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Exhibit 4.1
Subscription Agreement dated as of September 22, 2000
by and among Osage and certain purchasers
SUBSCRIPTION AGREEMENT
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Dear Subscriber:
You (the "Subscriber") hereby agree to purchase, and Osage Systems Group,
Inc., a Delaware corporation (the "Company"), hereby agrees to issue and to sell
to the Subscriber, 8% Convertible Notes (the "Notes") convertible in accordance
with the terms thereof into shares of the Company's $.01 par value per share
common stock (the "Company Shares"), for the aggregate consideration as set
forth on the signature page hereof ("Purchase Price"). The form of Convertible
Note is annexed hereto as Exhibit A. (The Company Shares included in the
Securities (as hereinafter defined) are sometimes referred to herein as the
"Shares" or "Common Stock"). (The Notes, the Company Shares, Common Stock
Purchase Warrants ("Warrants") issuable to the recipients identified on Schedule
B hereto, the Common Stock issuable upon exercise of the Warrants, and the Put
Securities (as herein defined) are collectively referred to herein as, the
"Securities"). Upon acceptance of this Agreement by the Subscriber, and the
Company's receipt of acceptances of this Agreement by Subscribers for an
aggregate of $1,500,000 principal amount of Notes and $750,000 principal amount
of "Put Notes" (as hereinafter defined), the Company shall issue and deliver to
the Subscriber the Note and Put Note against payment, by federal funds (U.S.)
wire transfer of the Purchase Price.
The following terms and conditions shall apply to this subscription.
1. Subscriber's Representations and Warranties. The Subscriber hereby
represents and warrants to and agrees with the Company that:
(a) Information on Company. The Subscriber has been furnished
with the Company's Form 10-K for the year ended December 31, 1999 as filed with
the Securities and Exchange Commission (the "Commission") together with all
subsequently filed Forms 10-Q (hereinafter referred to as the "Reports"). In
addition, the Subscriber has received from the Company such other information
concerning its operations, financial condition and other matters as the
Subscriber has requested, and considered all factors the Subscriber deems
material in deciding on the advisability of investing in the Securities (such
information in writing is collectively, the "Other Written Information").
(b) Information on Subscriber. The Subscriber is an
"accredited investor", as such term is defined in Regulation D promulgated by
the Commission under the Securities Act of 1933, as amended (the "1933 Act"), is
experienced in investments and business matters, has made investments of a
speculative nature and has purchased securities of United States publicly-owned
companies in private placements in the past and has such knowledge and
experience in financial, tax and other business matters as to enable the
Subscriber to utilize the information made available by the Company to evaluate
the merits and risks of and to make an informed investment decision with respect
to the proposed purchase, which represents a speculative investment. The
Subscriber has the authority and is duly and legally qualified to purchase and
own the Securities. The Subscriber is able to bear the risk of such investment
for an indefinite period and to afford a complete loss thereof. The information
set forth on the signature page hereto regarding the Subscriber is accurate.
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(c) Due Authorization. If Subscriber is an entity, the
execution and delivery of this Agreement by Subscriber and the consummation of
the transactions contemplated hereby are within the power and authority of
Subscriber and have been duly authorized by all necessary corporate or other
organizational action of the Subscriber. No other corporate or other
organizational act or proceeding on the part of the Subscriber is necessary to
authorize this Agreement or the consummation of the transactions contemplated
hereby. The Subscriber's signatory hereto has full power and authority to
execute and deliver this Agreement in the name of and on behalf of the
Subscriber and the signature is genuine. When duly executed and delivered by the
parties hereto, this Agreement will constitute a valid and legally binding
obligation of the Subscriber enforceable against it in accordance with its
terms, except as such enforceability may be limited by (i) bankruptcy,
insolvency, moratorium, reorganization or other similar laws and legal and
equitable principles limiting or affecting the rights of creditors generally;
and/or (ii) general principles of equity, regardless of whether considered in a
proceeding in equity or at law.
(d) Purchase of Note. On the Closing Date, the Subscriber (and
each Warrant Recipient in relation only to the Warrants) will purchase the
Securities for its own account and not with a view to any distribution thereof.
(e) Compliance with Securities Act. The Subscriber understands
and agrees that the Securities have not been registered under the 1933 Act, by
reason of their issuance in a transaction that does not require registration
under the 1933 Act (based in part on the accuracy of the representations and
warranties of Subscriber contained herein), and that such Securities must be
held unless a subsequent disposition is registered under the 1933 Act or is
exempt from such registration.
(f) Company Shares Legend. The Company Shares, and the shares
of Common Stock issuable upon the exercise of the Warrants, shall bear the
following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE
SOLD, OFFERED FOR SALE, OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR IN A
TRANSACTION EXEMPT FROM SUCH REGISTRATION ACCOMPANIED BY AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO OSAGE SYSTEMS GROUP, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(g) Warrants Legend. The Warrants shall bear the following
legend:
"THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT OR IN A TRANSACTION EXEMPT FROM SUCH REGISTRATION ACCOMPANIED
BY AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO OSAGE SYSTEMS
GROUP, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
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(h) Note Legend. The Note shall bear the following legend:
"THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO
THIS NOTE UNDER SAID ACT OR IN A TRANSACTION EXEMPT FROM SUCH
REGISTRATION ACCOMPANIED BY AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO OSAGE SYSTEMS GROUP, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED."
(i) Communication of Offer. The offer to sell the Securities
was directly communicated to the Subscriber. At no time was the Subscriber
presented with or solicited by any leaflet, newspaper or magazine article,
radio, television or Internet advertisement, or any other form of general
advertising or solicited or invited to attend a promotional meeting otherwise
than in connection and concurrently with such communicated offer.
(j) Brokers; Finders. Other than as set forth in Section 6(a)
hereof, and on Schedule B hereto, Subscriber is not aware that any person will
receive from the Company any compensation as a broker, finder, adviser or in any
other capacity in connection with the purchase of the Securities, has taken no
action which would give rise to any claim by any person for brokerage
commission, finder's fees or similar payments relating to this Agreement or the
transactions contemplated hereby.
(k) Short Sales. For so long as the Subscriber owns any of the
Securities, neither the Subscriber nor any affiliate thereof, will engage in any
short sales of the Common Stock at a price of less than $2.00 except in relation
to an amount of Common Shares expected to be received in connection with a
Notice of Conversion (as defined in the Note) previously given to the Company
for which shares of Common Stock have not been received, such sales, in any
event, not being a short sale as defined in Section 10(a) of the Securities
Exchange Act of 1934.
(l) Correctness of Representations. The Subscriber represents
that the foregoing representations and warranties are true and correct as of the
date hereof and, unless the Subscriber otherwise notifies the Company prior to
the Closing Date (as hereinafter defined), shall be true and correct as of the
Closing Date. The foregoing representations and warranties shall survive the
Closing Date.
2. Company Representations and Warranties. The Company represents and
warrants to and agrees with the Subscriber that except as disclosed in the
Reports or Other Written Information:
(a) Due Incorporation. The Company and each of its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the respective jurisdictions of their incorporation
and have the requisite corporate power to own their properties and to carry on
their business as now being conducted. The Company and each of its subsidiaries
is duly qualified as a foreign corporation to do business and is in good
standing in each jurisdiction where the nature of the business conducted or
property owned by it makes such qualification necessary, other than those
jurisdictions in which the failure to so qualify would not have a material
adverse effect on the business, operations or prospects or condition (financial
or otherwise) of the Company.
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(b) Outstanding Stock. All issued and outstanding shares of
capital stock of the Company and each of its subsidiaries has been duly
authorized and validly issued and are fully paid and non-assessable.
(c) Authority; Enforceability. This Agreement has been duly
authorized, executed and delivered by the Company and is a valid and binding
agreement enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights generally and
to general principles of equity; and the Company has full corporate power and
authority necessary to enter into this Agreement and to perform its obligations
hereunder and all other agreements entered into by the Company relating hereto.
(d) Additional Issuances. There are no outstanding agreements
or preemptive or similar rights affecting the Company's common stock or equity
and no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, or agreements or understandings with
respect to the sale or issuance of any shares of common stock or equity of the
Company or other equity interest in any of the subsidiaries of the Company,
except as described in the Reports or Other Written Information.
(e) Consents. No consent, approval, authorization or order of
any court, governmental agency or body or arbitrator having jurisdiction over
the Company, or any of its affiliates, the American Stock Exchange ("Amex") or
the Company's stockholders is required for execution of this Agreement, and all
other agreements entered into by the Company relating thereto, including,
without limitation issuance and sale of the Securities, and the performance of
the Company's obligations hereunder.
(f) No Violation or Conflict. Assuming the representations and
warranties of the Subscriber in Paragraph 1 are true and correct and the
Subscriber complies with its obligations under this Agreement, neither the
issuance and sale of the Securities nor the performance of its obligations under
this Agreement and all other agreements entered into by the Company relating
thereto by the Company will:
(i) violate, conflict with, result in a breach of, or
constitute a default (or an event which with the giving of notice or the lapse
of time or both would be reasonably likely to constitute a default) under (A)
the certificate of incorporation, charter or bylaws of the Company or any of its
affiliates, (B) to the Company's knowledge, any decree, judgment, order, law,
treaty, rule, regulation or determination applicable to the Company or any of
its affiliates of any court, governmental agency or body, or arbitrator having
jurisdiction over the Company or any of its affiliates or over the properties or
assets of the Company or any of its affiliates, (C) the terms of any bond,
debenture, note or any other evidence of indebtedness, or any agreement, stock
option or other similar plan, indenture, lease, mortgage, deed of trust or other
instrument to which the Company or any of its affiliates is a party, by which
the Company or any of its affiliates is bound, or to which any of the properties
of the Company or any of its affiliates is subject, or (D) the terms of any
"lock-up" or similar provision of any underwriting or similar agreement to which
the Company, or any of its affiliates is a party; or
(ii) result in the creation or imposition of any
lien, charge or encumbrance upon the Securities or any of the assets of the
Company, or any of its affiliates.
(g) The Securities. The Securities upon issuance:
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(i) are, or will be, free and clear of any security
interests, liens, claims or other encumbrances, subject to restrictions upon
transfer under the 1933 Act and State laws;
(ii) have been, or will be, duly and validly
authorized and on the date of issuance and on the Closing Date, as hereinafter
defined, and the date the Note or Put Note (as defined herein) is converted in
accordance with their respective terms, and the Warrants are exercised and the
Purchase Price is paid to the Company in accordance with the terms of the
Warrant, the Securities will be duly and validly issued, fully paid and
nonassessable;
(iii) will not have been issued or sold in violation
of any preemptive or other similar rights of the holders of any securities of
the Company; and
(iv) will not subject the holders thereof to personal
liability solely by reason of being such holders.
(h) Litigation. There is no pending or, to the best knowledge
of the Company, threatened in writing, any action, suit, proceeding or
investigation against or involving the Company before any court, governmental
agency or body, or arbitrator having jurisdiction over the Company, or any of
its affiliates that would affect the execution by the Company or the performance
by the Company of its obligations under this Agreement, and all other agreements
entered into by the Company relating hereto.
(i) Reporting Company. The Company is a publicly-held company
whose common stock is registered pursuant to Section 12(b) of the Securities
Exchange Act of 1934, as amended (the "1934 Act"). The Company's common stock is
trading on the Amex. Pursuant to the provisions of the 1934 Act, the Company has
timely filed all reports and other materials required to be filed thereunder
with the Securities and Exchange Commission during the preceding twelve months.
(j) No Market Manipulation. The Company has not taken, and
will not take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or manipulation of
the price of the common stock of the Company to facilitate the sale or resale of
the Securities or affect the price at which the Securities may be issued.
(k) Information Concerning Company. The Reports and Other
Written Information contain all material information relating to the Company and
its operations and financial condition as of their respective dates which
information is required to be disclosed therein. Since the date of the financial
statements included in the Reports, and except as modified in the Other Written
Information, there has been no material adverse change in the Company's
business, financial condition or affairs not disclosed in the Reports. The
Reports and Other Written Information do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(l) Dilution. The number of Shares issuable upon conversion of
the Note may increase substantially in certain circumstances, including, but not
necessarily limited to, the circumstance wherein the trading price of the Common
Stock declines prior to conversion of the Note. The Company's executive officers
and directors have studied and fully understand the nature of the Securities
being sold hereby and recognize that they have a potential dilutive effect. The
board of directors of the Company has concluded, in its good faith business
judgment, that such issuance is in the best interests of the Company. The
Company specifically acknowledges that its obligation to issue the Shares upon
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conversion of the Note and exercise of the Warrants is binding upon the Company
and enforceable, except as otherwise described in this Subscription Agreement or
the Note, regardless of the dilution such issuance may have on the ownership
interests of other shareholders of the Company.
(m) Stop Transfer. The Securities are restricted securities as
of the date of this Agreement. The Company will not issue any stop transfer
order or other order impeding the sale and delivery of the Securities, except to
comply with the federal securities laws.
(n) Defaults. Neither the Company nor any of its subsidiaries
is in violation of its Certificate of Incorporation or ByLaws. Neither the
Company nor any of its subsidiaries is (i) in default under or in violation of
any other material agreement or instrument to which it is a party or by which it
or any of its properties are bound or affected, which default or violation would
have a material adverse effect on the Company, (ii) in default with respect to
any order of any court, arbitrator or governmental body or subject to or party
to any order of any court or governmental authority arising out of any action,
suit or proceeding under any statute or other law respecting antitrust,
monopoly, restraint of trade, unfair competition or similar matters, or (iii) to
its knowledge in violation of any statute, rule or regulation of any
governmental authority which violation would have a material adverse effect on
the Company.
(o) No Integrated Offering. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
the Amex, as applicable, nor will the Company or any of its affiliates or
subsidiaries take any action or steps that would cause the offering of the
Securities to be integrated with other offerings. The Company has not conducted
and will not conduct any offering that will be integrated with the issuance of
the Securities for purposes of determining the maximum number of shares issuable
without the approval of the Company's shareholders as required by the Amex.
(p) No General Solicitation. Neither the Company, nor any of
its affiliates, nor to its knowledge, any person acting on its or their behalf,
has engaged in any form of general solicitation or general advertising (within
the meaning of Regulation D under the Act) in connection with the offer or sale
of the Securities.
(q) Listing. The Company's Common Stock is listed for trading
on the Amex and satisfies all requirements for the continuation of such listing.
The Company has not received any notice that its common stock will be delisted
from the Amex or that the Common Stock does not meet all requirements for the
continuation of such listing.
(r) S-3 Eligibility. The Company currently meets, and will
take all necessary action to continue to meet, the "registrant requirements" set
forth in the general instruction 1A to Form S-3.
(s) Correctness of Representations. The Company represents
that the foregoing representations and warranties are true and correct as of the
date hereof in all material respects, will be true and correct as of the Closing
Date, and, unless the Company otherwise notifies the Subscriber prior to the
Closing Date, shall be true and correct in all material respects as of the
Closing Date. The foregoing representations and warranties shall survive the
Closing Date.
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3. Regulation D Offering. This Offering is being made pursuant to the
exemption from the registration provisions of the 1933 Act, afforded by Rule 506
of Regulation D promulgated thereunder. On the Closing Date, the Company will
provide an opinion acceptable to Subscriber from the Company's legal counsel
opining on the availability of the Regulation D exemption as it relates to the
offer and issuance of the Securities. A form of the legal opinion is annexed
hereto as Exhibit C. The Company will provide, at the Company's expense, such
other legal opinions in the future as are reasonably necessary for the
conversion of the Note and exercise of the Warrants provided that the
representations of the Subscribers made herein remain true and correct on the
date thereof.
4. Reissuance of Securities. The Company agrees to reissue certificates
representing the Securities without the legends set forth in Sections 1(e) and
1(f) above at such time as (a) the holder thereof is permitted to and disposes
of such Securities pursuant to Rule 144(d) and/or Rule 144(k) under the Act in
the opinion of counsel reasonably satisfactory to the Company, or (b) upon
resale subject to an effective registration statement after the Securities are
registered under the Act. The Company agrees to cooperate with the Subscriber in
connection with all resales pursuant to Rule 144(d) and Rule 144(k) and provide
legal opinions necessary to allow such resales provided the Company and its
counsel receive all reasonably requested representations from the Subscriber and
selling broker, if any. If the Company fails to remove any legend as required by
this Section 4 (a "Legend Removal Failure"), then beginning on the tenth (10th)
day following such failure, the Company continues to fail to remove such legend,
the Company shall pay to each Subscriber or assignee holding shares subject to a
Legend Removal Failure an amount equal to one percent (1%) of the Purchase Price
of the shares subject to a Legend Removal Failure per day that such failure
continues. If during any twelve (12) month period, the Company fails to remove
any legend as required by this Section 4 for an aggregate of thirty (30) days,
each Subscriber or assignee holding shares subject to a Legend Removal Failure
may, at its option, require the Company to purchase all or any portion of the
shares subject to a Legend Removal Failure held by such Subscriber or Assignee
at a price per share equal to 120% of the per Share Conversion Price.
5. Redemption. The Company may not redeem the Securities without the
consent of the holder of the Securities except as otherwise described herein.
6. Fees/Warrants.
(a) On the Closing Date, the Company shall pay to counsel to
the Subscriber its fees of $25,000 for services rendered to Subscribers in
connection with this Agreement and the other Subscription Agreements for
aggregate subscription amounts equal to $1,500,000 (the "Initial Offering") and
$750,000 of Put Purchase Price as defined in Section 11.1(a) and acting as
escrow agent for the Initial Offering. The Company will pay a cash fee in the
amount of eight percent (8%) of the Purchase Price and Put Purchase Price set
forth on the signature page hereto ("Finder's Fee") to the Finders identified on
Schedule B hereto. The Finder's Fee and legal fees will be payable out of funds
held pursuant to a Funds Escrow Agreement to be entered into by the Company,
Subscriber and an Escrow Agent.
(b) The Company will also issue and deliver to the Warrant
Recipients identified on Schedule B hereto, Warrants in the amounts designated
on Schedule B hereto in connection with the Initial Offering and exercise of the
Put. A form of Warrant is annexed hereto as Exhibit D. The per share "Purchase
Prices" as defined in the Warrant shall be $1.25 for Warrants issued in
connection with the Initial Offering and $1.50 for Warrants issued in connection
with the Put. The lower priced Warrants must be delivered on the Closing Date.
The Put Warrants must be delivered on the sooner of the Put Closing Date or
within three business days of the occurrence of an Event of Default. Failure to
timely deliver the Warrants or Finder's Fee shall be deemed an Event of Default
as defined in Article III of the Note and Put Note.
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(c) The Finder's Fee and legal fees will be paid to the
Finders and Subscriber's attorneys only when, as, and if (i) with respect to the
Finders, a corresponding subscription amount is released from escrow to the
Company and out of the escrow proceeds; and (ii) with respect to the
Subscriber's attorneys, at the Closing Date. All the representations, covenants,
warranties, undertakings, and indemnification, other rights including but not
limited to registration rights, and rights in Section 9 hereof, made or granted
to or for the benefit of the Subscriber are hereby also made and granted to the
Warrant Recipients in respect of the Warrants and Company Shares issuable upon
exercise of the Warrants. By executing this Agreement, all the representations,
covenants, warranties, undertakings, and indemnification, made by the
Subscribers are hereby also made by the Warrant Recipients in respect of the
Warrants and Company Shares issuable upon exercise of the Warrants.
7. Covenants of the Company. The Company covenants and agrees with the
Subscriber as follows:
(a) The Company will advise the Subscriber, promptly after it
receives notice of issuance by the Securities and Exchange Commission, any state
securities commission or any other regulatory authority of any stop order or of
any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the Common Stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
(b) The Company shall promptly secure the listing of the
Company Shares, and Common Stock issuable upon the exercise of the Warrants upon
each national securities exchange, or automated quotation system, if any, upon
which Company Shares are then listed (subject to official notice of issuance)
and shall maintain such listing so long as any other shares of Common Stock
shall be so listed. The Company will maintain the listing of its Common Stock on
the Amex, NASDAQ National Market System, or New York Stock Exchange (whichever
of the foregoing is at the time the principal trading exchange or market for the
Common Stock, the "Principal Market"), and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
Amex and such exchanges, as applicable The Company will provide the Subscriber
copies of all notices it receives notifying the Company of the threatened and
actual delisting of the Common Stock from any Principal Market.
(c) The Company shall notify the SEC, Amex and applicable
state authorities, in accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to the Subscriber
and promptly provide copies thereof to Subscriber.
(d) Until at least two (2) years after the effectiveness of
the Registration Statement on Form S-3 or such other Registration Statement
described in Section 10.1(iv) hereof, the Company will (i) cause its Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, (ii) comply in all respects with its reporting and filing obligations under
the Exchange Act, (iii) comply with all reporting requirements that is
applicable to an issuer with a class of securities registered pursuant to
Section 12(g) of the Exchange Act, and (iv) comply with all requirements related
to any registration statement filed pursuant to this Agreement. The Company will
not take any action or file any document (whether or not permitted by the Act or
the Exchange Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
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under said Acts until the later of (y) two (2) years after the effective date of
the Registration Statement on Form S-3 or such other Registration Statement
described in Section 10.1(iv) hereof, or (z) the sale by the Subscribers of all
the Company Shares issuable by the Company pursuant to this Agreement. Until at
least two (2) years after the Warrants have been exercised, the Company will use
its commercial best efforts to continue the listing of the Common Stock on Amex
and will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of Amex.
(e) The Company and Subscriber agree that until the Company
either obtains shareholder approval of the issuance of the Securities, or an
exemption from the rules of Amex as they may apply to the Securities, and an
opinion of counsel reasonably acceptable to Subscriber that such rules do not
conflict with nor may result in a delisting of the Company's Common Stock from
the Amex upon the conversion or exercise, as applicable, of the Notes, Put
Notes, Warrants or Put Warrants (the "Approval"), the Company shall have no
obligation to issue upon conversion or exercise, as applicable, of the Notes,
Put Notes, Warrants or Put Warrants more than the number of Company Shares
designated on the signature page and Schedule B hereof upon conversion of the
Notes or Put Notes and exercise of the Warrants or Put Warrants. The Company
represents that such amount set forth on the signature page as the Section 7(e)
Shares together with the aggregate of such amounts designated for all
Subscribers and Warrant Recipients in the Offering is not greater than 19.9% of
the shares of Company's Common Stock outstanding on the Closing Date. Provided
the closing price of the Common Stock on a Principal Market is less than $.50
per Common Share for ten consecutive trading days (such tenth day being the
"Trigger Date") the Company covenants to obtain the Approval required pursuant
to the Amex rules to allow conversion of all the Notes, Put Notes and exercise
of all the Warrants and Put Warrants. The Company covenants to file the
preliminary proxy statement relating to the Approval with the Commission on or
before thirty days after the Trigger Date ("Proxy Filing Date"). The Company
further covenants to obtain the Approval no later than one hundred twenty days
after the Trigger Date or if the closing price of the Common Stock on a
Principal Market is less than $1.00 per Common Share for the ten consecutive
days prior to the filing of the Company's proxy statement or any amendment
thereof, at the next meeting of the Company's shareholders, whichever is sooner
("Approval Date"). The Company's failure to file the proxy on or before the
Proxy Filing Date or the Company's failure to obtain the Approval on or before
the Approval Date (either being an "Approval Default") shall be deemed an Event
of Default pursuant to the Note and Put Note, but only to the extent of the
principal amount of the Notes that may not be converted (such amount being the
"Note Approval Default Amount") or the aggregate of the excess of the closing
price of the Common Stock on the Principal Market less the Purchase Price of the
Warrant multiplied by the number of Warrants that may not be exercised (such
amount being the "Warrant Approval Default Amount") due to the Company's failure
to obtain such Approval.
(f) The Company undertakes to use the proceeds of the
Subscriber's funds for general working capital and other corporate purposes, and
expenses of this offering, and will not use the proceeds for redemption of
equity or repayment of debt not arising out of trade obligations.
8. Covenants of the Company and Subscriber Regarding Indemnification.
(a) The Company agrees to indemnify, hold harmless, reimburse
and defend Subscriber, Subscriber's officers, directors, agents, affiliates,
control persons, and principal shareholders, against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of any
nature, incurred by or imposed upon Subscriber or any such person which results,
arises out of or is based upon (i) any misrepresentation by Company or breach of
any warranty by Company in this Agreement or in any Exhibits or Schedules
attached hereto; or (ii) after any applicable notice and/or cure periods, any
breach or default in performance by the Company of any covenant or undertaking
to be performed by the Company hereunder, or any other agreement entered into by
the Company and Subscribers relating hereto.
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(b) Subscriber agrees to indemnify, hold harmless, reimburse
and defend the Company and each of the Company's officers and directors at all
times against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Company or any such person which results, arises out of or is based upon (i) any
misrepresentation by Subscriber in this Agreement or in any Exhibits or
Schedules attached hereto; or (ii) after any applicable notice and/or cure
periods, any breach or default in performance by Subscriber of any covenant or
undertaking to be performed by Subscriber hereunder, or any other agreement
entered into by the Company and Subscribers relating hereto.
(c) The procedures set forth in Section 10.6 shall apply to
the indemnifications set forth in Sections 8(a) and 8(b) above.
9.1. Conversion of Note.
(a) Upon the conversion of the Note or Put Note or part
thereof, the Company shall, at its own cost and expense, take all necessary
action (including the issuance of an opinion of counsel) to assure that the
Company's transfer agent shall issue stock certificates in the name of
Subscriber (or its nominee) or such other persons as designated by Subscriber
and in such denominations to be specified at conversion representing the number
of shares of common stock issuable upon such conversion. The Company warrants
that no instructions other than these instructions have been or will be given to
the transfer agent of the Company's Common Stock. Unless waived by the
Subscriber commencing on the Effective Date (defined in Section 10 hereof), and
if a Non-Registration Event has occurred, commencing 60 days after the
occurrence of such Non-Registration Event, the Shares to be delivered upon
conversion must be registered in a registration statement described in Section
10 hereof and transferable without resale restrictions, as of the Conversion
Date and Delivery Date (defined hereinafter).
(b) Subscriber will give notice of its decision to exercise
its right to convert the Note or part thereof by telecopying an executed and
completed Notice of Conversion (as defined in the Note) to the Company. The
Subscriber will not be required to surrender the Note until the Note has been
fully converted or satisfied. Each date on which a Notice of Conversion is
telecopied to the Company in accordance with the provisions hereof shall be
deemed a Conversion Date. The Company will transmit or cause the transfer agent
to transmit the Company's Common Stock certificates representing the Shares
issuable upon conversion of the Note (and a Note representing the balance of the
Note not so converted, if requested by Subscriber) to the Subscriber via express
courier for receipt by such Subscriber within seven (7) business days after
receipt by the Company of the Notice of Conversion (the "Delivery Date"). To the
extent that a Subscriber elects not to surrender a Note for reissuance upon
partial payment or conversion, the Subscriber hereby indemnifies the Company
against any and all loss or damage attributable to a third-party claim in an
amount in excess of the actual amount then due under the Note.
(c) The Company understands that a delay in the delivery of
the Shares in the form required pursuant to Section 9 hereof, or the Mandatory
Redemption Amount described in Section 9.2 hereof, beyond the Delivery Date or
Mandatory Redemption Payment Date (as hereinafter defined) could result in
economic loss to the Subscriber. As compensation to the Subscriber for such
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loss, the Company agrees to pay late payments to the Subscriber for late
issuance of Shares in the form required pursuant to Section 9 hereof upon
Conversion of the Note or Put Note or late payment of the Mandatory Redemption
Amount, in the amount of $100 per business day after the Delivery Date or
Mandatory Redemption Payment Date, as the case may be, for each $10,000 of Note
or Put Note principal amount being converted or redeemed. The Company shall pay
any payments incurred under this Section in immediately available funds upon
demand. Furthermore, in addition to any other remedies which may be available to
the Subscriber, in the event that the Company fails for any reason to effect
delivery of the Shares by the Delivery Date or make payment by the Mandatory
Redemption Payment Date, the Subscriber will be entitled to revoke all or part
of the relevant Notice of Conversion or rescind all or part of the notice of
Mandatory Redemption by delivery of a notice to such effect to the Company
whereupon the Company and the Subscriber shall each be restored to their
respective positions immediately prior to the delivery of such notice, except
that late payment charges described above shall be payable through the date
notice of revocation or rescission is given to the Company.
(d) Nothing contained herein or in any document referred to
herein or delivered in connection herewith shall be deemed to establish or
require the payment of a rate of interest or other charges in excess of the
maximum permitted by applicable law. In the event that the rate of interest or
dividends required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Company to the Subscriber and thus refunded to the
Company.
9.2. Mandatory Redemption. In the event the Company is prohibited from
issuing Shares or fails to timely deliver Shares on a Delivery Date or upon the
occurrence of an Approval Default or for any reason other than pursuant to the
limitations set forth in Sections 9.3 and 7(e) hereof (prior to the occurrence
of an Approval Default), then at the Subscriber's election, the Company must pay
to the Subscriber five (5) business days after request by the Subscriber or on
the Delivery Date (if requested by the Subscriber) a sum of money determined by
multiplying the principal amount of the Note or Put Note designated by the
Subscriber in the Conversion Notice, or in the event of an Approval Default, the
Note Approval Default Amount, by 120%, together with accrued but unpaid interest
thereon ("Mandatory Redemption Payment"). The Mandatory Redemption Payment must
be received by the Subscriber on the same date as the Company Shares otherwise
deliverable or within five (5) business days after request, whichever is sooner
("Mandatory Redemption Payment Date"). Upon receipt of the Mandatory Redemption
Payment, the corresponding Note principal and interest will be deemed paid and
no longer outstanding.
9.3. Maximum Conversion. The Subscriber shall not be entitled to
convert on a Conversion Date that amount of the Note or Put Note in connection
with that number of shares of Common Stock which would be in excess of the sum
of (i) the number of shares of Common Stock beneficially owned by the Subscriber
and its affiliates on a Conversion Date, and (ii) the number of shares of Common
Stock issuable upon the conversion of the Note or put Note with respect to which
the determination of this proviso is being made on a Conversion Date, which
would result in beneficial ownership by the Subscriber and its affiliates of
more than 9.99% of the outstanding shares of Common Stock of the Company on such
Conversion Date. For the purposes of the proviso to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder. Subject to the foregoing, the Subscriber shall not be limited to
aggregate conversions of only 9.99%. The Subscriber may void the conversion
limitation described in this Section 9.3 upon 75 days prior notice to the
Company. Subject to applicable Securities Laws, the Subscriber may allocate
which of the equity of the Company deemed beneficially owned by the Subscriber
shall be included in the 9.99% amount described above and which shall be
allocated to the excess above 9.99%.
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9.4. Injunction - Posting of Bond. In the event a Subscriber shall
elect to convert a Note or Put Note or part thereof, the Company may not refuse
conversion based on any claim that such Subscriber or any one associated or
affiliated with such Subscriber has been engaged in any violation of law, or for
any other reason, unless, an injunction from a court, on notice, restraining and
or enjoining conversion of all or part of said Note or Put Note shall have been
sought and obtained and the Company posts a surety bond for the benefit of such
Subscriber in the amount of 130% of the amount of the Note, which is subject to
the injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Subscriber to the extent it obtains judgment.
9.5. Buy-In. If the Company fails to deliver to the Subscriber such
shares issuable upon conversion of a Note or Put Note by the Delivery Date in
accordance with the terms hereof and if after the Delivery Date the Subscriber
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by such Subscriber of the Common Stock which
the Subscriber anticipated receiving upon such conversion (a "Buy-In"), then at
the election of the Subscriber, in lieu of the rights available to the
Subscriber pursuant to Sections 9.1(c) and 9.2, the Company shall pay in cash to
the Subscriber the amount by which (A) the Subscriber's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (B) the aggregate principal and/or interest amount of the Note
for which such conversion was not timely honored, together with interest thereon
at a rate of 15% per annum, accruing until such amount and any accrued interest
thereon is paid in full (which amount shall be paid as liquidated damages and
not as a penalty). For example, if the Subscriber purchases shares of Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted conversion of $10,000 of note principal and/or interest, the
Company shall be required to pay the Subscriber $1,000, plus interest. The
Subscriber shall provide the Company written notice indicating the amounts
payable to the Subscriber in respect of the Buy-In.
9.6. Optional Redemption. The Company may redeem the Notes and Put
Notes as follows:
(a) Six Month Anniversary Date. Commencing on the six month
Anniversary Date (as defined in Section 2.1(b) of the Note) and for twenty days
thereafter, the Company will have the option of redeeming the Notes or Put Notes
in whole or in part ("Optional Redemption") by paying to the Subscriber a sum of
money determined by multiplying the principal amount of the Note or Put Note by
115% together with accrued but unpaid interest on the principal amount of the
Notes or Put Notes, as applicable, thereon ("Redemption Amount") outstanding on
the day notice of redemption ("Notice of Redemption") is given to a Subscriber
("Redemption Date"). A Notice of Redemption may not be given in connection with
any portion of any Note or Put Note for which notice of conversion has been
given by the Subscriber prior to the six month Anniversary Date. During the five
days after the Redemption Date, the Subscriber may however elect to deliver a
Notice of Conversion to the Company for up to the amount of the Notes or Put
Notes for which a Notice of Redemption has been given, provided the Subscriber
employs the Conversion Price set forth in Section 2.1(b)(i) of the Note and
thereby voids the Notice of Redemption in a like amount.
(b) Subsequent Anniversary Date. Within five days of each
Anniversary Date after the six month Anniversary Date, the Company may give the
Subscriber a Notice of Redemption. During the five days after the Redemption
Date, the Subscriber may however elect to deliver a Notice of Conversion to the
Company for up to the amount of the Notes or Put Notes for which a Notice of
Redemption has been given, provided the Subscriber employs the Conversion Price
set forth in Section 2.1(b)(i) of the Note and thereby voids the Notice of
Redemption in a like amount. In the event the Subscriber does not give a
Conversion Notice during such ten day period, the Company must pay a Redemption
Amount calculated as 120% of the principal amount of the Note or Put Note, which
was the subject of the Redemption Notice, together with accrued interest
thereon.
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(c) Certificate/Payment Date. A Notice of Redemption must be
accompanied by a certificate signed by the chief executive officer or chief
financial officer of the Company stating that the Company has on deposit and
segregated ready funds equal to the Redemption Amount. The Redemption Amount
must be paid in good funds to the Subscriber no later than the sooner of ten
days after the Subscriber notifies the Company in writing that it will not
deliver a Conversion Notice pursuant to Section 9.6(b) or the twentieth day
after the Anniversary Date ("Optional Redemption Payment Date"). In the event
the Company fails to pay the Redemption Amount by the Optional Redemption
Payment Date, then at the Subscriber's election, the Redemption Notice will be
null and void or the Redemption Amount will be deemed a Mandatory Redemption
Payment and the Optional Redemption Payment Date will be deemed a Mandatory
Redemption Payment Date. Notice of Redemption must be given to all holders of
Notes or Put Notes in proportion to their holdings of Note or Put Note
principal, as applicable, on a Redemption Date. A Notice of Redemption may be
given by the Company provided no Event of Default, as described in the Notes or
Put Notes shall have occurred or be continuing.
10.1. Registration Rights. The Company hereby grants the following
registration rights to holders of the Securities.
(i) On one occasion, for a period commencing 121 days after
the Closing Date, but not later than three years after the Closing Date
("Request Date"), the Company, upon a written request therefor from any record
holder or holders of more than 50% of the aggregate of the Company's Shares
issued and issuable upon Conversion of the Note and the Put Notes which are
actually issued (the Common Stock issued or issuable upon conversion or exercise
of the Securities, Put Securities and securities issued or issuable by virtue of
ownership of the Securities, and Put Securities, being, the "Registrable
Securities"; provided however that the above described securities shall not be
treated as Registrable Securities if and so long as they (A) have been sold to
or through a broker or dealer or underwriter in a public distribution or a
public securities transaction; (B) have been sold pursuant to Rule 144
promulgated under the Act in a transaction exempt from the registration and
prospectus delivery requirements of the Act so that all transfer restrictions
and restrictive legends with respect thereto are removed upon the consummation
of such sale; (C) are available for sale in the opinion of counsel to the
Company pursuant to Rule 144(k) in a transaction exempt from the registration
and prospectus delivery requirements of the Act; or (D) are subject to an
effective registration statement filed under this Agreement), shall prepare and
file with the SEC a registration statement under the Act covering the
Registrable Securities which are the subject of such request, unless such
Registrable Securities are the subject of an effective registration statement.
In addition, upon the receipt of such request, the Company shall promptly give
written notice to all other record holders of the Registrable Securities that
such registration statement is to be filed and shall include in such
registration statement Registrable Securities for which it has received written
requests within 10 days after the Company gives such written notice. Such other
requesting record holders shall be deemed to have exercised their demand
registration right under this Section 10.1(i). As a condition precedent to the
inclusion of Registrable Securities, the holder thereof shall provide the
Company with such information as the Company reasonably requests. The obligation
of the Company under this Section 10.1(i) shall be limited to one registration
statement.
(ii) If the Company at any time proposes to register any of
its securities under the Act for sale to the public, whether for its own account
or for the account of other security holders or both, except with respect to
registration statements on Forms S-4, S-8 or another form not available for
registering the Registrable Securities for sale to the public, provided the
Registrable Securities are not otherwise registered for resale by the Subscriber
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or Holder pursuant to an effective registration statement, each such time it
will give at least 30 days' prior written notice to the record holder of the
Registrable Securities of its intention so to do. Upon the written request of
the holder, received by the Company within 30 days after the giving of any such
notice by the Company, to register any of the Registrable Securities, the
Company will cause such Registrable Securities as to which registration shall
have been so requested to be included with the securities to be covered by the
registration statement proposed to be filed by the Company, all to the extent
required to permit the sale or other disposition of the Registrable Securities
so registered by the holder of such Registrable Securities (the "Seller"). In
the event that any registration pursuant to this Section 10.1(ii) shall be, in
whole or in part, an underwritten public offering of common stock of the
Company, the number of shares of Registrable Securities to be included in such
an underwriting may be reduced by the managing underwriter if and to the extent
that the Company and the underwriter shall reasonably be of the opinion that
such inclusion would adversely affect the marketing of the securities to be sold
by the Company therein; provided, however, that the Company shall notify the
Seller in writing of any such reduction. Notwithstanding the forgoing
provisions, or Section 10.4 hereof, the Company may withdraw or delay or suffer
a delay of any registration statement referred to in this Section 10.1(ii)
without thereby incurring any liability to the Seller.
(iii) If, at the time any written request for registration is
received by the Company pursuant to Section 10.1(i), the Company has determined
to proceed with the actual preparation and filing of a registration statement
under the 1933 Act in connection with the proposed offer and sale for cash of
any of its securities for the Company's own account, such written request shall
be deemed to have been given pursuant to Section 10.1(ii) rather than Section
10.1(i), and the rights of the holders of Registrable Securities covered by such
written request shall be governed by Section 10.1(ii).
(iv) The Company shall file with the Commission within 45 days
of the Closing Date (the "Filing Date"), and use its reasonable commercial
efforts to cause to be declared effective a Form S-3 registration statement (or
such other form that it is eligible to use) within 90 days of the Closing Date
in order to register the Registrable Securities for resale and distribution
under the Act. The registration statement described in this paragraph must be
declared effective by the Commission within 120 days of the Closing Date (as
defined herein) ("Effective Date"). The Company will register not less than a
number of shares of Common Stock in the aforedescribed registration statement
that is equal to 200% of the Company Shares issuable at the Conversion Price
that would be in effect on the Closing Date or the date of filing of such
registration statement (employing the Conversion Price which would result in the
greater number of Shares), assuming the conversion of 100% of the Notes and Put
Notes which are issuable, and one share of common stock for each common share
issuable upon exercise of the Warrants which are issuable in connection with the
Initial Offering and the Put, employing the Conversion Price that would result
in the greater number of Shares. The Registrable Securities shall be reserved
and set aside exclusively for the benefit of the Subscriber and Warrant
Recipients, as the case may be, and not issued, employed or reserved for anyone
other than the Subscriber and Warrant Recipients. Such registration statement
will be promptly amended or additional registration statements will be promptly
filed by the Company as necessary to register additional Company Shares to allow
the public resale of all Common Stock included in and issuable by virtue of the
Registrable Securities. No securities of the Company other than the Registrable
Securities will be included in the registration statement described in this
Section 10.1(iv).
10.2. Registration Procedures. If and whenever the Company is required
by the provisions hereof to effect the registration of any shares of Registrable
Securities under the Act, the Company will, as expeditiously as possible:
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(a) prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as herein provided), and promptly
provide to the holders of Registrable Securities copies of all filings and
Commission letters of comment;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
until the latest of: (i) six months after the latest exercise period of the
Warrants; (ii) twelve months after the Maturity Date of the Note or Put Note; or
(iii) two years after the Closing Date, and comply with the provisions of the
Act with respect to the disposition of all of the Registrable Securities covered
by such registration statement in accordance with the Seller's intended method
of disposition set forth in such registration statement for such period;
(c) furnish to the Seller, and to each underwriter if any,
such number of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons reasonably may
request in order to facilitate the public sale or their disposition of the
securities covered by such registration statement;
(d) use its best efforts to register or qualify the Seller's
Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Seller and in the
case of an underwritten public offering, the managing underwriter shall
reasonably request, provided, however, that the Company shall not for any such
purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction;
(e) list the Registrable Securities covered by such
registration statement with any securities exchange on which the Common Stock of
the Company is then listed;
(f) immediately notify the Seller and each underwriter under
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act, of the happening of any event of which
the Company has knowledge as a result of which the prospectus contained in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing;
(g) make available for inspection by the Seller, any
underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by the Seller or
underwriter, all publicly available, non-confidential financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all publicly
available, non-confidential information reasonably requested by the seller,
underwriter, attorney, accountant or agent in connection with such registration
statement.
10.3. Provision of Documents.
(a) At the request of the Seller, provided a demand for
registration has been made pursuant to Section 10.1(i) or a request for
registration has been made pursuant to Section 10.1(ii), the Registrable
Securities will be included in a registration statement filed pursuant to this
Section 10 in accordance with Section 10(a)(i) or 10(a)(ii), as applicable.
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(b) In connection with each registration hereunder, the Seller
will furnish to the Company in writing such information and representation
letters with respect to itself and the proposed distribution by it as reasonably
shall be necessary in order to assure compliance with federal and applicable
state securities laws. In connection with each registration pursuant to Section
10.1(i) or 10.1(ii) covering an underwritten public offering, the Company and
the Seller agree to enter into a written agreement with the managing underwriter
in such form and containing such provisions as are customary in the securities
business for such an arrangement between such underwriter and companies of the
Company's size and investment stature.
10.4. Non-Registration Events. The Company and the Subscriber agree
that the Seller will suffer damages if any registration statement required under
Section 10.1(i) or 10.1(ii) above is not filed within 60 days after written
request by the Holder and not declared effective by the Commission within 120
days after such request [or the Filing Date and Effective Date, respectively, in
reference to the Registration Statement on Form S-3 or such other form described
in Section 10.1(iv)], and maintained in the manner and within the time periods
contemplated by Section 10 hereof, and it would not be feasible to ascertain the
extent of such damages with precision. Accordingly, if (i) the Registration
Statement described in Sections 10.1(i) or 10.1(ii) is not filed within 60 days
of such written request, or is not declared effective by the Commission on or
prior to the date that is 120 days after such request, or (ii) the registration
statement on Form S-3 or such other form described in Section 10.1(iv) is not
filed on or before the Filing Date or not declared effective on or before the
sooner of the Effective Date, or within five days of receipt by the Company of a
communication from the Commission that the registration statement described in
Section 10.1(iv) will not be reviewed, provided that in the Company's counsel's
reasonable opinion provided in writing to the Subscriber during such five day
period, such registration statement requires amendment, or (iii) any
registration statement described in Sections 10.1(i), 10.1(ii) or 10.1(iv) is
filed and declared effective but shall thereafter cease to be effective (without
being succeeded immediately by an additional registration statement filed and
declared effective) for a period of time which shall exceed 30 days in the
aggregate per year but not more than 20 consecutive calendar days (defined as a
period of 365 days commencing on the date the Registration Statement is declared
effective) (each such event referred to in clauses (i), (ii) and (iii) of this
Section 10.4 is referred to herein as a "Non-Registration Event"), then, for so
long as such Non-Registration Event shall continue, the Company shall pay in
cash as Liquidated Damages to each holder of any Registrable Securities an
amount equal to one (1%) percent for the first thirty days or part thereof and
two (2%) percent per thirty days or part thereof during the pendency of such
Non-Registration Event, of (i) the principal of the Notes issued in connection
with the Initial Offering, whether or not converted, for which shares of Common
Stock issued or issuable upon exercise of such Notes are or were required to
have been included in such registration statement; and (ii) the principal amount
of Put Notes actually issued, whether or not converted, then owned of record by
such holder or issuable, for which shares of Common Stock issued or issuable
upon exercise of such Put Notes are or were required to have been included in
such registration statement as of or subsequent to the occurrence of such
Non-Registration Event. Payments to be made pursuant to this Section 10.4 shall
be due and payable immediately upon demand in immediately available funds. In
the event that all shares of Common Stock underlying the Registrable Securities
are not included in an effective registration statement as of and after the
Effective Date at the Conversion Price in effect from and after the Effective
Date, by virtue of a decrease in the Conversion Price on an Anniversary Date (as
defined in the Note) it shall be deemed a Non-Registration Event (but only with
respect to that principal amount of the Notes for which registered shares of
Common Stock can not be issued as result thereof) unless an amount equal to not
less than 200% of such additional Shares have been included in a registration
statement declared effective by the Commission on or before sixty days after the
Anniversary Date upon which the reduced Conversion Price is determined.
10.5. Expenses. All expenses incurred by the Company in complying with
Section 10, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
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accountants for the Company, fees and expenses (including reasonable counsel
fees) incurred in connection with complying with state securities or "blue sky"
laws, fees of the National Association of Securities Dealers, Inc., transfer
taxes, fees of transfer agents and registrars, and costs of insurance are called
"Registration Expenses". All underwriting discounts and selling commissions
applicable to the sale of Registrable Securities, including any fees and
disbursements of any special counsel to the Seller, are called "Selling
Expenses". The Seller shall pay the fees of its own counsel, if any. The Company
will pay all Registration Expenses in connection with the registration statement
under Section 10. All Selling Expenses in connection with each registration
statement under Section 10 shall be borne by the Seller and may be apportioned
among the Sellers in proportion to the number of shares sold by the Seller
relative to the number of shares sold under such registration statement or as
all Sellers thereunder may agree.
10.6. Indemnification and Contribution.
(a) In the event of a registration of any Registrable
Securities under the Act pursuant to Section 10, the Company will indemnify and
hold harmless the Seller, each officer of the Seller, each director of the
Seller, each underwriter of such Registrable Securities thereunder and each
other person, if any, who controls such Seller or underwriter within the meaning
of the 1933 Act, against any losses, claims, damages or liabilities, joint or
several, to which the Seller, or such underwriter or controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such Registrable Securities
was registered under the Act pursuant to Section 10, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Seller, each such
underwriter and each such controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company shall not be liable to the Seller to the extent that any such damages
arise out of or are based upon an untrue statement or omission made in any
preliminary prospectus if (i) the Seller failed to send or deliver a copy of the
final prospectus delivered by the Company to the Seller with or prior to the
delivery of written confirmation of the sale by the Seller to the person
asserting the claim from which such damages arise, (ii) the final prospectus
would have corrected such untrue statement or alleged untrue statement or such
omission or alleged omission, or (iii) to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in conformity
with information furnished by any such Seller, or any such controlling person in
writing specifically for use in such registration statement or prospectus.
(b) In the event of a registration of any of the Registrable
Securities under the Act pursuant to Section 10, the Seller will indemnify and
hold harmless the Company, and each person, if any, who controls the Company
within the meaning of the Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and each
person who controls any underwriter within the meaning of the Act, against all
losses, claims, damages or liabilities, joint or several, to which the Company
or such officer, director, underwriter or controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement under which such Registrable Securities were
registered under the Act pursuant to Section 10, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereof, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each such
officer, director, underwriter and controlling person for any legal or other
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expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
that the Seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in any preliminary prospectus if (i) the Seller failed to send or
deliver a copy of the final prospectus delivered by the Company to the Seller
with or prior to the delivery of written confirmation of the sale by the Seller
to the person asserting the claim from which such damages arise, (ii) the final
prospectus would have corrected such untrue statement or alleged untrue
statement or such omission or alleged omission, or (iii) to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by any such Seller, or any such
controlling person in writing specifically for use in such registration
statement or prospectus. and provided, further, however, that the liability of
the Seller hereunder shall be limited to the gross proceeds received by the
Seller from the sale of Registrable Securities covered by such registration
statement.
(c) Promptly after receipt by an indemnified party hereunder
of notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 10.6(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 10.6(c), except and only if and to the extent the indemnifying
party is prejudiced by such omission. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent it shall wish, to assume and undertake the defense thereof
with counsel satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 10.6(c) for any legal expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected, provided, however, that, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified parties shall have the right to select one separate
counsel and to assume such legal defenses and otherwise to participate in the
defense of such action, with the reasonable expenses and fees of such separate
counsel and other expenses related to such participation to be reimbursed by the
indemnifying party as incurred.
(d) In order to provide for just and equitable contribution in
the event of joint liability under the Act in any case in which either (i) the
Seller, or any controlling person of the Seller, makes a claim for
indemnification pursuant to this Section 10.6 but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding the
fact that this Section 10.6 provides for indemnification in such case, or (ii)
contribution under the Act may be required on the part of the Seller or
controlling person of the Seller in circumstances for which indemnification is
provided under this Section 10.6; then, and in each such case, the Company and
the Seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (y) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities offered by it
pursuant to such registration statement; and (z) no person or entity guilty of
18
<PAGE>
fraudulent misrepresentation (within the meaning of Section 10(f) of the Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
11.1. Obligation To Purchase.
(a) The Subscriber agrees to purchase from the Company and the
Company agrees to sell to the Subscriber on the date that is three (3) business
days after the effective date of the registration statement covering the public
resale of the Common Shares issuable upon exercise or conversion of the Notes
and Warrants, as applicable (the " Put Closing Date"), convertible notes ("Put
Notes") in the principal amount set forth on the signature page hereto in the
amount of Put Note principal ("Put Purchase Price") designated on the signature
page hereto (the "Put"). Collectively, the Put Notes, Warrants issuable in
connection with the Put, and Common Stock issuable upon conversion of the Put
Notes and exercise of the Warrants are referred to as the "Put Securities"). The
Warrants issuable in connection with the Put Notes are referred to herein as
Warrants or Put Warrants. Except as described in Section 11.1(c) hereof, each
Put Note will be identical to the Note except that the Maturity Date will be one
year from the Put Closing Date (as hereinafter defined). All of the Company's
obligations with respect to the Notes and Warrants, including all undertakings,
remedies, liquidated damages and indemnification granted and all obligations in
Section 7(e), Section 9 and the registration rights described in Section 10 are
hereby made with respect to the Put Notes and Put Warrants.
(b) The closing (the "Put Closing") of the purchase and sale
of the Put Securities is contingent on the following any, some or all of which
may be waived by the Subscriber:
(i) As of the Put Closing Date, the Common Shares
issuable upon conversion of a Put Note and exercise of Put Warrants must be
included in an effective registration statement described in Section 10 hereof.
(ii) As of the Put Closing Date, the Company will be
a reporting company with the class of Shares registered pursuant to Section
12(g) of the Securities Exchange Act of 1934.
(iii) No material adverse change in the Company's
business or business prospects shall have occurred after the date of the most
recent financial statements included in the Reports. Material adverse change is
defined as any effect on the business, operations, properties, prospects, or
financial condition of the Company that is material and adverse to the Company
and its subsidiaries and affiliates, taken as a whole, and/or any condition,
circumstance, or situation that would prohibit or otherwise interfere with the
ability of the Company to enter into and perform any of its obligations under
this Agreement, or any other agreement entered into or to be entered into in
connection herewith, in any material respect. There shall not have been a
material negative restatement of the Company's financial statements included in
the Reports.
(iv) An Event of Default as described in Article III
of the Note shall not have occurred.
(v) The execution and delivery to the Subscriber of a
certificate signed by its chief executive officer representing the truth and
accuracy of all the Company's representations and warranties contained in this
19
<PAGE>
Subscription Agreement as of the Put Closing Date and confirming the
undertakings contained herein, and representing the satisfaction of all
contingencies and conditions required for Put Closing.
(vi) The Company's listing on, and compliance with
the listing requirements of the Principal Market.
(vii) The Company's not having received notice from
Amex, or any Principal Market that the Company is not in compliance with the
requirements for continued listing.
(viii) The delivery of: (a) a legal opinion relating
to the Put Securities substantially similar to the opinion delivered on the
Closing Date; and (b) proof of effectiveness of the registration statement
described in Section 10 above, together with five copies of the prospectus
portion thereof.
(ix) The non-occurrence of an Approval Default.
(x) No issuance of a SEC stop trade order.
(xi) The Company shall have no actual knowledge that
any of the foregoing conditions shall not be true and accurate as of a date
fifteen days after a Put Closing Date.
(c) Subject to the adjustments set forth in the Note, the
Conversion Price of the Put Note shall be the Conversion Price in effect on the
Put Closing Date for Notes issued in connection with the Initial Offering,
subject to reduction pursuant to Section 2.1(b)(ii) of the Note.
11.2. Put Closing. At the Put Closing, payment by the Subscriber in the
amount set forth on the signature page hereto by wire transfer of immediately
available funds against delivery to the Subscriber, Warrant Recipients or an
escrow agent to be agreed upon by the Company and Subscriber, of the Put
Securities, and delivery to the Finders of the Put Commissions relating to the
Put.
11.3. Put Finders Fees. The Finders identified on Schedule B hereto
shall receive on the Put Closing Date aggregate Finder's Fees as described in
Section 6 hereof in connection with the closing of each Put as set forth on
Schedule B hereto. Put Finder's Fees shall be payable only in connection with
the Put Purchase Price actually paid by a Subscriber. The Put Finder's Fees and
reasonable legal fees for counsel to the Subscriber shall be paid at each Put
Closing.
11.4. Warrants.
(a) The Company shall issue Put Warrants to the Warrant
Recipients in the amounts designated on Schedule B hereto and as described in
Section 6 of this Subscription Agreement. The Put Warrants will be in the form
of Exhibit D hereto. The Put Warrants will be exercisable immediately upon
issuance and for three years thereafter.
(b) Failure to timely pay Finder's Fees, or deliver any
Warrants issuable in connection with the Initial Offering and Put shall be
deemed an Event of Default under the Note and a material breach of the Company's
obligations hereunder, for which no notice to cure is required.
20
<PAGE>
11.5 Assignment of Put. Anything to the contrary herein notwithstanding
and subject to compliance with applicable Securities Laws, the Subscriber may
assign to another party, reasonably acceptable to the Company, either before or
after exercise of the Put by the Company, the Subscriber's obligations and right
to pay all or some of the Put Purchase Price and receive the corresponding Put
Securities. Such assignment must be in writing. The assignment will be effective
only if the assignee consents in writing to be bound by all of the Subscriber's
obligations to the Company in connection with such assignment. Upon an effective
assignment, the assignee will succeed to all of the Subscriber's rights under
this Subscription Agreement, and all other agreements relating to the assigned
portion of the Put.
11.6 Adjustments. The Conversion Price, trading prices described herein
and amount of Shares issuable upon conversion of the Notes and Put Notes and
exercise of Warrants shall be adjusted consistent with customary anti-dilution
adjustments as set forth in the Notes, Put Notes, Warrants.
12. (a) Right of First Offer. Until the later of 120 days after the
actual effective date of the Registration Statement described in Section
10.1(iv) hereof, or one year after the Closing Date, in the event the Company
intends to issue any additional shares of Common Stock or other debt or equity
securities of the Company, except (i) pursuant to options, warrants or other
obligations to issue shares outstanding as of the Closing Date as disclosed in
the Reports or Other Written Information; or (ii) any stock or stock options
granted to employees or directors of the Company or consultants or vendors of
the Company or any other issuance principally undertaken for other than capital
raising purposes (these exceptions hereinafter refer to as the "Excepted
Issuances"), the Company shall give the Subscribers written notice of the kind
and amount of securities intended to be issued and the material terms of such
offering (the "Offer Notice"). The Subscribers shall have the right during the
ten (10) business days following the Offer Notice to agree to purchase the
securities on the terms set forth in the Offer Notice in the same proportion as
being purchased in the Initial Offering, which purchase shall be completed not
later than thirty (30) days after the date of the Offer Notice. In the event
that the Right of First Offer described in this Section is exercised by the
Subscribers and the Company receives net proceeds from such exercise in
substantially the amount set forth in the Offer Notice, the commissions and
fees, if any, will be paid by the Company to the Finders in the amount as would
be payable in connection with the offering described in the Offer Notice.
Payment for the securities may be made by the Subscriber by tender to the
Company of all or part of the Note or Put Note and application towards the
purchase price of the securities of any sums due or owing from the Company to
the Subscriber.
13. Miscellaneous.
(a) Notices. All notices or other communications given or made
hereunder shall be in writing and shall be personally delivered or deemed
delivered the first business day after being telecopied (provided that a copy is
delivered by first class mail) to the party to receive the same at its address
set forth below or to such other address as either party shall hereafter give to
the other by notice duly made under this Section: (i) if to the Company, to
Osage Systems Group, Inc., 1661 E. Camelback Road, Suite 245, Phoenix, AZ 85016,
telecopier number: (602) 274-9154, with a copy by telecopier only to Buchanan
Ingersoll, 11 Penn Center, 14th Floor, 1835 Market Street, Philadelphia, PA
19103, Attn: Joseph Galda, Esq., telecopier number: (215) 665-8760, and (ii) if
to the Subscriber, to the name, address and telecopy number set forth on the
signature page hereto, with a copy by telecopier only to Grushko & Mittman,
P.C., 551 Fifth Avenue, Suite 1601, New York, New York 10176, telecopier number:
(212) 697-3575.
21
<PAGE>
(b) Closing. The consummation of the transactions contemplated
herein shall take place at the offices of Grushko & Mittman, P.C., 551 Fifth
Avenue, Suite 1601, New York, New York 10176, upon the satisfaction of all
conditions to Closing set forth in this Agreement. The closing date shall be the
date that subscriber funds representing the net amount due the Company from the
Purchase Price are transmitted by wire transfer to the Company and shall be no
later than September 29, 2000 (the "Closing Date"). The closing date for the Put
shall be the date on which Subscriber funds representing the net amount due the
Company from the Put Purchase Price is transmitted to or on behalf of the
Company ("Put Closing Date").
(c) Entire Agreement; Assignment. This Agreement represents
the entire agreement between the parties hereto with respect to the subject
matter hereof and may be amended only by a writing executed by both parties. No
right or obligation of either party shall be assigned by that party without
prior notice to and the written consent of the other party.
(d) Execution. This Agreement may be executed by facsimile
transmission, and in counterparts, each of which will be deemed an original.
(e) Law Governing this Agreement. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
without regard to principles of conflicts of laws. Any action brought by either
party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. Both parties and the
individuals executing this Agreement and other agreements on behalf of the
Company agree to submit to the jurisdiction of such courts and waive trial by
jury. The prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In the event that any provision of this
Agreement or any other agreement delivered in connection herewith is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any agreement.
(f) Specific Enforcement, Consent to Jurisdiction. The Company
and Subscriber acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof or thereof, this being
in addition to any other remedy to which any of them may be entitled by law or
equity. Subject to Section 13(e) hereof, each of the Company and Subscriber
hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Nothing in this Section
shall affect or limit any right to serve process in any other manner permitted
by law.
(g) Confidentiality. The Company agrees that it will not
disclose publicly or privately the identity of the Subscriber unless expressly
agreed to in writing by the Subscriber or only to the extent required by law.
22
<PAGE>
(h) Automatic Termination. This Agreement shall automatically
terminate without any further action of either party hereto if the Closing shall
not have occurred by the tenth (10th) business day following the date this
Agreement is accepted by the Subscriber.
[THIS SPACE INTENTIONALLY LEFT BLANK]
23
<PAGE>
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
OSAGE SYSTEMS GROUP, INC.
A Delaware Corporation
By:_________________________________
Dated: September ____, 2000
Purchase Price: $500,000.00
-----------
PUT
---
Put Note Purchase Price: $250,000.00
-----------
Section 7(e) Shares: 2,205,659
---------
ACCEPTED: Dated as of September ____, 2000
CELESTE TRUST REG. - Subscriber
C/o Trevisa-Treuhand-Anstalt
Landstrasse 8
Furstentums 9496
Balzers, Liechtenstein
Fax: 011-431-534-532895
By:______________________________
24
<PAGE>
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
OSAGE SYSTEMS GROUP, INC.
A Delaware Corporation
By:_________________________________
Dated: September ____, 2000
Purchase Price: $700,000.00
-----------
PUT
---
Put Note Purchase Price: $350,000.00
-----------
Section 7(e) Shares: 3,087,922
---------
ACCEPTED: Dated as of September ____, 2000
ESQUIRE TRADE & FINANCE, INC. - Subscriber
Trident Chambers
P.O. Box 146
Road Town, Tortola, B.V.I.
Fax: 011-41-41-760-1031
By:______________________________
25
<PAGE>
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
OSAGE SYSTEMS GROUP, INC.
A Delaware Corporation
By:_________________________________
Dated: September ____, 2000
Purchase Price: $55,000.00
----------
PUT
---
Put Note Purchase Price: $27,500.00
----------
Section 7(e) Shares: 242,622
-------
ACCEPTED: Dated as of September ____, 2000
THE KESHET FUND L.P. - Subscriber
135 West 50th Street, Suite 1700
New York, New York 10020
Fax: 212-541-4434
By:______________________________
26
<PAGE>
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
OSAGE SYSTEMS GROUP, INC.
A Delaware Corporation
By:_________________________________
Dated: September ____, 2000
Purchase Price: $170,000.00
-----------
PUT
Put Note Purchase Price: $85,000.00
----------
Section 7(e) Shares: 749,924
-------
ACCEPTED: Dated as of September ____, 2000
KESHET L.P. - Subscriber
Ragnall House
18 Peel Road
Douglas, Isle of Man
1M1 4L2, United Kingdom
Fax: 011-44-1624-661594
By:______________________________
27
<PAGE>
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
OSAGE SYSTEMS GROUP, INC.
A Delaware Corporation
By:_________________________________
Dated: September ____, 2000
Purchase Price: $75,000.00
----------
PUT
---
Put Note Purchase Price: $37,500.00
----------
Section 7(e) Shares: 330,849
-------
ACCEPTED: Dated as of September ____, 2000
TALBIYA B. INVESTMENTS LTD. - Subscriber
Ragnall House
18 Peel Road
Douglas, Isle of Man
1M1 4L2, United Kingdom
Fax: 011-44-1624-661594
By:______________________________
28
<PAGE>
WARRANT RECIPIENT SIGNATURE PAGE
The undersigned Warrant Recipients acknowledge receipt of the foregoing
Subscription Agreement and by executing below each makes for itself the
representations, warranties, covenants, and agreements made therein by the
Subscribers.
---------------------------------------
LIBRA FINANCE S.A.
P.O. Box 4603
Zurich, Switzerland
Fax: 011-411-201-6262
---------------------------------------
TALBIYA B. INVESTMENTS LTD.
Ragnall House
18 Peel Road
Douglas, Isle of Man
1M1 4L2, United Kingdom
Fax: 011-44-1624-661594
29
<PAGE>
SCHEDULE B TO SUBSCRIPTION AGREEMENT
------------------------------------
<TABLE>
<CAPTION>
-------------------------------------------- ----------------------------------------- ------------------------------------------
FINDERS INITIAL OFFERING - CASH FINDER'S FEES PUT CASH FINDER'S FEES
-------------------------------------------- ----------------------------------------- ------------------------------------------
<S> <C> <C>
LIBRA FINANCE, S.A. $108,000 $54,000
P.O. Box 4603
Zurich, Switzerland
Fax: 011-411-201-6262
-------------------------------------------- ----------------------------------------- ------------------------------------------
ALON ENTERPRISES LTD. $12,000 $6,000
Ragnall House
18 Peel Road
Douglas, Isle of Man
1M1 4L2, United Kingdom
Fax: 011-44-1624-661594
-------------------------------------------- ----------------------------------------- ------------------------------------------
TOTAL $120,000 (100%) $60,000 (100%)
-------------------------------------------- ----------------------------------------- ------------------------------------------
</TABLE>
PROPORTIONATE SHARE OF AGGREGATE WARRANTS ISSUABLE
--------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------- -------------------------------- ------------------------------------------
WARRANT RECIPIENTS INITIAL WARRANTS * PUT WARRANTS IN CONNECTION WITH $750,000
PUT NOTE PURCHASE PRICE **
----------------------------------------------------- -------------------------------- ------------------------------------------
<S> <C> <C>
LIBRA FINANCE, S.A. 287,500 287,500
P.O. Box 4603
Zurich, Switzerland
Fax: 011-411-201-6262
----------------------------------------------------- -------------------------------- ------------------------------------------
TALBIYA B. INVESTMENTS LTD. 50,000 50,000
Ragnall House
18 Peel Road
Douglas, Isle of Man
1M1 4L2, United Kingdom
Fax: 011-44-1624-661594
----------------------------------------------------- -------------------------------- ------------------------------------------
TOTAL 337,500 337,500
----------------------------------------------------- -------------------------------- ------------------------------------------
</TABLE>
* $1.25 Purchase Price per share
** $1.50 Purchase Price per share
30
