There is no
default or event that with notice or lapse of time, or both, would constitute a
default by any party to any of the agreements listed in SCHEDULE 1.1. Seller has
not received notice that any party to any of the agreements listed in SCHEDULE
1.1 intends to cancel or terminate any of these agreements or to exercise or not
exercise any options under any of these agreements. Seller is not a party to,
nor is Seller or the Assets bound by, any agreement that is materially adverse
to the business, property, or financial condition of Seller.
6.13 Compliance with Laws. Seller has complied with, and is
not in violation of, applicable federal, state or local statutes, laws and
regulations (including, without limitation, any applicable environmental,
health, building, zoning or other law, ordinance or regulation) affecting the
Assets or the operation of its business to be sold pursuant to this Agreement.
6.14 Litigation. Except as set forth in SCHEDULE 6.14, there
is no suit, action, arbitration or legal, administrative or other proceeding, or
governmental investigation pending, or to the best knowledge of Selling Parties,
threatened, against or affecting Seller, or any of its business, assets or
financial condition. Seller is not in default with respect to any order, writ,
injunction or decree of any federal, state, local or foreign court, department,
agency or instrumentality. Seller is not presently engaged in any legal action
to recover moneys due to it or damages sustained by it.
6.15 Assets Sufficient for Conduct of Business. The Assets
constitute all of the assets required for Buyer to conduct the business of
Seller as it is presently conducted.
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6.16 Agreement will Not Cause Breach or Violation. Neither the
entry into this Agreement nor the consummation of the transactions contemplated
hereby will result in or constitute any of the following: (i) a breach of any
term or provision of this Agreement; (ii) a default or an event that, with
notice or lapse of time, or both, would be a default, breach or violation of the
Articles of Incorporation or Bylaws of Seller or any lease, license, promissory
note, conditional sales contract, commitment, indenture, mortgage, deed of trust
or other agreement, instrument or arrangement to which Seller is a party or by
which Seller or the Assets are bound; (iii) an event that would permit any party
to terminate any agreement or to accelerate the maturity of any indebtedness or
other obligation of one or more of Selling Parties; (iv) the creation or
imposition of any lien, charge or encumbrance on any of the Assets; or (v) the
violation of any law, regulation, ordinance, judgment, order or decree
applicable to or affecting Seller or the Assets.
6.17 Authority and Consents. Seller has the right, power,
legal capacity and authority to enter into, and perform its obligations under
this Agreement, and no approvals or consents of any persons other than Selling
Parties are necessary in connection with it. The execution and delivery of this
Agreement by Seller have been duly authorized by all necessary corporate action
of Seller (including any necessary action by Seller's security holders), and
this Agreement constitutes a legal, valid and binding obligation of Seller
enforceable in accordance with its terms.
6.18 Interest in Customers, Suppliers and Competitors. Neither
the Selling Parties, nor any officer, director or employee of any of the Selling
Parties, nor any spouse or child of any of them has any direct or indirect
interest in any competitor, supplier or customer of Seller or in any person with
whom Seller is doing business in the business to be sold pursuant to this
Agreement.
6.19 Corporate Documents. Seller has furnished to Buyer for
its examination (i) copies of the Articles of Incorporation and Bylaws of Seller
and (ii) the minute books of Seller containing all records required to be set
forth of all proceedings, consents, actions and meetings of the shareholders and
board of directors of Seller to consummate the transaction described in this
business.
6.20 Documents Delivered. Each copy or original of any
agreement, contract or other instrument which is identified in any exhibit
delivered by Selling Parties or their counsel to Buyer (or its counsel or
representatives), whether before or after the execution hereof, is in fact what
it is purported to be by Selling Parties and has not been amended, canceled or
otherwise modified.
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6.21 Full Disclosure. None of the representations and
warranties made by Selling Parties or made in any letter, certificate or
memorandum furnished or to be furnished by Selling Parties, or on their behalf,
contains or will contain any untrue statement of a material fact, or omits any
material fact the omission of which would make the statements made misleading.
There is no fact known to Selling Parties which materially adversely affects, or
in the future may (so far as Seller can now reasonably foresee) materially
adversely affect the condition, Assets, liabilities, business operations or
prospects of Seller that has not been set forth herein or heretofore
communicated to Buyer in writing pursuant hereto.
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ARTICLE 7. REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER.
---------------------------------------------------
Chequemate and Buyer jointly and severally represent and warrant to the
Seller and the Shareholders as follows:
7.1 Organization and Qualification. Chequemate is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Utah. All subsidiaries of Chequemate are legal entities that are
duly organized, validly existing and in good standing under the laws of their
respective jurisdictions of incorporation. Chequemate has all requisite power
and authority to own or operate its properties and conduct its business as it is
now being conducted. Chequemate is duly qualified and in good standing as a
foreign corporation or entity authorized to do business in each of the
jurisdictions in which the character of the properties owned or held under lease
by it or the nature of the business transacted by it makes such qualification
necessary.
7.2 Capitalization; Subsidiaries. The authorized capital stock
of Chequemate consists of 500,000,000 shares of Chequemate's Common Stock. As of
September 30, 1998, 17,310,792 shares of Chequemate's Common Stock were issued
and outstanding. All issued and outstanding shares of capital stock of
Chequemate are validly issued, fully paid, non-assessable and free of preemptive
rights.
7.3 Authority Relative to this Agreement. Chequemate has all
requisite corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly and validly authorized by the Board of Directors of
Chequemate, and no other corporate proceedings on the part of Chequemate are
necessary to authorize this Agreement or to consummate the transactions so
contemplated. This Agreement has been duly and validly executed and delivered by
Chequemate and, assuming this Agreement constitutes a valid and binding
obligation of the Seller, this Agreement constitutes a valid and binding
agreement of Chequemate, enforceable against Chequemate in accordance with its
terms.
7.4 SEC Reports. Since January 1, 1998, to the best of its
knowledge Chequemate has filed all required forms, reports and documents
("Chequemate SEC Reports") with the Securities and Exchange Commission (the
"SEC") required to be filed by it pursuant to the federal securities laws and
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the SEC rules and regulations thereunder, all of which have complied in all
material respects with all applicable requirements of the Securities Act of 1933
(the "Securities Act") and the Securities Exchange Act of 1934 (the "Exchange
Act"), and the rules and interpretive releases promulgated thereunder. None of
such Chequemate SEC Reports, including without limitation any financial
statements, notes, or schedules included therein, at the time filed, contained
any untrue statement of a material fact, or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
Each of the consolidated balance sheets in or incorporated by reference
into the Chequemate SEC Reports fairly presents or will fairly present the
financial position of the entity or entities to which it relates as of its date,
and each of the related consolidated statements of operations and retained
earnings and cash flows or equivalent statements in the Chequemate SEC Reports
(including any related notes and schedules) fairly presents or will fairly
present the results of operations, retained earnings and cash flows, as the case
may be, of the entity or entities to which it relates for the period set forth
therein (subject in the case of unaudited interim statements, to normal year-end
audit adjustments) in each case in accordance with generally-accepted accounting
principles applicable to the particular entity consistently applied throughout
the periods involved, except as may be noted therein; and independent certified
public accountants for Chequemate have rendered or will render an unqualified
opinion with respect to each audited financial statement included in the
Chequemate SEC Reports. The consolidated financial statements included in the
Chequemate SEC Reports are hereinafter sometimes collectively referred to as the
"Chequemate Financial Statements."
7.5 Consents and Approvals; No Violation. Neither the
execution and delivery of this Agreement by Chequemate nor the consummation of
the transactions contemplated hereby nor compliance by Chequemate with any of
the provisions hereof will conflict with or result in any breach of any
provision of the Articles of Incorporation or By-laws of Chequemate or any
Subsidiary, require any consent, approval, authorization or permit of, or filing
with or notification to, any Governmental Authority, except pursuant to the
Securities Act and the Exchange Act, such filings and approvals as may be
required under the "blue sky", takeover or securities laws of various states, or
result in a default (with or without due notice or lapse of time or both) (or
give rise to any right of termination, cancellation or acceleration) under any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
contract, license, agreement or other instrument or obligation to which
Chequemate is a party or by which Chequemate, any of its Subsidiaries or any of
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their respective assets may be bound, result in the creation or imposition of
any lien, charge or other encumbrance on the assets of Chequemate or violate any
order, writ, injunction, decree, statute, rule or regulation applicable to
Chequemate or any of its respective assets.
7.6 Litigation, etc. Except as disclosed in the Chequemate SEC
Reports, there is no action, claim, or proceeding pending or, to the knowledge
of Chequemate, threatened, to which Chequemate is or would be a party before any
court or Governmental Authority acting in an adjudicative capacity or any
arbitrator or arbitration tribunal with respect to which there is a reasonable
likelihood of a determination having, or which, insofar as reasonably can be
foreseen in the future would have, a material adverse effect on Chequemate and
since December 31, 1997, there have been no claims made or actions or
proceedings brought against any officer or director of Chequemate arising out of
or pertaining to any action or omission within the scope of his employment or
position with Chequemate, which claim, action or proceeding would involve a
material adverse effect on Chequemate taken as a whole. All material litigation
and other material administrative, judicial or quasi-judicial proceedings to
which Chequemate is a party or to which it has been threatened to be made a
party, are described in the Chequemate SEC Reports.
7.7 Compliance with Law and Permits. Chequemate has owned and
operated its properties and assets in substantial compliance with the provisions
and requirements of all laws, orders, regulations, rules and ordinances issued
or promulgated by all Governmental Authorities having jurisdiction with respect
thereto. All necessary governmental certificates, consents, permits, licenses or
other authorizations with regard to the ownership or operation by Chequemate of
their respective properties and assets have been obtained and no violation
exists in respect of such licenses, permits or authorizations. None of the
documents and materials filed with or furnished to any Governmental Authority
with respect to the properties, assets or businesses of Chequemate contains any
untrue statement of a material fact or fails to state a material fact necessary
to make the statements therein not misleading.
7.8 Chequemate Common Stock. The shares to be issued by
Chequemate pursuant to this Agreement have been duly authorized and, when issued
in accordance with the terms of the this Agreement, will be validly authorized
and issued and fully paid and nonassessable, and no shareholder of Chequemate
will have any preemptive rights or dissenter's right with respect thereto.
ARTICLE 8. SELLING PARTIES' OBLIGATIONS BEFORE CLOSING.
--------------------------------------------
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Selling Parties covenant that, except as otherwise agreed in
writing by Buyer, from the date of this Agreement until the Closing:
8.1 Buyer's Access to Premises and Information. Buyer and its
counsel, accountants and other representatives shall be entitled to have full
access during normal business hours to all Seller's properties, books, accounts,
records, contracts and documents of or relating to the Assets. Selling Parties
shall furnish or cause to be furnished to Buyer and its representatives all data
and information concerning the business, finances and properties of Seller that
may reasonably be requested.
8.2 Conduct of Business in Normal Course. Seller shall carry
on its business and activities diligently and in substantially the same manner
as it previously has been carried on, and shall not make or institute any
unusual or novel methods of purchase, sale, lease, management, accounting or
operation that will vary materially from the methods used by Seller as of the
date of this Agreement.
8.3 Preservation of Business Relationships. Seller shall use
its best efforts, without making any commitments on behalf of Buyer, to preserve
its business organization intact, to keep available to Seller its present
employees, and to preserve its present relationships with suppliers, customers
and others having business relationships with it.
8.4 Maintenance of Insurance. Seller shall continue to carry
its existing insurance, subject to variations in amounts required by the
ordinary operations of its business. At the request of Buyer and at Buyer's sole
expense, the amount of insurance against fire and other casualties which, at the
date of this Agreement, Seller carries on any of the Assets or in respect of its
operations shall be increased by such amount or amounts as Buyer shall specify.
Seller shall cause Buyer to be named as an additional insured on each existing
insurance policy carried by Seller.
8.5 New Transactions. Seller shall not do, or agree to do
without the prior written consent of the Buyer, any of the following acts:
(a) enter into any contract, commitment or transaction not in
the usual and ordinary course of its business; or
(b) enter into any contract, commitment or transaction in the
usual and ordinary course of business involving an amount exceeding
$100,000.00, individually, or $100,000.00 in the aggregate; or
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(c) make any capital expenditures in excess of $50,000.00 for
any single item or $100,000.00 in the aggregate, or enter into any
leases of capital equipment or property under which the annual lease
charge is in excess of $50,000.00; or
(d) sell or dispose of any capital assets with a net book
value in excess of $ 50,000.00 individually, or $100,000.00 in the
aggregate.
8.7 Existing Agreements. Seller shall not modify, amend,
cancel or terminate any of its existing contracts or agreements, or agree to do
any of those acts.
8.8 Consent of Others. As soon as reasonably practical after
the execution and delivery of this Agreement, and in any event on or before the
Closing Date, Seller shall obtain the written consent of the persons described
in SCHEDULE 1.1 to this Agreement and will furnish to Buyer executed copies of
these consents to the assignment of the Contracts.
8.9 Representations and Warranties True at Closing. Selling
Parties shall use their best efforts to assure that all representations and
warranties of Selling Parties set forth in this Agreement and in any written
statements delivered to Buyer by Selling Parties under this Agreement will also
be true and correct as of the Closing Date as if made on that date and that all
conditions precedent to Closing shall have been met.
8.10 Sales and Use Tax on Prior Sales. Seller agrees to
furnish to Buyer a clearance certificate from the appropriate agencies and any
related certificates that Buyer may reasonably request as evidence that all
sales and use and other tax liabilities of Seller (other than income tax
liabilities) accruing before the Closing Date have been fully satisfied or
provided for.
8.11 Statutory Filings. Seller shall cooperate fully with
Buyer in preparing and filing all information and documents deemed necessary or
desirable by Buyer under any statutes or governmental rules or regulations
pertaining to the transactions contemplated by this Agreement.
ARTICLE 9. CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE
-------------------------------------------
The obligations of Buyer to purchase the Assets under this
Agreement are subject to the satisfaction, at or before the Closing, of all the
conditions set out below in this Article 9. Buyer may waive any or all of these
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conditions in accordance with Section 14.2 hereof; provided however, that no
such waiver of a condition shall constitute a waiver by Buyer of any of its
other rights or remedies, at law or in equity, if Selling Parties shall be in
default of any of its representations, warranties or covenants under this
Agreement.
9.1 Accuracy of Selling Parties' Representations and
Warranties. All representations and warranties by Selling Parties in this
Agreement or in any written statement that shall be delivered to Buyer by
Selling Parties under this Agreement shall be true on and as of the Closing Date
as though made at that time.
9.2 Absence of Liens. At or prior to the Closing, Buyer shall
have received UCC search reports dated as of a date not more than five days
before the Closing Date issued by the Secretaries of State for Arizona, Nevada,
California and New Mexico indicating that there are no filings under the Uniform
Commercial Code on file with such Secretary of State which name Coast
Communications Inc., Alpha Broadcasting Communications, Ernest McKay or Paul
LaBarre as debtor or otherwise indicating any lien on the Assets, except for the
liens otherwise disclosed in the Schedules hereto.
9.3 Selling Parties' Performance. Selling Parties shall have
performed, satisfied, and complied with all covenants, agreements, and
conditions required by this Agreement to be performed or complied with by
Selling Parties on or before the Closing Date.
9.4 Certification by Seller. Buyer shall have received a
certificate, dated the Closing Date, signed and verified by Seller's president
or vice president and its treasurer or assistant treasurer, certifying, in such
detail as Buyer and its counsel may reasonably request, that the conditions
specified in Sections 9.1 and 9.3 have been fulfilled.
9.5 Absence of Litigation. No action, suit or proceeding
before any court or any governmental body or authority, pertaining to the
transaction contemplated by this Agreement or to its consummation, shall have
been instituted or threatened on or before the Closing Date.
9.6 Corporate Approval. The execution and delivery of this
Agreement by Seller, and the performance of its covenants and obligations under
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it, shall have been duly authorized by all necessary corporate action, and Buyer
shall have received copies of all resolutions pertaining to that authorization,
certified by the secretary of Seller.
9.7 Corporation Tax Clearance. Buyer shall have received a
Certificate of Good Standing for Seller as of a date not more than 3 days before
the Closing Date and a Letter of Account Status for Seller as of a date not more
than 3 days before the Closing Date certifying that all sales taxes or other
taxes of the Seller have been paid. Such documents are to be issued by the
states of Arizona, California, Nevada and New Mexico.
9.8 Certificate Regarding Employment Tax Obligations. Buyer
shall have received a Certificate of the President and Secretary of the Seller
stating that, as of the Closing Date, no contributions, interest, or penalties
are unpaid by Seller with regard to any payroll taxes, or unemployment or
workers' compensation contributions for periods prior to October 1, 1998.
9.9 Consents. All necessary agreements and consents of any
parties to the consummation of the transaction contemplated by this Agreement,
or otherwise pertaining to the matters covered by it, shall have been obtained
by Seller and delivered to Buyer.
9.10 Approval of Documentation. The form and substance of all
certificates, instruments and other documents delivered to Buyer under this
Agreement shall be satisfactory in all reasonable respects to Buyer and its
counsel.
9.11 Condition of Assets. The Assets shall not have been
materially or adversely affected in any way as a result of any fire, accident,
storm, or other casualty or labor or civil disturbance or act of God or the
public enemy.
9.12 Resale Certificate. Buyer shall have received from Seller
a sales tax resale certificate or other comparable document, as appropriate,
reasonably satisfactory to Buyer, with respect to the Assets being purchased by
Seller for resale.
9.13 Valuation of Assets. Buyer shall have accepted the
valuation of the Assets, as set forth on the schedules attached hereto (as
adjusted as of the Closing Date).
9.14 Completion of Due Diligence. All due diligence reasonably
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required by the Buyer has been completed, and the results of such due diligence
are satisfactory to the Buyer in its sole discretion and judgement with regard
to all aspects of the transaction, including by not limited to matters relating
to the Assets, or the intellectual property or financial prospects of the
business to be sold pursuant to this Agreement.
9.15 Compliance with Bulk Sales Laws. The parties have
complied with all applicable Bulk Sales Laws or similar provisions.
ARTICLE 10. CONDITIONS PRECEDENT TO SELLER'S PERFORMANCE
--------------------------------------------
The obligations of Seller to sell and transfer the Assets
under this Agreement are subject to the satisfaction, at or before the Closing,
of all the following conditions:
10.1 Accuracy of Buyer's Representations and Warranties. All
representations and warranties by Buyer contained in this Agreement or in any
written statement delivered by Buyer under this Agreement shall be true on and
as of the Closing as though such representations and warranties were made on and
as of that date.
10.2 Buyer's Performance. Buyer shall have performed and
complied with all covenants and agreements, and satisfied all conditions that it
is required by this Agreement to perform, comply with, or satisfy, before or at
the Closing.
10.3 Buyer's Corporate Approval. Buyer shall have received
corporate authorization and approval for the execution and delivery of this
Agreement and all corporate action necessary or proper to fulfill the
obligations of Buyer to be performed under this Agreement on or before the
Closing Date.
ARTICLE 11. EMPLOYEE PLANS
--------------
Buyer is not assuming any obligations of Seller relating to any
Employee Plan as defined herein, and Selling Parties represent that the Seller
has no Employee Plan in effect or to which the Seller is subject. For purposes
of this Agreement, the term "Employee Plan" includes all pension, retirement,
disability, medical, dental or other health insurance plans, life insurance or
other death benefit plans, profit sharing, deferred compensation, stock option,
bonus or other incentive plans, vacation benefit plans, severance plans, or
other employee benefit plans or arrangements including, without limitation, any
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pension plan as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974 ("ERISA") and any welfare plan as defined in Section 3(1)
of ERISA, whether or not funded, covering any employee or to which Seller is a
party or bound or makes or has made any contribution or by which Seller may have
any liability to any employee (including any such plan formerly maintained by or
in connection with which Seller may have any liability to any employee, and any
such plan which is a multi employer plan as defined in Section 3(37) (A) of
ERISA).
ARTICLE 12. SELLING PARTIES' OBLIGATIONS AFTER THE CLOSING
----------------------------------------------
12.1 Preservation of Goodwill. Following the Closing, Selling
Parties will restrict their activities so that Buyer's reasonable expectations
with respect to the goodwill, business reputation, employee relations and
prospects connected with the Assets will not be materially impaired. In
furtherance, but not in limitation of, this general obligation, Selling Parties
agree that, for a period of the longer of (a) three (3) years following the
Closing Date; (b) as long as any of the Warrants referred to in paragraph 2.1
are outstanding; or (c) as long as Buyer or its heirs, assigns or successors in
interest carry on a like business in the countries or areas specified:
(a) Selling Parties will not compete with the Buyer or engage in any
activity which is substantially the same as, or represents an outgrowth of, any
business or activity presently conducted by Seller if such business or activity
extends to the states of Arizona, California, Nevada, New Mexico or of any
counties of such states and/or any other county in which Seller has heretofore
engaged in business or otherwise established its goodwill, business reputation,
or any customer relations. For the purposes of this Agreement, the term
"compete" shall mean (i) calling on, soliciting or taking away, as a client or
customer, or attempting to call on, solicit or take away as a client or customer
any individual, partnership, corporation or association that was a client or
customer of the Seller; or (ii) entering into or attempting to enter into any
business or substantially similar business to or competing in any way with the
business of the Buyer, either alone or with any individual, partnership,
corporation or association; or (iii) acting as an agent, representative,
consultant, officer, director, independent contractor, or employee of an entity
or enterprise which is competing with the business of the Buyer; or (iv)
participating in any such competing entity or enterprise as an owner, partner,
limited partner, joint venturer, creditor or stockholder.
The parties intend that the covenant contained in the
preceding portion of this Section shall be construed as a series of separate
covenants, one for each state county. Each separate covenant shall be deemed
identical in terms to the covenant contained in this Section. If, in any
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judicial proceeding, a court shall refuse to enforce any of the separate
covenants deemed included in this Section, then such unenforceable covenant
shall be deemed eliminated from these provisions for the purpose of those
proceedings to the extent necessary to permit the remaining separate covenants
to be enforced.
(b) Selling Parties will not disclose to any person or use for
their own benefit any price lists, pricing data, customer lists, or similar
matters possessed by them relating to the Assets or the business transferred to
Buyer unless they first clearly demonstrate to Buyer that such matters are at,
the time of the proposed disclosure or use, of common knowledge within the
trade.
12.2 Change of Name. Selling Parties agree that after the
Closing Date they shall not use or employ in any manner directly or indirectly
the name "Alpha Broadcasting Communications," or any variation thereof.
12.3 Selling Parties' Indemnities. Selling Parties shall
indemnify, defend and hold harmless Chequemate and its officers, directors, and
agents against and in respect of any and all claims, demands, losses, costs,
expenses, obligations, liabilities, damages, recoveries and deficiencies,
including interest, penalties and reasonable attorneys' fees, that Chequemate or
the Buyer, or their officers, directors, or agents shall incur or suffer, which
arise, result from or relate to any breach of, or failure by Selling Parties to
perform, any of their representations, warranties, covenants or agreements in
this Agreement or in any schedule, certificate, exhibit or other instrument
furnished or to be furnished by Selling Parties under this Agreement.
Notwithstanding any other provision of this Agreement, Selling Parties shall not
be liable to Chequemate, or the Buyer, or their officers, directors, or agents
on any warranty, representation or covenant made by Selling Parties in this
Agreement, regarding any single claim, loss, expense, obligation or other
liability that does not exceed $10,000; provided, however, that when the
aggregate amount of all such claims, losses, expenses, obligations and
liabilities not exceeding $10,000 each reaches $10,000, Selling Parties shall
thereafter be liable in full for all such breaches and indemnities, and
regarding all those claims, losses, expenses, obligations, and liabilities.
12.4 Access to Records. From and after the Closing, Selling
Parties shall allow Buyer, and its counsel, accountants and other
representatives, such access to records which after the Closing are in the
custody or control of Selling Parties as Buyer reasonably requires in order to
comply with its obligations under the law or under contracts assumed by Buyer
pursuant to this Agreement.
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12.5 Nonsolicitation of Employees. None of the Selling Parties
shall, prior to the third anniversary of the Closing solicit any employee of
Buyer to leave such employment if such employee was at any time between the date
hereof and the Closing an employee of Seller.
ARTICLE 13. COSTS
-----
13.1 Finder's or Broker's Fees. Each of the parties represents
and warrants that it has dealt with no broker or finder in connection with any
of the transactions contemplated by this Agreement, and, insofar as it knows, no
broker or other person is entitled to any commission or finder's fee in
connection with any of these transactions.
13.2 Expenses. Each of the parties shall pay all costs and
expenses incurred or to be incurred by it in negotiating and preparing this
Agreement and in closing and carrying out the transactions contemplated by this
Agreement.
ARTICLE 14. SECURITIES ASPECTS OF AGREEMENT
-------------------------------
14.1 All parties to this Agreement mutually understand, agree
and covenant that any referenced sale or other disposition of any security under
this Agreement shall be controlled and governed by this section. Specifically
should there arise any conflict of application or interpretation under this
section and any other provision or section of this Agreement, this section shall
be given primary definition and control. The term "securities" for the purposes
of this Agreement shall mean and include all shares of Chequemate, and any
warrants to acquire those shares as well as any other instrument or obligation
customary or commonly described as a security. Each of the following terms and
conditions of the issuance and distribution of the securities shall be fully
applicable unless otherwise specifically waved or treated in the following
paragraphs.
14.2 Each security issued pursuant to the terms of this
Agreement shall be a "restricted" security unless otherwise specifically
referenced as being issued pursuant to a registration or offering.
14.3 Each Selling Party understands and agrees that a
restricted security for the purposes of this Agreement is one which is issued
without meeting registration requirements under both federal and state law
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within the United States. Each party to this Agreement further agrees and
acknowledges that the nature of restricted security is that it is not freely
tradeable. That is, the holder of such security cannot immediately market or
further distribute such security in the open market, or through private
transactions without the express written consent of the issuer, primarily
Chequemate under the terms of this Agreement.
14.4 Each Selling Party fully acknowledges and understands
that the resale of a restricted security will normally require substantial
holding periods unless subsequently subject to an intervening registration under
applicable federal and state securities laws. Each Selling Party acquiring
restricted stock under this Agreement further acknowledges and agrees that the
principal, though not exclusive, means by which restricted securities are resold
under United States law and conforming state laws and regulations is Securities
and Exchange Commission ("SEC") Rule 144, which essentially requires a holding
period of one year before the stock can be resold or any interest therein
further sold or assigned. In general terms, Rule 144 would require that there be
current public information about the Company before the provisions of the Rule
could be relied upon for subsequent resales, that the aforementioned holding
period had been met, that the sales occurred through independent arms-length and
unsolicited brokerage transactions, that certain volume limitations on the
number of shares sold in each three month period be observed, and that a report
of sales will be filed with the SEC. Each Selling Party understands that the
foregoing constitutes only a general description of Rule 144 and that such
person is or has the means to become familiar with all of the specific
provisions and terms of Rule 144 through his independent legal advisors. Each of
the Selling Parties further acknowledges and agrees that while Rule 144 is not
exclusive, that it is anticipated and intended that it would be the primary
means by which securities acquired under this Agreement could be resold absent
the specific registration provisions of this Agreement.
14.5 Each Selling Party further acknowledges and agrees that,
except as specifically provided by the terms of this Agreement, none of the
corporate parties will have any obligation to register securities issued, and
have no present intention to register such securities other than is specifically
provided for by this Agreement. Each person under this Agreement acquiring
securities further understands and agrees that individual registration of
securities, absent registration by the issuer, is usually not practical and
should not be relied upon as a means for resales or other distributions of
securities acquired under this Agreement.
14.6 Any entity acquiring securities pursuant to this
Agreement with the intent to divide such securities among its principal
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shareholders as part of the acquisition process, will be responsible for
obtaining the knowledgeable consent and agreement of such actual shareholder to
the terms of this Agreement, specifically referencing this paragraph.
14.7 Each Selling Party fully understands and agrees that
should such person be deemed to be in a "control" position as to Chequemate
incident to the completion of this Agreement, that such person must comply with
the volume limitations of Rule 144 to complete sales of his or her securities
acquired, except for securities which have been otherwise registered pursuant to
this Agreement. A control person has been defined by the SEC, and by most states
securities regulatory agencies, as a person who has the capacity to exercise
control over the issuing company. While no precise mathematical formulation of a
control person is applicable to all situations, the following are generally
presumed to be control people:
(i) a person holding 10% or more of the shares of the issuing
company;
(ii) any principal officer or any director of the issuing company.
14.8 Seller represents that it is acquiring the Shares for its
own account, for investment and not with a view to the distribution or resale
thereof. The Selling Parties further represent that their financial and other
circumstances are such that they have adequate means of providing for their
current and anticipated future needs without having to sell or otherwise dispose
of the Shares, and that the Selling Parties are able to bear the economic risks
of this investment and consequently are able to hold the Shares for an
indefinite period of time and to sustain the loss of their entire investment in
the Shares, in the event such a loss should occur.
14.9 Seller acknowledges and represents that, due to its
knowledge and experience in financial and business matters, its investment
experience generally and its experience with investments similar to the Shares
in particular, Seller, either alone or together with its advisors, if any, is
able to understand and evaluate the nature and merits of, and the risks involved
in, its proposed investment in the Shares. Seller, either alone or together with
its advisors, if any, has the capacity to protect its own interests in
connection with this transaction.
14.10 Seller acknowledges that the Buyer and Chequemate have
furnished or made available to Seller all financial and other data relating to
Chequemate, required by Seller to enable it to make an informed decision
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concerning its approval of this transaction and its resulting acquisition of the
Shares. In particular, Seller acknowledges that it has received and reviewed the
financial statements of Chequemate for the past two years and complete copies of
all of the Chequemate SEC Reports for such period. Seller acknowledges that it
has been informed that Chequemate has not previously conducted business except
as disclosed in the Chequemate SEC Reports. Seller represents and acknowledges
that it and its principals have been engaged in the business of providing
pay-per-view and cable services in the hotel/lodging industry, which is intended
area of business for which the Assets are being acquired by the Buyer. In this
regard, Seller has been acquainted with the Chief Executive Officer of
Chequemate. Seller further represents and acknowledges that it has had full
opportunity to obtain additional information from Chequemate to verify the
accuracy of the information supplied by it and to evaluate the merits of its
investment decision, including, without limitation, full opportunity to ask
questions of and receive satisfactory answers and other information from
Chequemate, its officers, directors and other persons acting on its behalf, and
all such questions have been answered, and such other information supplied, to
Seller's full satisfaction. Seller is aware of, and has thoroughly evaluated, to
its own satisfaction, the high degree of risk associated with investing in
Chequemate, including but not limited to, the specific risks associated with
Chequemate's business and the risks associated with the ownership of common
stock.
14.11 Seller hereby represents and warrants to Chequemate that
Seller is an "accredited investor" as that term is defined in Rule 501(a) of
Regulation D. Seller further represents and warrants that it is a corporation,
and that each of the equity owners of Seller are "accredited investors" by
reason of the fact that each of the equity owners meets one or both of the
following criteria:
(i) The owner is a natural person whose
individual net worth, or joint net worth
with owner's spouse, at the time of this
agreement, exceeds $1,000,000; or
(ii) The owner is a natural person who had an
individual income in excess of $200,000 in
each of the two most recent years, or joint
income with owner's spouse in excess of
$300,000 in each of those years, and has a
reasonable expectation of reaching the same
income level in the current year.
Page 31 of 81
<PAGE>
ARTICLE 15. FORM OF AGREEMENT
-----------------
15.1 Headings. The subject headings of the Articles and
Sections of this Agreement are included for purposes of convenience only, and
shall not affect the construction or interpretation of any of its provisions.
15.2 Entire Agreement; Modification; Waiver. This Agreement
constitutes the entire agreement between the parties pertaining to the subject
matter contained in it and supersedes all prior and contemporaneous agreements,
representations, and understandings of the parties. No supplement, modification
or amendment of this Agreement shall be binding unless executed in writing by
all the parties. No waiver of any of the provisions of this Agreement shall be
deemed, or shall constitute, a waiver of any other provision, whether or not
similar, nor shall any waiver constitute a continuing waiver. No waiver shall be
binding unless executed in writing by the party making the waiver.
15.3 Counterparts. This Agreement may be executed
simultaneously in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
ARTICLE 16. PARTIES
-------
16.1 Parties in Interest. Nothing in this Agreement, whether
express or implied, is intended to confer any rights or remedies under or by
reason of this Agreement on any persons other than the parties to it and their
respective successors and assigns, nor is anything in this Agreement intended to
relieve or discharge the obligation or liability of any third persons to any
party to this Agreement, nor shall any provisions give any third persons any
right of subrogation or action over against any party to this Agreement.
16.2 Assignment. This Agreement shall be binding on and shall
inure to the benefit of the parties to it and their respective heirs, legal
representatives, successors and assigns.
ARTICLE 17. REMEDIES
--------
17.1 Recovery of Litigation Costs. If any legal action or any
arbitration or other proceeding so brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default or
Page 32 of 81
<PAGE>
misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing party or parties shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it or they may be entitled.
17.2 Conditions Permitting Termination. Subject to the
provisions of Article 3 relating to the postponement of the Closing Date, either
party may on or prior to the Closing Date terminate this Agreement by written
notice to the other, without liability to the other, if any bona fide action or
proceeding shall be pending against either party on the Closing Date that could
result in an unfavorable judgment, decree or order that would prevent or make
unlawful the carrying out of this Agreement.
17.3 Defaults Permitting Termination. If either Buyer or
Seller materially defaults in the due and timely performance of any of its
warranties, covenants, or agreements under this Agreement, the non-defaulting
party or parties may on the Closing Date give notice of termination of this
Agreement, in the manner provided in Article 17. The notice shall specify with
particularity the default or defaults on which the notice is based. The
termination shall be effective five days after the Closing Date, unless the
specified default or defaults have been cured on or before this effective date
for termination.
ARTICLE 18. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES
-----------------------------------------------------
All representations, warranties, covenants and agreements of the
parties contained in this Agreement, or in any instrument, certificate, opinion
or other writing provided for in it, shall survive the Closing.
ARTICLE 19. NOTICES
-------
All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given on the
date of service if served personally on the party to whom notice is to be given,
Page 33 of 81
<PAGE>
or on the third day after mailing if mailed to the party to whom notice is to be
given, by first class mail, registered or certified, postage prepaid, and
properly addressed as follows:
Seller: Coast Communications, Inc.
with copy to:
Shareholders: Ernest McKay
2263 East Huber Street
Mesa, Arizona 85213
Paul LaBarre
1112 West Farmdale Ave.
Mesa, Arizona 85110
with copy to:
Buyer: Chequemate International, Inc.
57 West 200 South, Suite 350
Salt Lake City, Utah 84101
with copy to: Bruce L. Dibb
311 South State$Street
Sumte 380
Salt Lake City, Utah 84111
Any party ma} change its address for purposes of$this Article by giving$the
otler parties written notige of the new address in$the manner set forth above.
Page 34 of 81
<PAGE>
ARTMCLE 20. GOVERNMNG LAW
-------------
This Agreement$ shall fe construed in $accordance with, and
governed by the$laws of$the State of Utah.
AVTICLE 25. MISCELLANEOUW
-------------
21.1 Announcements. $None of$ Selling Parties will make any
announcements to the public or to employees of Seller concerning this Agreement
or the transactions contemplated hereby without the prior approval of Buyer,
which will not be unreasonably withheld. Notwithstanding any failure of Buyer to
approve it, Selling Parties may make an announcement of substantially the same
information as theretofore announced to the public by Buyer or any announcement
required by applicable law, but Selling Parties shall in either case notify
Buyer of the contents thereof reasonably promptly in advance of its issuance.
21.2 References. Unless otherwise specified, references to
Sections or Articles are to Sections or Articles in this Agreement.
IN WITNESS WHEREOF, the parties to this Agreement have duly
executed it as of the day and year first above written.
CHEQUEMATE INTERNATIONAL, INC., CHEQUEMATE TECHNOLOGIES,
a Utah corporation INC., a Utah corporation
By /s/ Michael Heil By /s/ Michael Heil
------------------------- --------------------------
Michael Heil Michael Heil
Its: C.E.O. Its: C.E.O.
SELLER
COAST COMMUNICATIONS, INC.,
a Nevada corporation
By /s/ Paul D.H. LaBarre
Paul D.H. LaBarre
SHAREHOLDERS
/s/ Ernest McKay
ERNEST MCKAY
/s/ Paul D. H. LaBarre
PAUL LABARRE
Page 35 of 81
Exhibit 10.2
------------
Date: December 21, 1998
Chequemate International, Inc.
75 West 200 South
Suite 350
Salt Lake City, Utah 84101
Attention: Mr. Michael Heil, President
Re: Subscription Agreement for 8% Convertible Redeemable Debentures
---------------------------------------------------------------
Dear Sirs:
Pursuant to a private offering by Chequemate International, Inc., a Utah
corporation (the "Company"), the undersigned (the "Subscriber") hereby tenders
his or her subscription for the Company's units (the "Units"), each Unit
consisting of (i) the Company's 8% Convertible Redeemable Debentures
(collectively, the "Debentures" and each, a "Debenture") in the principal amount
of two hundred fifty thousand dollars ($250,000) and (ii) a warrant
(collectively, the "Warrants" and each, individually, a "Warrant") to purchase
twenty-four thousand seven hundred fifty-three (24,753) shares of the Company's
common stock, with a $0.0001 par value ("Common Stock"), at a purchase price of
two hundred fifty thousand dollars ($250,000) per Unit. As used in this
Agreement, the term "Conversion Shares" shall mean the shares of Common Stock
issuable upon conversion of the Debentures, the term "Warrant Shares" shall mean
the shares of Common Stock issuable upon exercise of the Warrants, the term
"Shares" shall mean the Warrant Shares and the Conversion Shares, and term
"Securities" shall mean the Units, the Debentures, the Warrants and the Shares.
The maturity date and conversion price of the Debentures and the exercise price
of the Warrants shall be determined in the manner provided in the form of
Debenture and Warrant included in the Disclosure Documents, as hereinafter
defined.
The Company is offering the Debentures to a limited number of accredited
investors, as defined in Rule 501 of the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to an exemption from the registration requirements of the
Securities Act provided by Sections 4(2) and 4(6) of the Securities Act and Rule
506 of the Commission under the Securities Act.
In consideration of the mutual covenants and agreements set forth herein, the
Company and the Subscriber hereby agree as follows:
a. The Subscriber hereby agrees to purchase from the Company, and
the Company agrees to sell to the Subscriber, not less than
three Units at a purchase price of seven hundred fifty
thousand dollars ($750,000). Payment of the purchase price
shall be made by check payable to the order of "Esanu Katsky
Korins & Siger, LLP, as escrow agent for Chequemate
International, Inc." or by wire transfer to the Esanu Katsky
Korins & Siger, LLP escrow account. The purchase price for the
Units shall be paid in installments as hereinafter provided.
i. The purchase price for the Unit shall be payable
within five (5) business days of the date of this
Agreement. The date on the Unit is purchased is
referred to as the "Closing Date."
ii. Proceeds from the sale of the Debentures will be held
until checks have cleared, after which the proceeds
will be disbursed.
iii. There is no placement agent in connection with the
offering of the Debentures. The Company has engaged
Coleman Capital Partners, Ltd. ("Coleman") as a
consultant in connection with this Offering, to which
the Company will pay compensation pursuant to an
agreement between the Company and Coleman.
Page 36 of 81
<PAGE>
iv. The Company shall have the right, on written
notice to the Subscriber, to terminate the
Subscriber's obligation to purchase Units, provided,
however, that such termination shall not affect the
Company's obligations pursuant to Paragraphs 6 and 7
of this Agreement, which shall continue in full force
and effect, except that the Company's obligations
pursuant to Paragraph 6(b) shall terminate at such
time (prior to the date set forth therein) as all of
the Conversion Shares which have been issued or are
issuable upon conversion of outstanding Debentures
shall have been sold.
b. The Company represents and warrants to the Subscriber
as follows:
i. Organization and Qualification. The Company
is (i) a corporation duly organized and existing in
good standing under the laws of the State of Utah and
has the requisite corporate power to own its
properties and to carry on its business as now being
conducted and (ii) qualified to conduct business as a
foreign corporation to do business and in good
standing in every jurisdiction in which the nature of
the business conducted by it makes such qualification
necessary and where the failure so to qualify would
have a Material Adverse Effect. As used in this
Agreement, the term "Material Adverse Effect" means
any material adverse effect on (A) the Securities; (B)
the ability of the Company to perform its obligations
under this Agreement or under the Securities, or (C)
the business, operations, properties or financial
condition of the Company. The Company does not have
any equity investment or other interest, direct or
indirect, in, nor any outstanding loans, advances or
guarantees to, any domestic or foreign corporation,
association, partnership, limited liability company,
joint venture or other entity, except for the equity
interest in the Company's wholly owned subsidiary,
Chequemate Technologies, Inc. and except as reflected
on the Financial Statements referenced in Paragraph
2(f) herein.
ii. Authorization; Enforcement. The Company has
the requisite corporate power and authority to enter
into and perform its obligations under this Agreement,
to issue and sell the Units pursuant to this Agreement
and to issue the Shares in accordance with the terms
of the Debentures and Warrants, as the case may be.
The execution, delivery and performance of this
Agreement, the Debentures and the Warrants and the
consummation by the Company of the transactions
contemplated by this Agreement, the Debentures and the
Warrants (including without limitation the issuance of
the Debentures and Warrants and the issuance and
reservation for issuance of the Shares) have been duly
authorized by the Company's board of directors and no
further consent or authorization of the Company, its
board of directors, or its stockholders is required.
This Agreement has been duly executed and delivered by
the Company and constitutes the valid and binding
obligation of the Company enforceable against the
Company in accordance with its terms.
iii. Capitalization. The authorized capital stock
of the Company consists of 500,000,000 shares of
Common Stock, of which 19,360,252 shares are issued
and outstanding. The document entitled "Capital Stock"
in the Disclosure Documents includes a description of
the rights, preferences and privileges of holders of
the Common Stock and a listing of all shares of Common
Stock which are reserved for issuance. No person has
any preemptive rights, rights of first refusal or any
other similar rights of any stockholders of the
Company, whether by statute, pursuant to the
certificate of incorporation or by-laws of the Company
or pursuant to any agreement (collectively,
"Preemptive Rights") with respect to the issued and
outstanding shares of Common Stock or with respect to
the Debentures, the Warrants or the Shares. Except for
an agreement that expires in May 1999, no person has
the right to nominate or designate directors or
officer of the Company, including any stockholders or
voting trust agreements. All of the outstanding shares
of Capital Stock have been, or upon issuance will be,
validly issued, fully paid and nonassessable. No
shares of capital stock of the Company (including the
Shares, if and when issued) are or will be subject to
Page 37 of 81
<PAGE>
any Preemptive Rights.
iv. Issuance of Shares.
-------------------
(1) The Shares are duly authorized and
reserved for issuance, and upon conversion
of the Debentures or upon exercise of the
Warrants, as the case may be, in accordance
with the respective terms thereof, will be
validly issued, fully paid and
non-assessable, will be free from all taxes,
liens, claims and encumbrances and will not
be subject to Preemptive Rights of
stockholders of the Company and or subject
the holder to personal liability.
(2) All of the outstanding shares of Common
Stock have been duly and validly authorized
and issued, fully paid and nonassessable and
were not issued in violation of any
Preemptive Rights, and were issued in
transaction that were either registered
pursuant to the Securities Act or exempt
from the registration requirements of the
Securities Act.
v. No Conflicts. The execution, delivery and
performance of this Agreement by the Company, the
performance by the Company of its obligations under
this Agreement and the Securities, and the
consummation by the Company of the transactions
contemplated by this Agreement (including, without
limitation, the issuance of the Securities and the
Shares) will not (i) result in a violation of the
Company's certificate of incorporation and by-laws, as
currently in effect (the "Organizational Documents")
or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would
become a default) under, or give to others any rights
of termination, amendment, acceleration or
cancellation of, any agreement, indenture or
instrument to which the Company is a party or by which
it is bound, or result in a violation of any law,
rule, regulation, order, judgment or decree
(including, based on the accuracy the Subscriber's
representations and warranties set forth in this
Agreement, Federal and state securities laws and
regulations) applicable to the Company or by which any
of the Company's property or asset is bound or
affected. The Company is not in violation of its
Organizational Documents, and the Company is not in
default (and no event has occurred which, with notice
or lapse of time or both, would put the Company in
default) under, nor has there occurred any event
giving others (with notice or lapse of time or both)
any rights of termination, amendment, acceleration or
cancellation of, any Contract, as hereinafter defined,
to which the Company is a party or by which it is
bound, except for possible defaults or rights as would
not, individually or in the aggregate, have a Material
Adverse Effect. The business of the Company is not
being conducted in violation of any law, ordinance or
regulation of any governmental entity. The Company is
not required to obtain any consent, approval,
authorization or order of, or make any filing or
registration with, any court or governmental agency or
any regulatory or self regulatory agency or other
party (each of the foregoing being referred to as a
"consent") in order for it to execute, deliver or
perform any of its obligations under this Agreement or
the Securities, in each case in accordance with the
terms hereof or thereof other than filings required
pursuant to the Securities Act and applicable state
securities laws and except where the failure to obtain
any such consent would not have a Material Adverse
Effect.
vi. Financial Statements. The Company's
financial statements for the years ended March 31,
1998 and 1997, which have been certified by Jones,
Jensen & Company, and the unaudited financial
statements for the period ended September 30, 1998,
including, in each case, a balance sheet and the
related statements of income, stockholders' equity
and cash flows, together with the related notes
(collectively, the "Financial Statements"), have been
delivered to the Subscriber. The Financial Statements
were prepared in accordance with all books, records
and accounts of the Company, are true, correct and
complete and have been prepared in accordance with
Page 38 of 81
<PAGE>
generally accepted accounting principles,
consistently applied. Jones, Jensen & Company is
independent as to the Company under the rules of the
Commission pursuant to the Securities Act. The
Financial Statements present fairly the financial
position of the Company at the respective balance
sheet dates, reflect all liabilities, contingent or
other, of the Company of the type required to be
reflected on corporate balance sheets prepared in
accordance with generally accepted accounting
principles as at such dates, and fairly present the
results of the Company's operations, changes in
stockholders' equity and cash flows for the periods
covered. The unaudited financial statements for the
period ended September 30, 1998 include all
adjustments (which include only normal recurring
adjustments) necessary to present fairly the
information for such period. Except as set forth in
the March 31, 1998 Financial Statements, the Company
has no material liabilities, contingent or otherwise,
other than (i) liabilities incurred in the ordinary
course of business subsequent to the date of such
Financial Statements and (ii) obligations under
contracts and commitments incurred in the ordinary
course of business and not required under generally
accepted accounting principles to be reflected in
such financial statements, none of which are material
to the Company.
vii. SEC Documents. The Common Stock is
registered pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act"). The Company
has delivered to the Subscriber its Form 10-KSB
Annual Report, as amended by a Form 10-KSB Amendment,
for the fiscal year ended March 31, 1998, its Form
10-QSB Quarterly Report for the quarter ended
September 30, 1998 and all other filings made with
the Commission through the date hereof, all of which
are collectively referred to as the "SEC Documents."
The SEC Documents, taken as a whole, do not contain
any misstatement of fact or omit any statement of
fact necessary to make them not materially
misleading.
viii. Form S-3 Eligibility. The Company meets each
of the requirements listed in General Instructions
1.A to Form S-3, and the Company is eligible to
register the Shares on a Form S-3, or other
appropriate registration form.
ix. No Breach of Contract. Except as provided in
Schedule 2(i) attached hereto, the Company is not in
breach or violation of any contracts, agreements,
leases or other instruments (each a "Contract") to
which the Company is a party or by which the Company
is bound or to which any of its properties or assets
is subject, which breach or violation would have a
Material Adverse Effect.
x. Absence of Certain Changes. Since September
30, 1998, there has been no material adverse change
in the business, properties, operations, financial
condition, or results of operations of the Company,
or to the best of the Company's knowledge, its
prospects, except as disclosed in the Financial
Statements or the SEC Documents.
xi. Absence of Litigation. Except as disclosed
in the Financial Statements or the Disclosure
Documents, there is no action, suit, proceeding,
inquiry or investigation before or by any court,
public board, government agency, self-regulatory
organization or body pending or, to the knowledge of
the Company, threatened against or affecting the
Company or any of its respective directors or
officers in their capacities as such wherein an
unfavorable decision, ruling or finding would have a
Material Adverse Effect.
xii. Intellectual Property. Except as provided in
Schedule 2(l), the Company owns or is licensed to use
all patents, patent applications, trademarks,
trademark applications, trade names, service marks,
copyrights, copyright applications, licenses,
permits, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) and
other similar rights and proprietary knowledge
(collectively, "Intangibles") necessary for the
Page 39 of 81
<PAGE>
conduct of its business as now being conducted and as
described in the Disclosure Documents. Except as
disclosed in the document "Risk Factors" in the
Disclosure Documents, the Company has not received
any formal or informal notice (including any demand
or request that the Company enter into a license or
other agreement in order to avoid any claim of
infringement) to the effect that any of its products
or any Intangibles infringe upon the proprietary
rights of any other person. To the best knowledge of
the Company, the Company does not infringe or is in
conflict with any right of any other person with
respect to any Intangibles which, individually or in
the aggregate, if the subject of an unfavorable
decision, ruling or finding, would have a Material
Adverse Effect.
xiii. Management. The document entitled
"Management" in the Disclosure Documents sets forth
information concerning (i) each officer and director,
(ii) compensation information consistent with such
information required to be included in the Summary
Compensation Table pursuant to Item 402 of Regulation
S-B, (iii) a summary of all outstanding options and a
description of all outstanding stock option or other
equity-based incentive plans, and (iv) the
information to be provided by Items 403 and 404 of
Regulation S-B. Such document shall update
information included in the Company's Form 10-KSB for
the fiscal year ended March 31,1998.
xiv. Foreign Corrupt Practices. Neither the
Company, nor any director, officer, agent, employee
or other person acting on behalf of the Company has,
in the course of his actions for or on behalf of, the
Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful
expenses relating to political activity; made any
direct or indirect unlawful payment to any foreign or
domestic government official or employee from
corporate funds; violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act
of 1977; or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment to any
foreign or domestic government official or employee.
xv. Subscriber's Legal Fees. The Company will
pay Subscriber, upon request, two thousand five
hundred dollars ($2,500) for its legal fees, in
addition to the fees paid to Esanu, Katsky Korins &
Siger, LLP referenced herein.
xvi. Disclosure. All information relating to or
concerning the Company set forth in this Agreement or
included in the Disclosure Documents, as hereinafter
defined, taken together, is true and correct in all
material respects, and the Company has not omitted to
state any material fact necessary in order to make
the statements made herein or therein, in light of
the circumstances under which they were made, not
misleading. The Subscriber shall be entitled to rely
upon the Company's representations and warranties
contained in this Agreement, notwithstanding any
independent investigation made by the Subscriber.
xvii. No Integrated Offering. Except as provided
in Schedule 2(q), neither the Company nor any of its
affiliates, nor any person acting on its or their
behalf, has directly or indirectl} made any offers or
sales of any securities or solicited any offerers to
buy any security under circumstances that would
require registration of the Units being offered
hereby under the Securities Act.
c. The Subscrmber understands$and agrees that, after the
Company's receipt of thiw Agreement, the Company will review
the Subscriber's eligibility and will determmne whether to
accept or reject this subscrmption in whole or in part. The
Comtany may determine to renect this subscviption mn whole or
in part in its sole end absolute discretion. If this
subscription is$accepted in whole, then the Company will issue
the Debentures subscribed for to the Subscriber. If this
subscription is rejected in whole, this Agreement and any
other subscription materials will be promptly returned to the
Subscriber and the Subscriber's subscription payment will be
refunded to the Subscriber without interest. In that event,
the Subscriber and the Company will have no further rights or
Page 40 of 81
<PAGE>
claims against each other by virtue of this Agreement. If this
subscription is accepted in part and rejected in part, the
Company is authorized to amend this Agreement to reflect the
number of Units for which this subscription is accepted, and
the Company will issue the Debentures and Warrants comprising
the Units as to which this subscription is accepted at the
same time as if this subscription had been accepted in whole.
d. The Subscriber hereby represents and warrants to, and
covenants and agrees with, the Company as follows:
i. The Subscriber understands that the offer
and sale of the Units is being made only by means of
this Agreement. In deciding to subscribe for Units,
the Subscriber has not considered any information
other than that contained in this Agreement and in
the documents listed in Exhibit A to this Agreement
(the "Disclosure Documents"), a copy of each of which
has been provided to the Subscriber and reviewed by
the Subscriber to the extent that the Subscriber
deemed necessary or advisable. In particular, the
Subscriber understands that the Company has not
authorized the use of, and the Subscriber confirms
that he or she is not relying upon, any other
information, written or oral, other than material
contained in this Agreement and the Disclosure
Documents. The Subscriber is aware that the purchase
of the Units involves a high degree of risk and that
the Subscriber may sustain, and has the financial
ability to sustain, the loss of his or her entire
investment. The Subscriber understands that the
Company is a development stage corporation, has
incurred significant losses and no assurance can be
given that the Company will be profitable in the
future, that the failure of the Company to raise
funds, in addition to the proceeds from the sale of
the Units, may have a material adverse effect upon
its business and, if sufficient additional funds are
not raised, the Company may not be able to pay the
Debentures when due, and that there is no assurance
that there will be a market for the Company's Common
Stock or other securities. Furthermore, in
subscribing for the Units, the Subscriber
acknowledges that the Company has not made, and the
Subscriber is not relying in any manner upon, any
projections or forecasts of future operations. The
Subscriber has had the opportunity to ask questions
of, and receive answers from, the Company's
management regarding the Company.
ii. The Subscriber represents to the Company
that he or she (i) is an accredited investor within
the meaning of Rule 501 under the Securities Act,
(ii) understands that in order to be treated as an
accredited investor, the Subscriber must meet one of
the tests for an accredited investor set forth on
Exhibit B to this Agreement, and (iii) has read
Exhibit B and is an accredited investor as set forth
on the signature page of this Agreement. The
Subscriber further represents that he or she has such
knowledge and experience in financial and business
matters as to enable him or her to understand the
nature and extent of the risks involved in purchasing
the Units. The Subscriber is fully aware that such
investments can and sometimes do result in the loss
of the entire investment. The Subscriber can afford
to sustain the loss of his or her entire investment,
and the Subscriber's purchase of the Units is being
made from funds which the Subscriber has allocated to
high risk, illiquid investments and such funds are
not required by the Subscriber to meet his or her
normal expenses. The Subscriber has engaged his or
her own counsel and accountants to the extent that he
deems it necessary.
iii. The Subscriber acknowledges that the Company
is relying on the Subscriber's representations
contained in this Agreement in executing this
Agreement and issuing the Units and its counsel is
relying on such statements and representations in
rendering its opinion pursuant to Paragraph 5(a)(v)
of this Agreement, and the Subscriber agrees to
indemnify and hold harmless the Company, and its
officers, directors, controlling persons and counsel
from and against all manner of loss, liability,
Page 41 of 81
<PAGE>
damage or expense which they or any of them may incur
as a result of any material misstatement of fact or
omission of a material fact by the Subscriber in this
Agreement.
iv. The Subscriber is acquiring the Units
pursuant to this Agreement for investment and not
with a view to the sale or distribution thereof, for
his or her own account and not on behalf of others;
has not granted any other person any interest or
participation in or right or option to purchase all
or any portion of the Units; is aware that the Units
are restricted securities within the meaning of Rule
144 of the Commission under the Securities Act, and
may not be sold or otherwise transferred other than
pursuant to an effective registration statement or an
exemption from registration; and understands and
agrees that the Units may bear the Company's standard
investment legend. The Subscriber understands the
meaning of these restrictions.
v. The Subscriber will not transfer the
Securities except in compliance with all applicable
Federal and state securities laws and regulations.
The Subscriber understands and agrees that the
Company is not obligated to recognize any transfer of
any Securities unless it is satisfied in its
reasonable discretion that there has been compliance
with such securities laws and regulations, and, in
such connection, the Company may request an opinion
of counsel acceptable to the Company as to the
availability of any exemption.
vi. The Subscriber has been informed by the
Company that the issuance of the Units pursuant to
this Agreement will be exempt under Section 4(2) or
4(6) of the Securities Act and/or Regulation D, and
in particular, Rule 506, of the Commission under the
Securities Act and applicable exemption under state
securities laws, and the Subscriber understands that
such exemption is dependent upon the accuracy of the
information contained in the Subscriber's
representations set forth in this Agreement.
vii. The Subscriber represents and warrants that
it has engaged no broker and that no finder was
involved directly or indirectly in connection with
the Subscriber's purchase of the Units. The
Subscriber shall indemnify and hold harmless the
Company from and against any manner of loss,
liability, damage or expense, including fees and
expenses of counsel, resulting from a breach of the
Subscriber's warranty contained in this Paragraph
4(g).
viii. To the extent that the Subscriber has deemed
it necessary, the Subscriber has consulted his or her
own legal, accounting, tax, investment and other
advisors.
ix. If the Subscriber is a corporation, all
corporate action necessary for the execution,
delivery and performance by the Subscriber has been
taken and the person executing this Agreement on
behalf of the Subscriber is an authorized officer of
the Subscriber. If the Subscriber is a limited
partnership or limited liability company, the person
executing this Agreement is a general partner or
managing member of the Subscriber. If the Subscriber
is a trust, estate or other fiduciary, the person
executing this Agreement is the trustee, executor,
administrator or other fiduciary.
(j) Neither the Subscriber nor its affiliates will sell
short or sell against the box any securities of the Company owned by the
undersigned or with respect to which the undersigned has the power to vote or
transfer such securities.
(k) The subscriber shall not transfer the Units,
Debentures, or Warrants to another holder until after the effective date of the
Registration Statement. After the effective date of the Registration Statement,
any such transferee shall be required to make in writing all of the
representations and warranties set forth in paragraph 4(a) through 4(j) hereof.
e. It shall be a condition precedent to the Subscriber's
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<PAGE>
obligation to pay for the Units that the following conditions shall have been
met:
(1) The Company shall have delivered to
the Subscriber or his or her representative:
(a) A copy of the certificate of
incorporation of the Company,
certified by the Secretary of State
of Utah as of a current date.
(b) A copy of the by-laws of the
Company, certified by the Secretary
of the Company.
(c) Resolutions of the Company's
board of directors authorizing the
transactions contemplated by this
Agreement, certified by the
Secretary of the Company.
(2) All of the Company's
representations and warranties set forth in
this Agreement shall be true and correct in
all material respects on such date with the
same effect as if such representations and
warranties were made on such date, the
Company shall have complied in all material
respects with all of its obligations to be
performed by it on or prior to the such
date.
(3) No Material Adverse Change in the
business or financial condition of the
Company shall have occurred or be threatened
since the date of this Agreement, and no
proceedings shall be threatened or pending
before any governmental entity or authority
which is likely to result in a restraint,
prohibition or the obtaining of damages or
other relief in connection with this
Agreement or the consummation of the
transactions contemplated by this Agreement.
(4) The Company shall have delivered
to the Subscriber the certificate of its
chief executive and financial officers dated
the Closing Date as to the matters set forth
in Paragraphs 5(a)(ii) and (iii) of this
Agreement. . (5) The Subscriber shall have
received the opinion of Bruce L. Dibb,
counsel to the Company, dated the Closing
Date, that:
(a) The Company is a
corporation organized and existing
in good standing under the laws of
the State of Utah with the corporate
power to conduct it business as the
same is presently conducted.
(b) All corporate action
necessary for the execution,
delivery and performance by the
Company of this Agreement, the
Debentures and the Warrants has been
taken, and this Agreement, the
Debentures and Warrants constitute,
the valid and binding obligations of
the Company, enforceable in
accordance with their respective
terms, except as enforceability may
be affected by customary principles
governing equitable relief generally
and to any applicable bankruptcy,
moratorium, equitable subordination,
insolvency, fraudulent conveyance,
usury or other laws affecting
creditors' rights and their
enforcement generally, and except
that no opinion is given as to the
enforceability of any
indemnification provisions.
(c) The Shares have been
reserved for issuance and, when
issued upon conversion of the
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<PAGE>
Debentures or exercise of the
Warrants, will be duly and validly
authorized and issued, fully paid
and nonassessable and free from
Preemptive Rights.
(d) In reliance upon the
accuracy of the representations and
warranties of the Subscriber
contained in this Agreement and
assuming that the Company files in a
timely manner a Form D pursuant to
Regulation D of the Commission
pursuant to the Securities Act, the
sale of the Units is exempt from the
registration requirements of the
Securities Act.
(6) A Form D shall have been prepared
for filing with the Commission.
(7) The Company shall have paid to
Coleman the compensation due to Coleman.
(8) The Company shall have paid to Esanu Katsky
Korins & Siger, LLP, its legal fees of twelve thousand
five hundred dollars ($12,500) plus disbursements.
f. The Company hereby covenants and agrees with the
Subscriber that:
i. The Company will, promptly, but in no event
later than three (3) business days after each closing,
file (i) the Form D with the Commission and (ii) all
documents and instruments required by the state
securities laws of any state in which any purchaser of
Units lives.
ii. During the period commencing on the Closing
Date and ending ninety (90) days after such Closing
Date, the Company will not, without the prior consent of
the holders of a majority of the principal amount of
Debentures then outstanding, issue or sell or enter into
any agreement to issue or sell any shares of Common
Stock or any Convertible Securities (i.e., any warrants
or options or ---- convertible debt or equity securities
or other securities upon the exercise or conversion of
which shares of Common Stock may be issued), except that
this Paragraph 6(b) shall not be construed to prohibit
the Company from (i) issuing Common Stock or Convertible
Securities in connection with an acquisition or pursuant
to options or warrants which are outstanding on such
Closing Date or (ii) entering into any agreement to
issue, or issuing, any convertible securities or common
stock pursuant to an equity line of credit currently
contemplated by the Company or (iii) issue common stock
with regard to a Regulation S private placement funded
in the Company's fiscal third and fourth quarters or
(iv) issuing options to employees or consultants at an
exercise price not less than the fair market value on
the date of grant pursuant to the Company's present
stock option plan and performance stock plan or (v)
issuing restricted stock grants to employees or
consultants pursuant to the Company's present
performance stock plan; provided, however, that in no
event shall the number of options and stock grants
issued during any such ninety (90) day period exceed
Three Hundred Thousand (300,000) shares. References to
consultants in this Paragraph 6(b) shall mean only
consultants who (x) perform functions that would
otherwise be performed by employees of the Company and
(y) whose services do not relate to the raising of
money.
iii. As long as the Subscriber or any transferee
(other than a transferee pursuant to the Registration
Statement) shall own any Securities, (i) the Company
shall file all annual, quarterly and periodic reports
with the Commission not later than the last day on which
such filings may be made pursuant to the Exchange Act,
and (ii) the Company shall continue to be eligible to
use a Form S-3 or a Form SB-2 registration statement for
the sale of the Shares.
Page 44 of 81
<PAGE>
iv. As long as the Subscriber shall own any
Securities, the Company will provide the Subscriber with
a copy of each Form 10-K or Form 10-KSB Annual Report,
Form 10-Q or Form 10-QSB Quarterly Report, each current
report on Form 8-K and any definitive proxy material, at
the times such filings are made with the Commission and
will in addition provide the Subscriber with all
materials that are mailed to stockholders at such time
as the materials are mailed to the stockholders.
v. The Company will comply with its obligations
pursuant to the Debentures and the Warrants.
vi. Until the earlier of (i) July 1, 1999 or (ii)
such date as all of the principal and interest on the
Debentures shall have been paid in full or (iii) such
date as all of the Debentures shall have been converted,
neither the Company nor any of its subsidiaries shall
borrow any money or incur any obligations pursuant to a
certain proposed equity line of credit agreement between
Bristol Asset Management, LLC (or a substitute lender)
and the Company, as the same may hereafter be modified,
amended or replaced. The present terms of such agreement
have been previously disclosed to the Subscriber. This
Paragraph 6(f) shall apply to any credit line facility
entered into by the Company during the period between
the date of this Agreement and July 1, 1999.
g. The Company shall (i) file or cause to be filed with the
Commission, not later than forty-five (45) days after the
Closing Date, a registration statement (the "Registration
Statement") on Form S-3 or other applicable form, providing
for the sale by the Subscriber of all of the Shares and (ii)
use its best efforts to have the Registration Statement
declared effective by the Commission not later than one
hundred twenty (120) days from the Closing Date, time being of
the essence. The Registration Statement shall register such
number of shares of Common Stock equal to two hundred percent
(200%) of the number of shares of Common Stock which would be
issuable upon conversion of the Debentures and upon exercise
of the Warrants in the event such conversion or exercise
occurred at the lowest closing bid price of the Common Stock
for the sixty (60) trading days prior to the date of the
execution of this Agreement. The Registration Statement shall
cover the issuance of the Shares and the sale by the
Subscriber or the Subscriber's transferee in the manner or
manners designated by the Subscriber. The Company agrees to
keep the Registration Statement continuously effective until
all of the Shares have been sold. References in this Paragraph
7 to the Subscriber shall include, in addition to the
Subscriber, any holder of the Shares or the Securities, other
than pursuant to the Registration Statement. Such Shares shall
be registered regardless of whether, at the effective date of
the Registration Statement, the Debentures shall have been
issued or converted or the Warrants shall have been issued or
converted. In the event the Registration Statement does not
register a sufficient number of shares to cover all the shares
underlying such the Debenture and Warrant, the Company shall
file an additional registration statement not later than
ninety (90) days from the date the Registration Statement is
declared effective by the Commission covering such number of
additional shares of Common Stock as the Subscriber may
reasonably request.
i. The Company shall pay all expenses incident to
the Company's performance of or compliance with its
obligations under this Paragraph 7, including, without
limitation, all registration, filing, listing, stock
exchange, Nasdaq and NASD fees, all fees and expenses of
complying with state securities or blue sky laws all
word processing, duplicating and printing expenses,
messenger and delivery expenses, the fees, disbursements
and other charges of counsel for the Company and of its
independent public accountants, but excluding
commissions and applicable transfer taxes, if any, which
commissions and transfer taxes shall be borne by the
seller or sellers of Shares in all cases.
ii. In complying with its obligations pursuant to
Paragraph 7(a) of this Agreement, the Company shall, as
expeditiously as possible:
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<PAGE>
(1) Prepare and file with the
Commission the Registration Statement to
effect such registration and thereafter use
its best efforts to cause such registration
statement to become effective as promptly as
possible.
(2) Notify the Subscriber at any time
when a prospectus relating thereto is
required to be delivered under the
Securities Act, upon discovery that, or upon
the happening of any event as a result of
which, the prospectus included in the
Registration Statement, as then in effect,
includes an untrue statement of a material
fact or omits to state any material fact
required to be stated therein or necessary
to make the statements therein not
misleading in the light of the circumstances
under which they were made, and promptly,
but not later than ten (10) business days
after the happening of such event, prepare
and file with the Commission such amendments
and supplements to the Registration
Statement and the prospectus used in
connection therewith as may be necessary to
keep the Registration Statement effective
and to comply with the provisions of the
Securities Act and the Exchange Act with
respect to the disposition of all Shares
until such time as all of the Shares have
been disposed of in accordance with the
method of disposition set forth in such
registration statement.
(3) Before filing the Registration
Statement or prospectus or any amendments or
supplements thereto, furnish to and afford
the Subscriber a reasonable opportunity
(unless waived in writing by the Subscriber)
to review copies of all such documents
(including copies of any documents to be
incorporated by reference therein and all
exhibits thereto) proposed to be filed (at
least five (5) business days prior to such
filing). The Company shall not file any
registration statement or prospectus or any
amendments or supplements thereto in respect
to the shares if the holders of a majority
of the Shares included in the Registration
Statement shall reasonably object.
(4) Use its best efforts to obtain the
prompt withdrawal of any order suspending
the effectiveness of a registration
statement, and in any event shall, within
thirty (30) days of such cessation of
effectiveness, use its best efforts to amend
the Registration Statement in a manner
reasonably expected to obtain the withdrawal
of the order suspending the effectiveness
thereof, or file an additional registration
statement pursuant to Rule 415 covering all
of the Shares and use its best efforts to
cause the Registration Statement to be
declared effective as soon as practicable
after such filing and to remain effective as
provided in this Paragraph 7.
(5) In the event of any transfer of
Shares or Securities which requires a
supplement or post-effective amendment to
the Registration Statement or prospectus,
promptly file such supplement or
post-effective amendment and use its best
efforts to have such filing declared
effective by the Commission as promptly as
possible after the filing thereof.
(6) Furnish to the Subscriber such
number of copies of such drafts and final
conformed versions of such Registration
Statement and of each such amendment and
supplement thereto (in each case including
all exhibits and any documents incorporated
by reference), such number of copies of such
drafts and final versions of the prospectus
contained in such Registration Statement
(including each preliminary prospectus and
any summary prospectus) and any other
prospectus filed under Rule 424 under the
Securities Act, in conformity with the
Page 46 of 81
<PAGE>
requirements of the Securities Act, and such
other documents, as such seller may
reasonably request in writing.
(7) Use its best efforts (i) to
register or qualify all Shares under such
other securities or blue sky laws of not
more than 20 states or other jurisdictions
of the United States of America as the
Subscriber shall reasonably request in
writing, (ii) to keep such registration or
qualification in effect for so long as such
registration statement remains in effect,
(iii) to prevent the issuance of any order
suspending the effectiveness of a
registration statement or of any order
preventing or suspending the use of a
prospectus or suspending the qualification
(or exemption from qualification) of any of
the Shares for sale in any jurisdiction,
and, if any such order is issued, to use its
best efforts to obtain the withdrawal of any
such order at the earliest possible moment,
and (iv) to take any other action that may
be reasonably necessary or advisable to
enable such sellers to consummate the
disposition in such jurisdictions of the
securities to be sold by such sellers,
except that the Company shall not for any
such purpose be required to qualify
generally to do business as a foreign
corporation in any jurisdiction wherein it
would not but for the requirements of this
Paragraph 7(c)(vii) be obligated to be so
qualified, to subject itself to taxation in
such jurisdiction or to consent to general
service of process in any such jurisdiction.
(8) Use its best efforts to cause all
Shares to be registered with or approved by
such other federal or state governmental
agencies or authorities as may be necessary
in the opinion of counsel to the Company and
counsel to the Subscriber to enable the
seller or sellers thereof to consummate the
disposition of such Shares in the manner set
forth in the Registration Statement.
(9) Otherwise comply with all
applicable rules and regulations of the
Commission and any other governmental agency
or authority having jurisdiction over the
offering, and make available to its security
holders, as soon as reasonably practicable,
an earnings statement covering the period of
at least twelve months, but not more than
eighteen months, beginning with the first
full calendar month after the effective date
of such Registration Statement, which
earnings statement shall satisfy the
provisions of Section 11(a) of the
Securities Act and Rule 158 promulgated
thereunder, and furnish to each seller of
Shares at least ten days prior to the filing
thereof a copy of any amendment or
supplement to such Registration Statement or
prospectus.
iii. The Registration Statement, when declared
effective by the Commission or when subsequently
amended (by an amendment which is declared effective
by the Commission) or any prospectus in the form
included in the registration statement as declared
effective by the Commission or when subsequently
supplemented will not contain an 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, in light of the circumstances
under which they were made, not misleading.
iv. The Company may require the Subscriber to
furnish the Company such information regarding such
seller and the distribution of the securities covered
by the Registration Statement as the Company may from
time to time reasonably request in writing and as is
required by applicable laws and regulations.
v. The Company hereby agrees to indemnify and
hold harmless the Subscriber, including any other
holder of Shares, and their respective directors,
officers, agents and advisers (collectively, the
"Agents") and each person, if any, who controls
within the meaning of Section 15 of the Securities
Page 47 of 81
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Act (the "Control Person") the Subscriber or any such
holder against any losses, claims, damages or
liabilities, joint or several, to which the
Subscriber, any such other holder of Shares, any such
Agent, or any such Control Person may become subject,
under the Securities Act, the Exchange Act or any
other Federal or state law, including common law,
insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out
of or are based upon (i) any untrue statement or
alleged untrue statement of a material fact contained
in (A) a registration statement, including (I) any
pre- or post-effective amendments or supplements
thereof and (ll) any preliminary prospectus or final
prospectus contained therein or any pre- or
post-effective amendments or supplements thereto,
filed for any registration under this Agreement, (B)
in any Blue Sky Law application or other document
executed by the Company specifically for such
registration or (C) based upon information furnished
by the Company filed in any state or other
jurisdiction in order to qualify any or all of the
Shares under the securities laws thereof (any such
application, document or information in (B) and (C)
above being hereinafter referred to as a "Blue Sky
Application"); (ii) the omission or alleged omission
to state in such registration statement or Blue Sky
Application a material fact required to be stated
therein or necessary to make the statements therein
not misleading; or (iii) any untrue statement or
alleged untrue statement of a material fact contained
in such registration statement or Blue Sky
Application or the omission or alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein,
in the light of the circumstances under which they
were made, not misleading, and will reimburse such
parties for any reasonable attorneys' fees or other
expenses reasonably incurred by them or any of them
in connection with investigating or defending against
any such loss, claim, damage, liability or action;
provided, however, that the Company will not be
liable or responsible for reimbursement of expenses
in any such case 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 written information furnished
to the Company by or on behalf of such indemnified
party specifically for use with reference to or in
the preparation of a registration statement, any such
pre- or post-effective amendment or supplement
thereof, or any Blue Sky Application. This indemnity
agreement is in addition to any liability which the
Company may otherwise have. The indemnity agreement
of the Company contained in this Paragraph 7(f) shall
remain operative and in full force and effect
regardless of any investigation made by or on behalf
of any of the Subscriber, any other holder of Shares,
any Agent or any Control Person and shall survive the
registration and sale of any Shares by the Subscriber
or any such holder.
vi. The Subscriber and each other holder of
Shares, by including such holder's Shares in the
Registration Statement, agrees, severally, to
indemnify and hold harmless the Company, its Agents
and the Control Persons thereof to the same extent as
the indemnity from the Company to the Subscriber,
such other holders, their respective Agents and
Control Persons but only with respect to any untrue
statement or alleged untrue statement or omission or
alleged omission made in reliance upon or in
conformity with written information relating to such
person by such person expressly for use in connection
with any registration statement, pre- or
post-effective amendment or supplement thereto or in
any Blue Sky Application filed pursuant to this
Agreement. The liability of any Holder under this
Paragraph 7(g) shall be limited to the amount of net
proceeds to such Holder from the Shares sold pursuant
to the registration statement which gives rise to
such liability. This indemnity agreement will be in
addition to any liability that the Subscriber or any
such other holder may otherwise have. The indemnity
agreement of the Subscriber and such other holders
contained in this Paragraph 7(g) shall remain
operative and in full force and effect regardless of
any investigation made by or on behalf of the Company
or any of its Control Persons and shall survive the
registration and sale of any Shares and the
expiration or termination of this Agreement.
vii. If any action or claim shall be brought or
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asserted by a party entitled to indemnification under
Paragraph 7(f) or 7(g) (as the case may be) of this
Agreement (each an "Indemnified Party") in respect of
which indemnity may be sought from the responsible
party identified in said Paragraph 7(f) or 7(g) (as
the case may be) (the "Indemnifying Party"), the
Indemnified Party shall promptly notify the
Indemnifying Party in writing, and the Indemnifying
Party shall assume the defense thereof, including the
employment of counsel satisfactory to each
Indemnified Party and the payment of all reasonable
legal and other expenses. The failure of any
Indemnified Party to notify the Indemnifying Party
will not relieve the Indemnifying Party of any
liability for indemnification which it may have to
any Indemnified Party under this Paragraph 7 unless
the Indemnifying Party has been substantially
prejudiced by such failure and in no event will such
failure relieve the Indemnifying Party from any
liability it may have to any Indemnified Party
otherwise than under this Paragraph 7. Each
Indemnified Party shall have the right to employ
separate counsel in any such action and to
participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of
such Indemnified Party unless (i) the employment
thereof has been specifically authorized by the
Indemnifying Party in writing, or (ii) the
Indemnifying Party has failed to assume the defense
and employ counsel or (iii) the named parties to any
such action (including any impleaded parties) include
both (A) any Indemnified Party and (B) the
Indemnifying Party, and, in the judgment of counsel
to any Indemnified Party, it is advisable for such
Indemnified Party to be represented by separate
counsel (in which case the Indemnifying Party shall
not have the right to assume the defense of such
action on behalf of such Indemnified Party; provided,
however, it being understood that the Indemnifying
Party shall, in connection with any one such action
or separate but substantially similar or related
actions in the same jurisdiction arising out of the
same general allegations or circumstances, be liable
for the reasonable fees and expenses of only one
separate firm of attorneys at any time for each
Indemnified Party pursuant to this Agreement in each
jurisdiction, and each such firm shall be designated
in writing by such Indemnified Party holding a
majority of the Shares being registered for all
Indemnified Parties). The Indemnifying Party shall
not be liable for any settlement of any such action
effected by an Indemnified Party without the written
consent of the Indemnifying Party (which shall not be
withheld unreasonably in light of all factors of
importance to such Indemnified Party), but if settled
with such written consent, or if there be a final
judgment or decree for the plaintiff in any such
action by a court of competent jurisdiction and the
time to appeal shall have expired or the last appeal
shall have been denied, the Indemnifying Party agrees
to indemnify and hold harmless each Indemnified Party
from and against any loss or liability by reason of
such settlement or judgment.
viii. If the indemnification provided for in this
Agreement is held by a court of competent
jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim,
damage or expense referred to therein, then the
Indemnifying Party, in lieu of indemnifying such
Indemnified Party thereunder, shall contribute to the
amount paid or payable by such Indemnified Party as a
result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to
reflect the relative fault of the Indemnifying Party
on the one hand and of the Indemnified Party on the
other hand in connection with the statements or
omissions which resulted in such loss, liability,
claim, damage or expense as well as any other
relevant equitable considerations. The relevant fault
of the Indemnifying Party and the Indemnified Party
shall be determined by reference to, among other
things, whether the untrue or alleged untrue
statement of a material fact or the omission to state
a material fact relates to information supplied by
the Indemnifying Party or by the Indemnified Party
and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent
such statement or omission. Notwithstanding the
foregoing, the amount any Holder is obligated to
contribute pursuant to this Agreement shall be
limited to the net proceeds to such Holder from the
Shares sold pursuant to the Registration Statement
which gives rise to such obligation to contribute
(less the aggregate amount of any damages which the
Subscriber or such other holder has otherwise been
Page 49 of 81
<PAGE>
required to pay in respect of such loss, claim,
damage, liability or action or any substantially
similar loss, claim, damage, liability or action
arising from the sale of such Shares). The foregoing
contribution agreement shall in no way affect the
contribution liabilities of any persons having
liability under Section 11 of the Securities Act
other than the Company, the Subscriber and such other
holders. No contribution shall be requested with
regard to the settlement of any matter from any party
who did not consent to the settlement, provided,
however, that such consent shall not be unreasonably
withheld in light of all factors of importance to
such party. Notwithstanding any provisions of this
Paragraph 7, no person guilty of a fraudulent
misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of
such fraudulent misrepresentation.
h. All notices provided for in this Agreement shall be
in writing signed by the party giving such notice, and
delivered personally or sent by overnight courier or messenger
against receipt thereof or sent by registered or certified
mail (air mail if overseas), return receipt requested or by
telecopier if receipt of transmission is confirmed or if
transmission is confirmed by mail as provided in this
Paragraph 8. Notices shall be deemed to have been received on
the date of personal delivery or telecopy or, if sent by
certified or registered mail, return receipt requested, shall
be deemed to be delivered on the fifth (5th) business day
after the date of mailing. Notices shall be sent to the
Company at 75 West 200 South, Suite 350, Salt Lake City, Utah
84101, Attention: Mr. Michael Heil, CEO, telecopier (801)
322-1165, and to the Subscriber at his or her address and
telecopier number set forth on the signature page or to such
other address as any party shall designate in the manner
provided in this Paragraph 8.
i. This Agreement constitutes the entire agreement
between the parties relating to the subject matter hereof,
superseding any and all prior or contemporaneous oral and
prior written agreements, understandings and letters of
intent. This Agreement may not be modified or amended nor may
any right be waived except by a writing which expressly refers
to this Agreement, states that it is a modification, amendment
or waiver and is signed by all parties with respect to a
modification or amendment or the party granting the waiver
with respect to a waiver. No course of conduct or dealing and
no trade custom or usage shall modify any provisions of this
Agreement.
i. This Agreement shall be governed by and
construed in accordance with the laws of the State of
New York applicable to agreements executed and to be
performed wholly within such state, without regard
for principles of conflicts of law. The Company
hereby (i) consents to the exclusive jurisdiction of
the United States District Court for the Southern
District of New York and Supreme Court of the State
of New York in the County of New York in any action
relating to or arising out of this Debenture, (ii)
agrees that any process in any such action may be
served upon it, in addition to any other method of
service permitted by law, by certified or registered
mail, return receipt requested, or by an overnight
courier service which obtains evidence of delivery,
with the same full force and effect as if personally
served upon him in New York City, and (iii) waives
any claim that the jurisdiction of any such tribunal
is not a convenient forum for any such action and any
defense of lack of in personam jurisdiction with
respect thereto.
ii. Any termination of this Agreement shall not
affect in any manner the parties' obligations
pursuant to Paragraphs 6, 7, 8 and 9 of this
Agreement, which shall survive such termination.
iii. This Agreement shall be binding upon and
inure to the benefit of the parties hereto, and their
respective successors and permitted assigns.
iv. In the event that any provision of this
Agreement becomes or is declared by a court of
competent jurisdiction to be illegal, unenforceable
or void, this Agreement shall continue in full force
and effect without said provision.
Page 50 of 81
<PAGE>
v. Each party shall, without payment of any
additional consideration by any other party, at any
time on or after the sale of the Units take such
further action and execute such other and further
documents and instruments as the other party may
request in order to provide the other party with the
benefits of this Agreement.
vi. All references to any gender shall be deemed
to include the masculine, feminine or neuter gender,
the singular shall include the plural, and the plural
shall include the singular.
vii. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an
original but all of which together shall constitute
one and the same document.
viii. The various representations, warranties, and
covenants set forth in this Agreement or in any other
writing delivered in connection therewith shall
survive the issuance of the Units.
Please confirm your agreement with the foregoing by signing this
Agreement where indicated.
Very truly yours,
Number of Units
Subscribed for:
three
--------------------------------
Name of Subscriber
Total
Purchase Price: By:
------------------------------
$750,000. (Signature)
Title, if applicable
-------------
Address:
--------------------
- ----------------------------
Telecopier Number:
----------
Social Security No. or Tax I.D. No.:
------------
The Subscriber is an accredited investor based on the following paragraphs of
Exhibit B to this Agreement:
- -----------------------------
Accepted this day of
December, 1998
CHEQUEMATE INTERNATIONAL, INC.
By:
-------------------------------
Michael Heil, President
Page 51 of 81
<PAGE>
Exhibit A
Disclosure Documents
a. Risk Factors
b. Form 10-KSB for the fiscal year ended March 31, 1998
c. Amended Form 10-QSB for the quarter ended September 30, 1998
d. Capital Stock
e. Management
f. Form of Debenture.
g. Form of Warrant
Schedule 2(i)
Schedule 2(l)
Schedule 2(q)
Page 52 of 81
<PAGE>
RISK FACTORS
------------
THE FOLLOWING REPRESENTS MANAGEMENT'S VIEW OF THE MORE SIGNIFICANT RISK
FACTORS WHICH SHOULD BE CONSIDERED BY EACH INVESTOR, BUT DOES NOT PURPORT TO BE
A LISTING OF ALL POTENTIAL RISK FACTORS. CONSEQUENTLY, EACH INVESTOR SHOULD
REVIEW CAREFULLY ALL PARTS OF THE OFFERING MEMORANDUM IN ADDITION TO REVIEWING
THE FOLLOWING:
A. General Business Risks.
-----------------------
1. Development Stage. The Company was organized as a Texas corporation
on April 21, 1989 and changed its jurisdiction of incorporation on January 26,
1995 by becoming a Utah corporation. Since it has not sustained profitable
operations in any of its market sectors during the periods reflected in the
attached SEC reports, the Company must be considered a development stage
enterprise with limited prior operating history. Each investor should be advised
that, historically and statistically, development stage entities constitute a
greater risk of loss of investment than investment in a seasoned company.
2. Success of Product and Services. There is no assurance or warranty
that the contemplated products and services will be commercially successful or
that the Company's proprietary interest in the products can be commercially
protected through copyrights, patents or other similar types of applications.
The Company is engaged in the development and marketing of what must be
considered as novel and experimental new products and innovations. Each investor
must consider, as a potential risk factor, the possibility that the investor
could invest in this Offering and not receive any return of investment, or lose
his entire investment if the product is not successfully marketed or otherwise
not commercially successful.
3. Competition. There is substantial competition, both locally and
internationally, in the electronics industry in which the Company engages. No
assurance can be made, despite the best efforts of management, that other
companies may not produce competitive programs, services, or devices at a
competitive advantage which could cause the Company to be commercially
unprofitable.
4. Government Regulation. Various aspects of the industry in which the
Company has historically engaged have been subject to government regulation such
as regulation by the Federal Communications Commission (FCC), the Federal Trade
Commission (FTC), as well as local governmental agencies. Various changes by
regulatory agencies, or in the tax treatment of the Company or its applications,
could have significant impacts upon the Company and its profitability.
5. Year 2000 Compliance. The Company is concerned that the entire
electronics and media industries may be substantially and adversely impacted by
various failures of computer systems and programs to properly adjust to, or
account for the change to the year 2000 relevant to their computer based
operations. It is not possible to project the potential scope of adverse
impacts, if any, but it is believed that such adverse impacts, if they occur,
may be most significant in the broadcast industries which could directly bear
upon the Company's future operations. The Company does not believe it internally
has any computer program systems or configurations which are not presently
conformed to the year 2000 (Y2-K) standards, but adverse impacts could easily
result from various media companies with whom or through which the Company
intends to engage in business. Since this risk cannot realistically be measured,
each prospective investor should consider this as an unknown and undetermined
risk factor.
B. Particular Risk of this Offering.
---------------------------------
1. Operating Losses. As you will note from the attached and
incorporated consolidated financial statements for the Company, the Company, to
date, has a net operating loss from limited sales. While start up companies
frequently have operating losses, each investor should consider the absence of
profits as a risk factor.
2. Arbitrary Offering Price. The Offering price of the Company's stock
has been arbitrarily determined and does not purport to represent any intrinsic
value or net worth of the Company.
3. New Products and Concepts. The new products applications and
services attempted to be funded and marketed pursuant to this Offering does not
have an established market share. Neither do such products or applications have
a proven market share. As a consequence, there can be no assurance or warranty
that the Company will be commercially successful in its attempts to produce and
market the new products or services. Moreover, even if fully protected, there is
no absolute assurance that the Company will be successful in its marketing
Page 53 of 81
<PAGE>
efforts for the new products and services, that a market demand will be created
for such new products or services, or that it may not have inherent defects or
problems making it unsuitable for the purposes intended. All of these must be
considered as risk factors in any Offering attempting to develop and market new
products and services.
4. Substantial Dilution. Investments in this Offering will incur an
immediate and substantial dilution to the value of their shares. In the event
the Company is required to raise subsequent capital for its products or
operations, it is probable that shares will be sold on terms different than
offered herein and investors may incur subsequent dilution, both as to the value
of their shares and voting control. See "Dilution" section.
5. Termination of the Offering. There is a risk that the minimum number
of shares offered may not be promptly sold and investors would have their
investment funds held in escrow without earnings until the Offering Termination
Date. See "Terms of the Offering."
6. Lack of Adequate Capitalization. The funds being raised in this
Offering may not adequately fund the intended business purposes and products and
subsequent funding may not be available. The company currently has limited
assets or net worth. See Attached Financial statements.
7. Continuing Services of Management. While the CEO and other officers
intends to serve the Company on a full-time basis, there is no assurance or
warranty that the present management may not retire, resign, or otherwise
disengage at some future date resulting in the risk factors inherent in a change
of management to a start-up Company.
Further, the Company may need to acquire other full-time officers or employees.
8. Compensation of Management. At present management is being paid
substantial compensation from capital. As a result, a significant portion of
offering proceeds may be used to pay salaries before there are sufficient
revenues to fully cover salaries and other compensation.
9. Outstanding Litigation. The Company is presently in the process of
settling an outstanding litigation claim with Ignite Advertising for a claim in
the amount of approximately $400,000.00. The Company has agreed to issue 376,600
shares to Ignite Advertising with registration rights. Each prospective investor
in the Company should understand that this settlement and the issuance of shares
pursuant thereto will constitute a dilution factor to investors and existing
shareholders and may reduce the ability of the Company to raise future capital.
These matter and other litigation risks are more fully discussed under the
"Litigation Section."
C. Securities Risk Factors.
------------------------
1. Limited Market. Each prospective investor in this offering should
understand that the Company has very limited trading markets and no assurance
can be given that the price of the stock may not be at risk or effected by the
completion of this private placement offering, or that the price will be the
same as currently quoted. Further, because the markets are very thinly traded,
any additional shares issued by the Company may have significant impacts upon
those markets.
2. Present SEC Review Standards. The Company has been informed through
its counsel that the SEC is currently critically reviewing various private
placement offering types and subsequent registration rights such as the present
offering. In various popular financial literature the offering similar to the
present private offering with preferred registration rights based upon various
formulas have been described as "toxic convertible" offerings. While not
strictly prohibited by the SEC, each investor should clearly understand that the
SEC will most likely critically review any type of offering of this nature and
such review and comments may cause unanticipated and unusual delays in the
clearance of any subsequent registration rights or any subsequent offerings by
the Company. Moreover, this type of offering may be subject to a higher level of
administrative review and potential administrative actions or investigations by
the Securities and Exchange Commission.
3. Limited Transferability. Securities issued pursuant to this Offering
have not been registered and are subject to very strict limitations on
subsequent transfers, resales, or assignments. These matters are more
particularly described under "Restricted Nature of Securities -
Transferability." In short, each individual investor should understand that
there may not develop any public markets through which reliance upon federal
rules for resale of restricted securities are often founded. Further, each
investor must understand that there may be substantial holding periods before
the securities can be resold, even if a public market is developed. In all
Page 54 of 81
<PAGE>
events, transferability will be very limited and the shares should be purchased
only by those seeking long-term capital growth.
4. Lack of Registration Review. Because this is not a registered
offering, no formal guidelines or requirements for review are or have been
imposed by most jurisdictions allowing the claim of exemption, or by the federal
government through the Securities and Exchange Commission (SEC). By contrast, in
a registered offering, the Offering would most likely be thoroughly review by an
independent agency, such as the SEC, or a state securities agency. Moreover,
various states impose requirements, known as "Merit Requirements" on various
aspects of offerings pursuant to registration in that jurisdiction such as
limitations on dilutions. Because this is a private placement, such review or
merit requirements are usually not imposed. Each prospective investor should
further consider, as a potential risk factor, the fact that all Company offering
terms were determined upon the sole judgment of management of the Company and
were not formulated or arrived upon from any particular disclosure perspective
or merit review requirements.
5. Potential Securities Actions. Management believes, though it can not
substantiate empirically, that offerings of this type may be more subject to
litigation by securities holders or government administrative actions, because
of the lack of registration, that would be the case in a registered offering.
Should a securities action or administrative proceeding be instituted, either by
a governmental agency or an individual investor, proceeds of this Offering may
be expended to defend any such securities action, whether or not the Company is
successful. Any such action may, as a result, substantially reduce funds
available for business activities of the Company and lead to a potentially
insolvency or bankruptcy of the Company.
Page 55 of 81
<PAGE>
CAPITAL STOCK
The Company has authorized 500,000,000 shares of common stock at a par
value of $0.0001. As of December 1, 1998, there are issued and outstanding
(including shares subscribed for), 19,360,252 shares. The Company has no
preferred class of stock.
Page 56 of 81
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table contains certain information concerning the
nominees for the Board of Directors of the Company.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Name and Age First Became a Shares of Common Percentage of
Principle Director Stock Beneficially Common Stock
Occupation or Owned Outstanding
Employment
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Blaine Harris, 60 1994 2,377,000 14%
Chairman
- -----------------------------------------------------------------------------------------------------------------
Harold P. Glick 56 1995 528,962 3%
Partner in the real
estate company of
Moore Warfield &
Glick
- -----------------------------------------------------------------------------------------------------------------
Robert E. Warfield 58 1995 1,000,000 6%
Partner in real estate
company of Moore
Warfield & Glick
- -----------------------------------------------------------------------------------------------------------------
Chuck Coonradt 54 1996 11,754 .1%
Chairman and CEO
of the Game of
Work, Inc. a
management
consulting firm
- -----------------------------------------------------------------------------------------------------------------
Andre Peterson 46 1998 119,586 1%
VP of Marketing
and Chief
Marketing Officer of
Cogito Incorporated
- -----------------------------------------------------------------------------------------------------------------
John Bartholomew 40 1998 68,729 .4%
General Manager of
The Kaizen Group
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Business Experience
Blaine Harris. Chairman, Director. Mr. Harris is an alumnus of Idaho State
University, where he majored in Business and Marketing. Mr. Harris has extensive
experience in real estate with his primary focus being commercial and
residential project development. From 1986 to 1991, he served as Chief Executive
Officer and Chairman of the Board of Directors of Help-U-Sell, Inc. and was
involved with Help-U-Sell as a partner of Conquest Management, a Utah
partnership, which managed and owned a 49% interest in Help-U-Sell. During his
administration, Help-U-Sell grew from 118 franchises to 650 plus franchises and
was listed as the fastest growing real estate franchising organization in the
country. In 1991, the Help-U-Sell, Mutual Benefit Life, was taken over by the
New Jersey State Insurance Regulators and its subsidiaries were liquidated,
including Help-U-Sell, Inc. In 1991, Mr. Harris formulated and began development
of Chequemate International, Inc.
Harold P. Glick. Director. Mr. Glick received his BS degree in accounting from
the University of Maryland in 1965 and became a Certified Public Accountant the
following year. Mr. Glick successfully built and managed a family owned retail
business prior to joining Mr. Robert Warfield as a partner in the real estate
Company of Moore, Warbled and Glico. Additionally, since 1988, Mr. Glico has
been a regional owner of Help-U-Sell Real Estate in Virginia, Maryland,
Washington D. C. and Delaware. Mr. Glico served as President of the Greater
Ocean City, Maryland, Board of Realtors in 1988, is a member of the Advisory
Board of Nations Bank and serves on the Maryland Governor's Economic Development
Committee.
Page 57 of 81
<PAGE>
Robert Warfield. Director. Mr. Warfield has a BS Degree in Economics from
Western Maryland College. He has an extensive background in real estate and
regional sales management with the Weyerhauser Corporation. Mr. Warfield first
became licensed in real estate in 1962, and in 1975 started Warfield Real
Estate. He has been in the real estate and business development business in
Ocean City, Maryland since 1971. For the past 18 years Mr. Warfield has been
President of Moore, Warfield and Glick, Inc., with real estate sales over $100
million and rentals of $12 million. Additionally, since 1988, Mr. Warfield has
been a regional owner of Help-U-Sell Real Estate in Virginia, Maryland,
Washington D.C. and Delaware. Mr. Warfield currently serves on the Board of
Directors of Atlantic General Hospital and Ocean City Golf and Yacht Club. He
has also served as a director of Second National Service Corp., and Salisbury
School.
Chuck Coonradt. Director. Mr. Coonradt is Chairman of the Board and CEO of The
Game of Work, a Utah-based corporation engaged in providing management and
personnel training for its corporate clients in the fields of goal- setting and
profit improvement. Clients of the firm include Quaker Oats, Wendy's, The
Chicago Tribune, First Interstate bank, Dow Chemical and Pepsi-Cola.
Andre Peterson. Director. Mr. Peterson is an alumnus of Brigham Young
University, where he majored in Business Management. He is currently the Vice
President of Marketing and Chief Marketing Officer for Cogito Incorporated, a
software technology development company. He was the VP of Marketing and a
Partner of The Kaizen Group, a marketing and development group for start-up
software companies from 1996 to present. He served as the President of Enhanced
Simulation Marketing from 1994 through 1996, marketing a newly patented motion
simulator for the entertainment industry. He was the VP of Marketing for
WordPerfect Corporation and Novell Corporation from 1983 to 1994. Mr. Peterson
was responsible for all aspects of sales and marketing for WordPerfect, taking
sales from one million in 1983, to over seven hundred million in 1994. Prior to
working for WordPerfect, Mr. Peterson was a member of the White House Staff for
four years.
John V. Bartholomew. Director. Mr. Bartholomew has a BS degree in Computer
Science from Brigham Young University. He has extensive experience in the
application of technology in computers and complex systems. He has been involved
in the management of technology sales and marketing for more than a decade with
such companies as WordPerfect and Novell. He was the General Manager of The
Kaizen Group, a consulting organization for technology companies with such
customers as Microsoft, NetVision, PowerQuest, LogicalNet and Cogito, a
Knowledge based software solutions provider.
Executive Officers
The following table outlines the executive officers of the Company.
This table does not include those officers that serve as Directors.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Name Age Position Held Current Term of Office
or Directorship and
period of Service
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
J. Michael Heil 44 CEO Current Term September
1998 to current. Service
since September 1998
- ---------------------------------------------------------------------------------------------------------------------
Ted Lassetter 60 President Current Term September
1998 to current. Service
since September 1998
- ---------------------------------------------------------------------------------------------------------------------
Steven B. Anderson 29 CFO Current Term September
1998 to current. Service
since July 1995.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Business Experience
J. Michael Heil. Mr. Heil has over 17 years in the satellite and television
business. Mr. Heil was formerly president of Skylink America, Inc. and Satellite
Cinema, successfully launching five digital video pay-per-view networks.
Page 58 of 81
<PAGE>
During his tenure he grew the business to $20 million in annual revenue and over
150,000 subscribers. He was the Director of Operations for Comsat Video
Enterprises, and Chairman & CEO of Television Entertainment Network, Inc., a
Canadian hotel pay-per-view company. Ted Lassetter. Mr. Lassetter has spent over
34 years with IBM working as Senior Engineer, product manager and vice president
of data processing (DP) manufacturing IBM World Trade Corp. He successfully
managed all of IBM's DP plants and technology plants outside of the U.S. He
later became a private consultant for such companies as Toyota MFG., Mutual
Benefit Life and Help-U-Sell, Inc.
Steven B. Anderson. CFO/Secretary/Treasurer. Mr. Anderson has a Masters of
Business Administration degree from the University of Utah. Mr. Anderson also
received his BA Degree in Accounting from the University of Utah. Mr. Anderson
has been with the Company since 1995 when he joined the Corporation as the
Assistant Controller. Mr. Anderson first distinguished himself through his
ability to provide projections and models that help with business decisions.
Since then his role with the Company has continually increased. Mr. Anderson
currently works on SEC reporting, financial statements, shareholder and investor
relations among other corporate responsibilities.
Executive Compensation
The following table sets forth the current salary information for
executive officers.
- --------------------------------------------------------------------------------
Name and Principal Position Current Yearly Salary
- --------------------------------------------------------------------------------
Blaine Harris, Chairman $120,000
- --------------------------------------------------------------------------------
J. Michael Heil, CEO $120,000
- --------------------------------------------------------------------------------
Ted Lassetter, President $120,000
- --------------------------------------------------------------------------------
Steven B. Anderson, CFO $ 55,000
- --------------------------------------------------------------------------------
The following chart shows the stock options granted to the current
executive officers of the Company.
- --------------------------------------------------------------------------------
Name and Principal Position Total Options Granted Total Options Vested
- --------------------------------------------------------------------------------
Blaine Harris, Chairman 70,000 42,000
- --------------------------------------------------------------------------------
Steven B. Anderson, CFO 30,000 9,000
- --------------------------------------------------------------------------------
The following chart shows stock options granted to those other than
executive officers.
- --------------------------------------------------------------------------------
Name Total Options Granted
- --------------------------------------------------------------------------------
Jerry Coleman 59,910
- --------------------------------------------------------------------------------
John Bartholomew 64,285
- --------------------------------------------------------------------------------
Bert Alvey 192,855
- --------------------------------------------------------------------------------
Carlos Bullos 200,000
- --------------------------------------------------------------------------------
Amber Davidson 64,285
- --------------------------------------------------------------------------------
Andre Peterson 58,571
- --------------------------------------------------------------------------------
Trilogy Design 16,667
- --------------------------------------------------------------------------------
Page 59 of 81
<PAGE>
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of September 30,
1998 with respect to each person who owns of record, or is known to the Company
to beneficially own, more than 5% of the outstanding shares of voting common
stock, and the beneficial ownership of such securities by each officer and
director who owns any stock, and by all officers and directors as a group.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Name and Address of Beneficial Amount and Nature of Ownership Percent of currently issued and
Owner of Voting Stock Subscribed Stock
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Blaine Harris 2,377,0002 14%
57 West 200 South Suite 350 Direct Ownership
Salt Lake City, Utah 84101
- ----------------------------------------------------------------------------------------------------------------
Robert Warfield 1,000,000 6%
10481 Golf Course Road Direct Ownership
Ocean City, MD 21842
- ----------------------------------------------------------------------------------------------------------------
Harold P. Glick 528,962 3%
10706 Piney Island Drive Direct Ownership
Bishopville, MD 21842
- ----------------------------------------------------------------------------------------------------------------
Chuck Coonradt 11,754 .1%
3797 W. Blacksmith Road Direct Ownership
Park City, Utah 84060
- ----------------------------------------------------------------------------------------------------------------
Andre Peterson 119,5862 1%
291 East 950 South Direct Ownership
Orem, Utah 84058
- ----------------------------------------------------------------------------------------------------------------
John Bartholomew 68,7592 .4%
291 East 950 South Direct Ownership
Orem, Utah 84058
- ----------------------------------------------------------------------------------------------------------------
Steven B. Anderson 9,0002 .1%
57 West 200 South Suite 350 Direct Ownership
Salt Lake City, Utah 84101
- ----------------------------------------------------------------------------------------------------------------
CEDE & Co. 3,920,120 23%
PO Box 222
Bowling Green Station
New York, NY 10274
- ----------------------------------------------------------------------------------------------------------------
Navada Holdings Ltd. 1,000,000 6%
C/0 Suite 1402 PDCP Bank Centre
8737 Paseo de Roxas
Makati Metro Manila
Philippines
- ----------------------------------------------------------------------------------------------------------------
Officers and Directors as a group 4,115,061 24%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------------
2 Includes shares which these individuals have the right to acquire within sixty
days pursuant to options granted through September 30, 1998 in the following
amounts; Harris 42,000, Peterson 58,571, Bartholomew 64,285, Anderson 9,000
Page 60 of 81
<PAGE>
SCHEDULE 2(i)
List of Possible Breaches of Contracts and List of Legal Proceedings
1. BH PRODUCTIONS, INC., an Illinois Corp., d/b/a IGNITE ADVERTISING v.
CHEQUEMATE INTERNATIONAL, proposed settlement of monthly payments in settlement
of all claims.
2. NEWPAPER AGENCY CORP., v. CHEQUEMATE ELECTRONICS, INC. a Utah
Corporation, formerly CHEQUEMATE THIRD DIMENSION, INC. Civil No. 980907238,
Ralph Tate Attorney for Plaintiff. Total of $13,132.56 plus interest and legal
fees. Payments of $2,569.11 on 09/29/98, $2,500.00 on 10/30/98, and $2,500 on
12/02/98 have been made against claim.
3. MARKO FOAM PRODUCTS, INC. v. CHEQUEMATE INTERNATIONAL, INC. Civil No.
980908766, Ralph Tate Attorney for Plaintiff. Total of $20,590.89 plus interest
and legal fees. Payments of $3,000 on 09/29/98, $3,000 on 10/30/98, $2,990.97 on
12/02/98 have been made against claim.
4. GOLDEN PACIFIC ELECTRONICS, INC. v. CHEQUEMATE ELECTRONICS, INC.; Civil
No. 980407246CV. Richard Frandsen Attorney for Plaintiff. Total of $9,070 plus
interest and legal costs. Payments of $2,500 on 08/07/98, $2,500 on 09/29/98,
$2,500 on 10/30/98, $1,570 on 12/02/98 have been made.
5. CENTRAL MEADOW PARK, L.P. v. Chequemate Tele-Services, Inc., Fred
Boedeker, and Blaine Harris. A retainer was paid to Langley & Branch to
represent Chequemate Tele-Services and Blaine in this lawsuit over a lease that
was entered into in Texas. Gregory M. Weistein is the attorney handling the
claim for Chequemate Tele-Services and Blaine. His phone number is (214)
953-7214. No action has been taken by plaintiff in 1998.
Page 61 of 81
<PAGE>
SCHEDULE 2(l)
The Company is in the process of filing a trademark application for the
use of the name "C-3D Digital," and presently is doing business as C-3D Digital,
Inc. in the State of Utah.
Page 62 of 81
<PAGE>
SCHEDULE 2(q)
The presently proposed settlement of the Ignite litigation contemplates
the payment of cash on a monthly basis to settle all claims.
Page 63 of 81
<PAGE>
Exhibit B
A Subscriber who meets any one of the following tests is an accredited
investor:
(a) The Subscriber is an individual who has a net worth, or joint net
worth with the Subscriber's spouse, of at least $1,000,000.
(b) The Subscriber is an individual who had individual income of more
than $200,000 (or $300,000 jointly with the Subscriber's spouse) for the past
two years, and the Subscriber has a reasonable expectation of having income of
at least $200,000 (or $300,000 jointly with the Subscriber's spouse) for the
current year.
(c) The Subscriber is an officer or director of the Company.
(d) The Subscriber is a bank as defined in Section 3(a)(2) of the
Securities Act or any savings and loan association or other institution as
defined in Section 3(a)(5)(A) of the Securities Act whether acting in its
individual or fiduciary capacity.
(e) The Subscriber is a broker or dealer registered pursuant to Section
15 of the Securities Exchange Act of 1934.
(f) The Subscriber is an insurance company as defined in Section 2(13)
of the Securities Act.
(g) The Subscriber is an investment company registered under the
Investment Company Act of 1940 or a business development company as defined in
Section 2(a)(48) of that Act.
(h) The Subscriber is a small Business Investment Company licensed by
the U.S. Small Business Administration under Section 301(c) or (d) of the Small
Business Investment Act of 1958.
(i) The Subscriber is an employee benefit plan within the meaning of
Title I of the Employee Retirement Income Security Act of 1974, if the
investment decision is made by a plan fiduciary, as defined in Section 3(21) of
such Act, which is either a bank, savings and loan association, insurance
company, or registered investment adviser, or if the employee benefit plan has
total assets in excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are accredited investors.
(j) The Subscriber is a private business development company as defined
in Section 202(a)(22) of the Investment Advisers Act of 1940.
(k) The Subscriber is an organization described in Section 501(c)(3) of
the Internal Revenue Code, corporation, Massachusetts or similar business trust,
or partnership, not formed for the specific purpose of acquiring the securities
offered, with total assets in excess of $5,000,000.
(l) The Subscriber is a trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring the securities
offered, whose purchase is directed by a sophisticated person as described in
Rule 506(b)(2)(ii) of the Commission under the Securities Act.
(m) The Subscriber is an entity in which all of the equity owners are
accredited investors (i.e., all of the equity owners meet one of the tests for
an accredited investor).
If an individual investor qualifies as an accredited investor, such
individual may purchase the Units in the name of his individual retirement
account ("IRA").
Page 64 of 81
Exhibit 10.3
------------
NEITHER THIS DEBENTURE NOR THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION
OF THIS DEBENTURE HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAW, AND SUCH SECURITIES MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER SAID ACT OR STATE LAW OR AN OPINION OF COUNSEL THAT SUCH REGISTRATION IS
NOT REQUIRED.
NA-1 New York, New York
$250,000 December 21, 1998
CHEQUEMATE INTERNATIONAL, INC.
8% REDEEMABLE CONVERTIBLE DEBENTURE DUE DECEMBER 21, 2001
FOR VALUE RECEIVED, Chequemate International, Inc., a Utah corporation
(the "Company"), hereby promises to pay to the order of Augustine Fund, L.P. an
Illinois limited partnership (the "holder"), the principal amount of two hundred
fifty thousand dollars ($250,000) on December 21, 2001. Interest on this
Debenture shall be payable quarterly, on the 15th day of each October, January,
April and July of each year to the holder of record of this Debenture on the
last day of September, December, March and June, respectively, with the first
interest payment being due on January 15, 1999. Interest shall be payable at the
rate of eight percent (8%) per annum (computed on the basis of a 360-day year,
using the number of days actually elapsed). Interest shall be payable, to the
extent permitted by law, at the rate equal to the lesser of (i) eighteen percent
(18%) per annum or (ii) the maximum rate permitted by law, on the entire unpaid
principal amount of this Debenture from and after the time that such principal
amount shall have become due and payable (whether at maturity or by
acceleration). In no event shall the rate of interest exceed the maximum
interest rate which may legally be charged, and any payments which would result
in an interest payment being in excess of such legal rate shall be treated for
all purposes as payments of principal. This Debenture is one of the Company's 8%
Redeemable Convertible Debentures due December 21, 2001 (collectively, the
"Debentures"), which were issued in the aggregate maximum principal amount of
seven hundred fifty thousand dollars ($750,000) (the "Maximum Principal
Amount").
ARTICLE 1.
Covenants of the Company
Until the principal of and interest on the Debentures shall have been
paid in full:
a. Continued Organization; Good Standing. Each of the
Company and each of its present or future subsidiaries (each,
a "Subsidiary") will continue its corporate existences and
good standing in the state or province of its organization and
in each other state or province in which it owns or leases
real property.
b. Filings under the Securities Exchange Act of 1934.
The Common Stock has been registered pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The Company shall file all reports required by Section
12 of the Exchange Act not later than the date that such
reports are due.
c. Comply with Obligations under Subscription Agreement.
The Company shall comply in all material respects with its
obligations pursuant to the subscription agreements
(collectively, the "Subscription Agreements") pursuant to
which the Debentures were issued.
ARTICLE 2.
Events of Default and Acceleration
a. Events of Default Defined. The entire unpaid
principal amount of this Debenture, together with interest
thereon shall, at the option of the holder this Debenture,
exercised by written notice to the Company, forthwith become
and be due
Page 65 of 81
<PAGE>
and payable if any one or more the following events ("Events
of Default") shall have occurred (for any reason whatsoever
and whether such happening shall be voluntary or involuntary
or be affected or come about by operation of law pursuant to
or in compliance with any judgment, decree, or order of any
court or any order, rule or regulation of any administrative
or governmental body) and be continuing. An Event of Default
shall occur:
i. if failure shall be made in the payment of the
principal of this Debenture when and as the same shall become
due; or
ii. if failure shall be made in the payment of any
installment of interest on this Debenture when and as the same
shall become due and payable whether at maturity or otherwise
and such failure shall continue for five (5) days after the
date such payment is due; or
iii. if the Company shall violate or breach any of the
covenants set forth in this Debenture and such violation or
breach shall continue for fifteen (15) days thereafter; or
iv. If the Company shall violate or breach any of the
representations, warranties, covenants or agreements contained
in any of the Subscription Agreements, and such violation or
breach shall continue for thirty (30) days thereafter.
v. if the Company or any Subsidiary shall consent to the
appointment of a receiver, trustee or liquidator of itself or
of a substantial part of its property, or shall admit in
writing its inability to pay its debts generally as they
become due, or shall make a general assignment for the benefit
of creditors, or shall file a voluntary petition in
bankruptcy, or an answer seeking reorganization in a
proceeding under any bankruptcy law (as now or hereafter in
effect) or an answer admitting the material allegations of a
petition filed against the Company or any Subsidiary, in any
such proceeding, or shall by voluntary petition, answer or
consent, seek relief under the provisions of any other now
existing or future bankruptcy or other similar law providing
for the reorganization or winding up of corporations, or an
arrangement, composition, extension or adjustment with its or
their creditors, or shall, in a petition in bankruptcy filed
against it or them be adjudicated a bankrupt, or the Company
or any Subsidiary or their directors or a majority of its
stockholders shall vote to dissolve or liquidate the Company
or any Subsidiary other than a liquidation involving a
transfer of assets from a Subsidiary to the Company or another
Subsidiary; or
vi. if an involuntary petition shall be filed against the
Company or any Subsidiary seeking relief against the Company
or any Subsidiary under any now existing or future bankruptcy,
insolvency or other similar law providing for the
reorganization or winding up of corporations, or an
arrangement, composition, extension or adjustment with its or
their creditors, and such petition shall not be vacated or set
aside within sixty (60) days from the filing thereof; or
vii. if a court of competent jurisdiction shall enter an
order, judgment or decree appointing, without consent of the
Company or any Subsidiary, a receiver, trustee or liquidator
of the Company or any Subsidiary, or of all or any substantial
part of the property of the Company or any Subsidiary, or
approving a petition filed against the Company or any
Subsidiary seeking a reorganization or arrangement of the
Company or any Subsidiary under the Federal bankruptcy laws or
any other applicable law or statute of the United States of
America or any State thereof, or any substantial part of the
property of the Company or any Subsidiary shall be
sequestered; and such order, judgment or decree shall not be
vacated or set aside within sixty (60) days from the date of
the entry thereof; or
Page 66 of 81
<PAGE>
viii. if, under the provisions of any law for the relief or
aid of debtors, any court of competent jurisdiction shall
assume custody or control of the Company or any Subsidiary or
of all or any substantial part of the property of the Company
or any Subsidiary and such custody or control shall not be
terminated within sixty (60) days from the date of assumption
of such custody or control.
b. Rights of Debenture Holder. Nothing in this Debenture
shall be construed to modify, amend or limit in any way the right
of the holder of this Debenture to bring an action against the
Company.
ARTICLE 3.
Conversion
a. Right of Conversion.
---------------------
i. At any time on or after the Initial Conversion Date,
as hereinafter defined, and subject to the rights of the
Company to redeem Debentures or restrict conversion pursuant
to Paragraph 3(f) of this Debenture, the holder of this
Debenture shall have the right, in whole at any time and in
part from time to time, prior to payment of the principal of
this Debenture, to convert all or any part of the principal
amount of this Debenture outstanding from time to time and
accrued interest into such number of shares of Common Stock
at the conversion price hereinafter defined (the "Conversion
Price"); provided, that the right to conversion shall
terminate at 5:00 P.M. New York City time on the business day
prior to the maturity date of this Debenture.
ii. The "Initial Conversion Date" shall mean the first to
occur of:
(1) Forty-five (45) days after the
Closing Date (the "Registration Date"), or
(2) The effective date of the
Registration Statement, as hereinafter
defined.
b. Exercise of Conversion Right. In order to exercise the
conversion right, the holder of this Debenture shall
surrender this Debenture at the office of the Company
together with written instructions specifying the portion of
the principal amount of and accrued interest on this
Debenture which the holder elects to convert and the
registration and delivery of certificates for shares of
Common Stock issuable upon such conversion. The shares of
Common Stock issuable upon conversion of this Debenture are
referred to as the "Conversion Shares." The number of
Conversion Shares shall be determined by dividing the amount
of principal and interest being converted by the Conversion
Price in effect on the date of such conversion, which shall
be the date this Debenture is delivered to the Company for
conversion. The holder shall thereupon be deemed the holder
of the shares of Common Stock so issued and the principal
amount of and interest on the Debenture, to the extent so
converted, shall be deemed to have been paid in full. If this
Debenture shall have been converted in part, the holder of
this Debenture shall be entitled to a new Debenture
representing the unpaid principal balance of such Debenture
remaining after deducting the principal amount of the
Debenture converted. Any interest not converted into Common
Stock pursuant to this Paragraph 3 shall be paid to the
holder in cash at the time of conversion.
c. Conversion Price.
-----------------
i. The Conversion Price shall be the lesser of
the Maximum Conversion Price, as hereinafter defined,
or the Current Conversion Price, as hereinafter
defined, which shall be subject to adjustment as
hereinafter provided.
ii. The Maximum Conversion Price shall mean
three and 64/100 dollars ($3.64).
Page 67 of 81
<PAGE>
iii. The Current Conversion Price shall mean
eighty percent (80%) of the average closing bid price
of the Common Stock for the five (5) trading days
prior to the date on which this Debenture is
presented for conversion on the principal stock
exchange or market on which the Common Stock is
traded. If there is more than one reported closing
bid price on any day, the lowest closing bid price
shall be used for the closing bid price on such day.
If this Debenture is being converted in part only,
then the Current Conversion Price shall relate to the
Debenture to the extent that principal and interest
is converted, and the Current Conversion Price for
any subsequent conversion shall be determined in
accordance with this Paragraph 3(c)(iii) at the time
of such subsequent conversion.
iv. The Maximum Conversion Price shall be
subject to adjustment as follows:
(1) If the Company shall, subsequent to
December 21, 1998, (A) pay a dividend or
make a distribution on its shares of Common
Stock in shares of Common Stock, (B)
subdivide or reclassify its outstanding
Common Stock into a greater number of
shares, or (C) combine or reclassify its
outstanding Common Stock into a smaller
number of shares or otherwise effect a
reverse split, the Maximum Conversion Price
in effect at the time of the record date for
such dividend or distribution or of the
effective date of such subdivision,
combination or reclassification shall be
proportionately adjusted upward or downward,
as the case may be. Such adjustment shall be
made successively whenever any event listed
in this Paragraph 3(c)(iv)(A) shall occur.
(2) In case the Company shall,
subsequent to December 21, 1998, issue
rights or warrants to all holders of its
Common Stock entitling them to subscribe for
or purchase shares of Common Stock (or
securities convertible into Common Stock) at
a price (or having a conversion price per
share) less than the current market price of
Page 68 of 81
<PAGE>
the Common Stock (as defined in Paragraph 3(c)(iv)(D) of this Debenture) on the
record date mentioned below, the Maximum Conversion Price shall be adjusted so
that the Maximum Conversion Price shall equal the price determined by
multiplying the Maximum Conversion Price in effect immediately prior to the date
of such issuance by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding on the record date mentioned below plus the
number of additional shares of Common Stock which the aggregate offering price
of the total number of shares of Common Stock so offered (or the aggregate
conversion price of the convertible securities so offered) would purchase at
such current market price per share of the Common Stock, and the denominator of
which shall be the number of shares of Common Stock outstanding on such record
date plus the maximum number of additional shares of Common Stock offered for
subscription or purchased (or into which the convertible securities so offered
are convertible). Such adjustment shall be made successively whenever such
rights or warrants are issued and shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
rights or warrants; and to the extent that shares of Common Stock or securities
convertible into Common Stock are not delivered after the expiration of such
rights or warrants, the Maximum Conversion Price shall be readjusted to the
Maximum Conversion Price which would then be in effect had the adjustments made
upon the issuance of such rights or warrants been made upon the basis of
delivery of only the number of shares of Common Stock (or securities convertible
into Common Stock) actually delivered.
(3) In case the Company shall, subsequent to
December 21, 1998, distribute to all holders of
Common Stock evidences of its indebtedness or assets
(excluding cash dividends or distributions paid out
of current earnings and dividends or distributions
referred to in Paragraph 3(c)(iv)(A) of this
Debenture) or subscription rights or warrants
(excluding those referred to in Paragraph 3(c)(iv)(B)
of this Debenture), then in each such case the
Maximum Conversion Price in effect thereafter shall
be determined by multiplying the Maximum Conversion
Price in effect immediately prior thereto by a
fraction, of which the numerator shall be the total
number of shares of Common Stock outstanding
multiplied by the current market price per share of
Common Stock (as defined in Paragraph 3(c)(iv)(D) of
this Debenture), less the fair market value (as
determined by the Company's Board of Directors) of
said assets or evidences of indebtedness so
distributed or of such rights or warrants, and of
which the denominator shall be the total number of
shares of Common Stock outstanding multiplied by such
current market price per share of Common Stock. Such
adjustment shall be made successively whenever such a
record date is fixed. Such adjustment shall be made
whenever any such distribution is made and shall
become effective immediately after the record date
for the determination of stockholders entitled to
receive such distribution.
(4) For the purpose of any computation under
Paragraphs 3(c)(iv)(B) and (C) of this Debenture, the
current market price per share of Common Stock at any
date shall be deemed to be the average of the daily
closing prices for ten (10) consecutive trading days
commencing twenty (20) trading days before such date.
The closing price for each day shall be the reported
closing price on the principal national securities
exchange or market on which the Common Stock is
admitted to trading or listed, or if not listed or
admitted to trading on any such exchange or such
market or if there is no trading on any day in the
computation period, the closing low bid price as
reported by the Nasdaq Stock Market ("Nasdaq"), the
National Quotation Bureau, Inc. or other similar
organization, shall be used, or if such prices are
not available, the fair market price as determined in
good faith by the Board of Directors.
v. In the event that, during any five (5)
trading day period during which a computation of the
Current Market Price is being made, there is a record
date for an event described in Paragraphs
3(c)(iv)(A), (B) or (C) of this Debenture, the
closing bid price of the Common Stock for each day in
such period which is prior to such record date shall
Page 69 of 81
<PAGE>
be adjusted in the same manner as the Maximum
Conversion Price.
d. Reclassification, Reorganization or Merger.
In case of any reclassification, capital
reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any
consolidation or merger of the Company with or into
another corporation (other than a merger with a
Subsidiary in which merger the Company is the
continuing corporation and which does not result in
any reclassification, capital reorganization or other
change of outstanding shares of Common Stock or the
class issuable upon conversion of this Debenture) or
in case of any sale, lease or conveyance to another
corporation of the property of the Company as an
entirety, the Company shall, as a condition precedent
to such transaction, cause effective provisions to be
made so that the holder of this Debenture shall have
the right thereafter by converting this Debenture, to
purchase the kind and amount of shares of stock and
other securities and property receivable upon such
reclassification, capital reorganization and other
change, consolidation, merger, sale or conveyance by
a holder of the number of shares of Common Stock
which might have been purchased upon conversion of
this Debenture immediately prior to such
reclassification, change, consolidation, merger, sale
or conveyance. Any such provision shall include
provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments
provided for in this Debenture. The foregoing
provisions of this Paragraph 3(d) shall similarly
apply to successive reclassifications, capital
reorganizations and changes of shares of Common Stock
and to successive consolidations, mergers, sales or
conveyances. In the event that in connection with any
such capital reorganization or reclassification,
consolidation, merger, sale or conveyance, additional
shares of Common Stock shall be issued in exchange,
conversion, substitution or payment, in whole in
part, for a security of the Company other than Common
Stock, such transaction shall be treated as a
reclassification or reorganization pursuant to this
Paragraph 3(d).
e. Fractional Shares. No fractional shares or
script representing fractional shares shall be issued
upon the conversion of any Debentures. If, upon any
full or partial conversion of this Debenture, the
holder would, except for the provisions of this
Paragraph 3(e), be entitled to receive a fractional
share of Common Stock, then the Company shall pay the
holder, at the time the shares of Common Stock are
issued on such conversion, an amount equal to such
fractional share multiplied by the then current value
per share of Common Stock, determined as follows:
i. If the Common Stock is listed on a national
securities exchange or admitted to unlisted trading
privileges on such exchange or listed for trading on
Nasdaq or other automated quotation system which
provides information as to the last sale price, the
current value shall be the average of the reported
last sale prices of one share of Common Stock on such
exchange or system on the last trading days prior to
the date of conversion, or if, on such date, no such
sale is made on such day, the average of the closing
bid and asked prices for such date on such exchange
or system shall be used; or
ii. If the Common Stock is not so listed or
admitted to unlisted trading privileges, the current
value shall be the mean the average of the reported
last bid and asked prices of one share of Common
Stock as reported by Nasdaq, the National Quotation
Bureau, Inc. or other similar reporting service, on
the trading day prior to the date of conversion; or
iii. If the Common Stock is not so listed or
admitted to unlisted trading privileges and bid and
asked prices are not so reported, the current value
of one share of Common Stock shall be an amount, not
less than book value, determined in such reasonable
manner as may be prescribed by the Board of Directors
of the Company.
f. Right of Company to Redeem or Restrict Conversion.
i. At any time prior to the delivery by the holder of
Page 70 of 81
<PAGE>
written notice of conversion, as provided in this
Agreement, the Company shall have the right to
exercise the Redemption Right, as hereinafter
defined. Notice (the "Notice") of the exercise of the
Redemption Right must be given by telephone, and
confirmed by telecopier and by mail as provided in
Paragraph 5(g) of this Debenture.
ii. The Redemption Right shall mean the right of
the Company to redeem one or more of the outstanding
Debentures at a redemption price equal to one hundred
twenty percent (120%) of the principal amount of the
Debenture plus accrued interest on such principal
amount. Payment of such redemption price shall be
made by certified or official bank check or by wire
transfer in accordance with instructions from the
holder of this Debenture. The redemption price shall
be paid not later than the business day following the
date on which the Company exercises the Redemption
Right by giving Notice to the holder. The exercise of
the Redemption Right on any occasion shall not affect
the ability of the Company to exercise the Redemption
Right on a subsequent occasion provided, however,
that in the event that the Company fails to pay the
Redemption Price on the date such payment is to be
made pursuant to this Paragraph 3(f)(ii), then the
right to redeem the Debentures shall terminate, and
the Company shall have no right thereafter to redeem
any Debentures or to restrict conversion of
Debentures.
ARTICLE 4.
Filing of S-3 Registration Statement; Payment for Failure to Register.
a. Not later than the Registration Date, the
Company shall file a registration statement (the
"Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act") on Form S-3
covering the sale of the Conversion Shares by the
holders thereof, and the Company will use its best
efforts to have such registration statement declared
effective as soon as possible thereafter. The Company
shall take such steps to insure that the Registration
Statement is current and effective until all of the
Conversion Shares shall have been sold or until such
time as all of the Conversion Shares issuable upon
all of the Debentures may be sold without
registration pursuant to Rule 144 of the Securities
and Exchange Commission (the "Commission") or any
similar subsequent rule without regard to volume
limitations and filing requirements.
b. The Company recognizes that its agreement
to have the Conversion Shares registered pursuant to
the Securities Act was a material inducement for the
holder of this Debenture to purchase this Debenture.
Accordingly, if the Registration Statement is not
declared effective by the Commission within
seventy-five (75) days following the Registration
Date (the "Default Date"), the Company shall pay the
holder of this Debenture, as liquidated damages for
such failure, the Registration Payment, as
hereinafter defined.
c. The Registration Payment shall mean the
Applicable Percentage, as hereinafter defined,
multiplied by the number of days between Registration
Date and the date on which the Registration Statement
is declared effective by the Commission. In making
such computation, the Registration Date shall not be
counted, and the date on which the Registration
Statement is declared effective shall be counted.
d. The Applicable Percentage shall mean
one-fifteenth of one percent (.066 2/3%) of the
principal amount of the Debenture for each day after
the Default Date that the Registration Statement has
not been declared effective by the Commission.
e. Payment of the Registration Payment shall be
made on the first day of each calendar month
following the Registration Date, based on the amount
accrued to the day prior to the date of such payment,
except that the last payment shall be made within two
(2) business days after the effective date of the
Registration Statement.
Page 71 of 81
<PAGE>
ARTICLE 5.
Miscellaneous
a. Transferability. This Debenture shall not be
transferred except as provided in the Subscription
Agreement and in a transaction exempt from
registration pursuant to the Securities Act and
applicable state securities law. The Company shall
treat as the owner of this Debenture the person shown
as the owner on its books and records.
b. Right of Prepayment. Subject to the right of
the Company to exercise the Redemption Right, the
Company may, but only with the written consent of the
holder of this Debenture, prepay all, and not less
than all, of the principal amount of this Debenture
plus accrued interest, provided, that in the event
that the Company elects to make such prepayment it
shall offer to prepay all of the outstanding
Debentures.
c. Waiver of Trial by Jury. In any legal
proceeding to enforce payment of this Debenture, the
Company waives trial by jury, claims for offset and
counterclaims, if any.
d. Legal Fees. In the event that the holder of
this Debenture engages counsel in connection with the
administration or enforcement of this Debenture, the
Company shall pay all reasonable legal fees and
expenses incurred by the holder, regardless of
whether an action has been commenced.
e. Governing Law. This Debenture shall be
governed by the laws of the State of New York
applicable to agreement executed and to be performed
wholly within such State without regard to principles
of conflict of laws.
f. Court Jurisdiction. The Company hereby (i)
consents to the exclusive jurisdiction of the United
States District Court for the Southern District of
New York and Supreme Court of the State of New York
in the County of New York in any action relating to
or arising out of this Debenture, (ii) agrees that
any process in any such action may be served upon it,
in addition to any other method of service permitted
by law, by certified or registered mail, return
receipt requested, or by an overnight courier service
which obtains evidence of delivery, with the same
full force and effect as if personally served upon
him in New York City, and (iii) waives any claim that
the jurisdiction of any such tribunal is not a
convenient forum for any such action and any defense
of lack of in personam jurisdiction with respect
thereto.
g. Notices. Notice to the Company shall be
given to the Company at 75 West 200 South, Suite 350,
Salt Lake City, Utah 84101, Attention: Mr. Michael
Heil, CEO, telecopier (801) 322-1165, or to the
holder at the address set forth on the Company's
records, or to such other address as the Company or
the holder may advise by hand delivery, certified or
registered mail, return receipt requested, overnight
courier service, or by telecopier if confirmation of
receipt is given or of confirmation of transmission
is sent by mail as herein provided.
(h) Indemnification. The Company agrees to
indemnify and hold harmless the holder and each
officer, director of the holder or person, if any,
who controls the holder within the meaning of the
Securities Act against any losses, claims, damages or
liabilities, joint or several (which shall, for all
purposes of this Debenture, include, but not be
limited to, all costs of defense and investigation
and all attorneys' fees), to which the holder may
become subject, insofar as such losses, claims,
damages or liabilities (or actions in respect
thereof) arise out of or are based upon the breach of
any term of this Debenture. This indemnity agreement
will be in addition to any liability which the
Company may otherwise have.
IN WITNESS WHEREOF, the Company has executed this Agreement as of the
date and year first aforesaid.
CHEQUEMATE INTERNATIONAL, INC.
Page 72 of 81
<PAGE>
By:
-------------------
Michael Heil, CEO
Page 73 of 81
<PAGE>
NOTICE OF CONVERSION
[To be Signed Only Upon Conversion
of Part or All of Debentures]
CHEQUEMATE INTERNATIONAL, INC.
The undersigned, the holder of the foregoing Debenture, hereby
surrenders such Debenture for conversion into shares of Common Stock of
Chequemate International, Inc. to the extent of $ * unpaid principal amount of
and interest due on such Debenture, and requests that the certificates for such
shares be issued in the name of , and delivered to , whose address is .
DATED:
- -----------------------------
(Signature)
(Signature must conform in all respects to name of holder as specified
on the face of the Debenture.)
- ----------
* Insert here the unpaid principal amount of the Debenture (or, in the
case of a partial conversion, the portion thereof as to which the
Debenture is being converted). In the case of a partial conversion, a
new Debenture will be issued and delivered, representing the
unconverted portion of the unpaid principal amount of this Debenture,
to or upon the order of the holder surrendering such Debenture.
Page 74 of 81
Exhibit 10.4
-----------------
Warrant to Purchase
WA-1 **24,753**
Shares of Common Stock
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND NEITHER THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION
SHALL BE APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
Void after 5:00 P.M. New York City time on December 21, 2001
COMMON STOCK PURCHASE WARRANT
OF
CHEQUEMATE INTERNATIONAL, INC.
This is to certify that, FOR VALUE RECEIVED, Augustine Fund L.P. or its
registered assigns ("Holder"), is entitled to purchase, on the terms and subject
to the provisions of this Warrant, from Chequemate International, Inc. a Utah
corporation (the "Company"), at an exercise price per share of three and 64/100
dollars ($3.64), twenty-four thousand, seven hundred fifty-three (24,753) shares
of $0.0001 par value common stock ("Common Stock"), of the Company at any time
during the period (the "Exercise Period"), commencing on the date of issuance of
this Warrant and ending at 5:00 P.M. New York City time, on December 21, 2001;
provided, however, that if such date is a day on which banking institutions in
the State of New York are authorized by law to close, then on the next
succeeding day which shall not be such a day. The number of shares of Common
Stock to be issued upon the exercise of this Warrant and the price to be paid
for a share of Common Stock may be adjusted from time to time in the manner set
forth in this Warrant. The shares of Common Stock deliverable upon such
exercise, and as adjusted from time to time, are hereinafter sometimes referred
to as "Warrant Shares," and the exercise price for the purchase of a share of
Common Stock pursuant to this Warrant, as the same may be adjusted from time to
time is hereinafter sometimes referred to as the "Exercise Price." Reference in
the Warrant to the "Warrants" shall mean any or all of the warrants designated
as Common Stock Purchase Warrants by the Company. The Warrants were issued
pursuant to a subscription agreement dated December 21, 1998 (the "Subscription
Agreement"), between the Company and the initial holder of the Warrant.
h. EXERCISE OF WARRANT. This Warrant may be
exercised in whole at any time or in part from time
to time during the Exercise Period by presentation
and surrender of this Warrant to the Company at its
principal office, or at the office of its stock
transfer agent, if any, with the Purchase Form
annexed hereto duly executed and accompanied by
payment of the Exercise Price for the number of
shares of Common Stock specified in such form.
Payment of the Exercise Price may be made either by
check (subject to collection) in the amount of the
Exercise Price or by delivery of such number of
shares of Common Stock as has a current value,
determined in the manner provided for in Paragraph
(a)(2) of this Warrant (with the current value being
based on the market price of the Common Stock on the
date the Warrant, accompanied by the shares of Common
Stock delivered in respect of such exercise, is
received by the Company or its transfer agent), equal
to the Exercise Price. If this Warrant should be
exercised in part only, whether pursuant to this
Paragraph (a)(1) or pursuant to Paragraph (a)(2) of
this Warrant, the Company shall, upon surrender of
this Warrant for cancellation, execute and deliver a
new Warrant evidencing the rights of the Holder
hereof to purchase the balance of the shares of
Common Stock purchasable hereunder. Upon receipt by
the Company of this Warrant at its office, or by the
stock transfer agent of the Company at its office, in
proper form for exercise, the Holder shall be deemed
to be the holder of record of the shares of Common
Stock issuable upon such exercise, notwithstanding
that the stock transfer books of the Company shall
then be closed or that certificates representing such
shares of Common Stock shall not then be actually
delivered to the Holder.
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<PAGE>
i. RESERVATION OF SHARES. The Company hereby
agrees that at all times there shall be reserved for
issuance and/or delivery upon exercise of this
Warrant such number of shares of Common Stock as
shall be required for issuance and delivery upon
exercise of this Warrant and that it shall not,
without the prior approval of the holders of a
majority of the Warrants then outstanding, increase
the par value of the Common Stock.
j. FRACTIONAL SHARES. No fractional shares or
script representing fractional shares shall be issued
upon the exercise of this Warrant. With respect to
any fraction of a share called for upon any exercise
of this Warrant, the Company shall pay to the Holder
an amount in cash equal to such fraction multiplied
by the current market value of such fractional share.
k. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF
WARRANT. This Warrant is exchangeable, without
expense, at the option of the Holder, upon
presentation and surrender hereof to the Company or
at the office of its stock transfer agent, if any,
for other Warrants of different denominations
entitling the holder thereof to purchase in the
aggregate the same number of shares of Common Stock
purchasable hereunder. Subject to the provisions of
Paragraph (k) of this Warrant, upon surrender of this
Warrant to the Company or at the office of its stock
transfer agent, if any, with the Assignment Form
annexed hereto duly executed and funds sufficient to
pay any transfer tax, the Company shall, without
charge, execute and deliver a new Warrant in the name
of the assignee named in such instrument of
assignment and this Warrant shall promptly be
canceled. This Warrant may be divided or combined
with other Warrants which carry the same rights upon
presentation hereof at the office of the Company or
at the office of its stock transfer agent, if any,
together with a written notice specifying the names
and denominations in which new Warrants are to be
issued and signed by the Holder hereof. The term
"Warrant" as used herein includes any Warrants into
which this Warrant may be divided or exchanged. Upon
receipt by the Company of evidence satisfactory to it
of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or
destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation
of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor. Any
such new Warrant executed and delivered shall
constitute an additional contractual obligation on
the part of the Company, whether or not this Warrant
so lost, stolen, destroyed, or mutilated shall be at
any time enforceable by anyone.
l. RIGHTS OF THE HOLDER. The Holder shall not,
by virtue of this Warrant, be entitled to any rights
of a stockholder in the Company, either at law or
equity, and the rights of the Holder are limited to
those expressed in the Warrant and are not
enforceable against the Company except to the extent
set forth in this Warrant.
m. ANTI-DILUTION PROVISIONS. The Exercise Price
in effect at any time and the number and kind of
securities purchasable upon exercise of each Warrant
shall be subject to adjustment as follows:
i. In case the Company shall, subsequent to
December 21, 1998, (A) pay a dividend or make a
distribution on its shares of Common Stock in shares
of Common Stock (B) subdivide or reclassify its
outstanding Common Stock into a greater number of
shares, or (C) combine or reclassify its outstanding
Common Stock into a smaller number of shares or
otherwise effect a reverse split, the Exercise Price
in effect at the time of the record date for such
dividend or distribution or of the effective date of
such subdivision, combination or reclassification
shall be proportionately adjusted so that the Holder
of this Warrant exercised after such date shall be
entitled to receive the aggregate number and kind of
shares which, if this Warrant had been exercised
immediately prior to such time, he would have owned
upon such exercise and been entitled to receive upon
such dividend, subdivision, combination or
reclassification. Such adjustment shall be made
successively whenever any event listed in this
Paragraph (f)(1) shall occur.
ii. In case the Company shall, subsequent to December 21,
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<PAGE>
1998, issue rights or warrants to all holders of its
Common Stock entitling them to subscribe for or
purchase shares of Common Stock (or securities
convertible into Common Stock) at a price (or having
a conversion price per share) less than the current
market price of the Common Stock (as defined in
Paragraph (f)(5) of this Warrant) on the record date
mentioned below, the Exercise Price shall be adjusted
so that the same shall equal the price determined by
multiplying the Exercise Price in effect immediately
prior to the date of such issuance by a fraction, of
which the numerator shall be the number of shares of
Common Stock outstanding on the record date mentioned
below plus the number of shares determined by
multiplying the price or the conversion price at
which additional shares of Common Stock are offered
by the number of shares of Common Stock being offered
by the number of shares being issued, including
shares being issued upon conversion of any
convertible securities, and dividing the result so
obtained by the current market price of the Common
Stock, and of which the denominator shall be the
number of shares of Common Stock outstanding on such
record date plus the number of additional shares of
Common Stock offered for subscription or purchased
(or into which the convertible securities so offered
are convertible). Such adjustment shall be made
successively whenever such rights or warrants are
issued and shall become effective immediately after
the record date for the determination of stockholders
entitled to receive such rights or warrants; and to
the extent that shares of Common Stock or securities
convertible into Common Stock are not delivered after
the expiration of such rights or warrants, the
Exercise Price shall be readjusted to the Exercise
Price which would then be in effect had the
adjustments made upon the issuance of such rights or
warrants been made upon the basis of delivery of only
the number of shares of Common Stock (or securities
convertible into Common Stock) actually delivered.
iii. In case the Company shall, subsequent to
December 21, 1998, distribute to all holders of
Common Stock evidences of its indebtedness or assets
(excluding cash dividends or distributions paid out
of current earnings and dividends or distributions
referred to in Paragraph (f)(1) of this Warrant) or
subscription rights or warrants (excluding those
referred to in Paragraph (f)(2) of this Warrant),
then in each such case the Exercise Price in effect
thereafter shall be determined by multiplying the
Exercise Price in effect immediately prior thereto by
a fraction, of which the numerator shall be the total
number of shares of Common Stock outstanding
multiplied by the current market price per share of
Common Stock (as defined in Paragraph (f)(5) of this
Warrant), less the fair market value (as determined
by the Company's Board of Directors) of said assets
or evidences of indebtedness so distributed or of
such rights or warrants, and of which the denominator
shall be the total number of shares of Common Stock
outstanding multiplied by such current market price
per share of Common Stock. Such adjustment shall be
made successively whenever such a record date is
fixed. Such adjustment shall be made whenever any
such distribution is made and shall become effective
immediately after the record date for the
determination of stockholders entitled to receive
such distribution.
iv. Whenever the Exercise Price payable upon
exercise of each Warrant is adjusted pursuant to
Paragraphs (f)(1), (2) or (3) of this Warrant, the
number of shares of Common Stock purchasable upon
exercise of each Warrant shall simultaneously be
adjusted by multiplying the number of shares of
Common Stock issuable upon exercise of each Warrant
in effect on the date thereof by the Exercise Price
in effect on the date thereof and dividing the
product so obtained by the Exercise Price, as
adjusted. In no event shall the Exercise Price per
share be less than the par value per share, and, if
any adjustment made pursuant to Paragraph (f)(1), (2)
or (3) would result in an exercise price of less than
the par value per share, then, in such event, the
Exercise Price per share shall be the par value per
share. The Company agrees not to increase the par
value of the Common Stock other than in connection
with a reverse split or combination or shares or
other recapitalization, in which event any such
increase shall not be greater than that which would
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<PAGE>
result from the application of the adjustments
provided in Paragraph (f)(1) of this Warrant to the
par value.
v. For the purpose of any computation under
Paragraphs (f)(2) and (3) of this Warrant, the
current market price per share of Common Stock at any
date shall be deemed to be the average of the daily
closing prices for thirty (30) consecutive trading
days commencing forty five (45) trading days before
such date. The closing price for each day shall be
the reported last sale price regular way or, in case
no such reported sale takes place on such day, the
average of the reported last bid and asked prices
regular way, in either case on the principal national
securities exchange on which the Common Stock is
admitted to trading or listed or on Nasdaq, or if not
listed or admitted to trading on such exchange or
such market, the average of the reported highest bid
and reported lowest asked prices as reported by
Nasdaq, the National Quotation Bureau, Inc. or other
similar organization if Nasdaq is no longer reporting
such information, or if not so available, the fair
market price as determined by the Board of Directors.
vi. No adjustment in the Exercise Price shall be
required unless such adjustment would require an
increase or decrease of at least one cent ($0.01) in
such price; provided, however, that any adjustments
which by reason of this Paragraph (f)(6) are not
required to be made shall be carried forward and
taken into account in any subsequent adjustment. All
calculations under this Paragraph (f) shall be made
to the nearest cent or to the nearest one-hundredth
of a share, as the case may be. Anything in this
Paragraph (f) to the contrary notwithstanding, the
Company shall be entitled, but shall not be required,
to make such changes in the Exercise Price, in
addition to those required by this Paragraph (f), as
it in its discretion shall determine to be advisable
in order that any dividend or distribution in shares
of Common Stock, subdivision, reclassification or
combination of Common Stock, issuance of warrants to
purchase Common Stock or distribution of evidences of
indebtedness or other assets (excluding cash
dividends) referred to hereinabove in this Paragraph
(f) hereafter made by the Company to the holders of
its Common Stock shall not result in any tax to the
holders of its Common Stock or securities convertible
into Common Stock.
vii. The Company may retain a firm of independent
public accountants of recognized standing selected by
the Board of Directors (who may be the regular
accountants engaged by the Company) to make any
computation required by this Paragraph (f), and a
certificate signed by such firm shall be conclusive
evidence of the correctness of such adjustment.
viii. In the event that at any time, as a result
of an adjustment made pursuant to Paragraph (f)(1) of
this Warrant, the Holder of any Warrant thereafter
shall become entitled to receive any shares of the
Company, other than Common Stock, thereafter the
number of such other shares so receivable upon
exercise of any Warrant shall be subject to
adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions
with respect to the Common Stock contained in
Paragraphs (f)(1) to (6), inclusive, of this Warrant.
ix. Irrespective of any adjustments in the
Exercise Price or the number or kind of shares
purchasable upon exercise of Warrants, Warrants
theretofore or thereafter issued may continue to
express the same price and number and kind of shares
as are stated in this and similar Warrants initially
issued by the Company.
n. OFFICER'S CERTIFICATE. Whenever the Exercise Price
shall be adjusted as required by the provisions of Paragraph
(f) of this Warrant, the Company shall forthwith file in the
custody of its Secretary or an Assistant Secretary at its
principal office and with its stock transfer agent, if any, an
officer's certificate showing the adjusted Exercise Price and
the adjusted number of shares of Common Stock issuable upon
exercise of each Warrant, determined as herein provided,
setting forth in reasonable detail the facts requiring such
adjustment, including a statement of the number of additional
shares of Common Stock, if any, and such other facts as shall
Page 78 of 81
<PAGE>
be necessary to show the reason for and the manner of
computing such adjustment. Each such officer's certificate
shall be made available at all reasonable times for inspection
by the Holder, and the Company shall, forthwith after each
such adjustment, mail, by first class mail, a copy of such
certificate to the Holder at the Holder's address set forth in
the Company's Warrant Register.
o. NOTICES TO WARRANT HOLDERS. So long as this Warrant
shall be outstanding, (1) if the Company shall pay any
dividend or make any distribution upon Common Stock (other
than a regular cash dividend payable out of retained earnings)
or (2) if the Company shall offer to all holders of Common
Stock for subscription or purchase by them any share of any
class or any other rights or (3) if any capital reorganization
of the Company, reclassification of the capital stock of the
Company, consolidation or merger of the Company with or into
another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to
another corporation, or voluntary or involuntary dissolution,
liquidation or winding up of the Company shall be effected,
then in any such case, the Company shall cause to be mailed by
certified mail, return receipt requested, to the Holder, at
least fifteen days prior to the date specified in clauses (i)
and (ii), as the case may be, of this Paragraph (h) a notice
containing a brief description of the proposed action and
stating the date on which (i) a record is to be taken for the
purpose of such dividend, distribution or rights, or (ii) such
reclassification, reorganization, consolidation, merger,
conveyance, lease, dissolution, liquidation or winding up is
to take place and the date, if any is to be fixed, as of which
the holders of Common Stock or other securities shall receive
cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
p. RECLASSIFICATION, REORGANIZATION OR MERGER. In case
of any reclassification, capital reorganization or other
change of outstanding shares of Common Stock of the Company,
or in case of any consolidation or merger of the Company with
or into another corporation (other than a merger in which the
Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or
other change of outstanding shares of Common Stock of the
class issuable upon exercise of this Warrant) or in case of
any sale, lease or conveyance to another corporation of the
property of the Company as an entirety, the Company shall, as
a condition precedent to such transaction, cause effective
provisions to be made so that the Holder shall have the right
thereafter by exercising this Warrant, to purchase the kind
and amount of shares of stock and other securities and
property receivable upon such reclassification, capital
reorganization and other change, consolidation, merger, sale
or conveyance by a holder of the number of shares of Common
Stock which might have been purchased upon exercise of this
Warrant immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance. Any such provision
shall include provision for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments
provided for in this Warrant. The foregoing provisions of this
Paragraph (i) shall similarly apply to successive
reclassifications, capital reorganizations and changes of
shares of Common Stock and to successive consolidations,
mergers, sales or conveyances.
q. REGISTRATION UNDER THE SECURITIES ACT OF 1933.
i. The holder of this Warrant and/or the
Warrant Shares shall be entitled to the benefits of
the registration provisions of the Subscription
Agreement with the same effect as if such rights were
set forth verbatim in this Warrant.
ii. In the event that, for any reason and for
any period, the Warrant Shares shall not be
registered pursuant to a current and effective
registration statement or such registration statement
shall cease to be current, the last day of the
exercise period shall be extended by two (2) days for
each day that the registration statement shall not be
available to the holder of this Warrant or the
Warrant Shares.
r. TRANSFER TO COMPLY WITH THE SECURITIES ACT. This
Warrant or the Warrant Shares or any other security issued or
issuable upon exercise of this Warrant may not be sold or
otherwise disposed of except as follows:
Page 79 of 81
<PAGE>
i. To a person who, in the opinion of counsel
for the Company, is a person to whom this Warrant or
Warrant Shares may legally be transferred without
registration and without the delivery of a current
prospectus under the Securities Act with respect
thereto and then only against receipt of an agreement
of such person to comply with the provisions of this
Paragraph (k) with respect to any resale or other
disposition of such securities which agreement shall
be satisfactory in form and substance to the Company
and its counsel; or
ii. to any person upon delivery of a prospectus
then meeting the requirements of the Securities Act
relating to such securities and the offering thereof
for such sale or disposition.
Dated as of December 21, 1998
CHEQUEMATE INTERNATIONAL, INC.
By: /s/ Michael Heil
--------------------------
Name: Michael Heil
------------------------
Its: Chief Executive Officer
------------------------
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<PAGE>
PURCHASE FORM
---------------
Dated:
The undersigned hereby irrevocably exercises this Warrant to the
extent of purchasing shares of Common Stock and hereby makes
payment of $ in payment of the Exercise Price therefor.
----------
INSTRUCTIONS FOR REGISTRATION OF STOCK
--------------------------------------
Name
-----------------------------
(Please typewrite or print in block letters)
Signature
--------------------------
Social Security or Employer Identification No.
-------------
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED, hereby sells, assigns and transfer unto
Name
------------------------------
(Please typewrite or print in block letters)
Address
----------------------------
Social Security or Employer Identification No.
---------------
The right to purchase Common Stock represented by this Warrant to the extent of
shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint attorney to transfer the same on the books of the Company
with full power of substitution.
Signature
-------------------------
Signature Medallion Guaranteed:
- ------------------------------
Page 81 of 81
