<PAGE>
As filed with the Securities and Exchange Commission on August 18, 1998
Registration No. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
-------------------
IAS COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
-------------------
Oregon 91-1063549
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
185-10751 Shellbridge Way
Richmond, B. C., Canada V6X 2W8
(604) 278-5996
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-------------------
John G. Robertson
President
IAS Communications, Inc.
185-10751 Shellbridge Way
Richmond, B. C., Canada, V6X 2W8
(604) 278-5996
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
It is respectfully requested that the Commission send copies of all notices,
orders and communications to:
James L. Vandeberg
Vandeberg Johnson & Gandara
One Union Square
600 University Street, Suite 2424
Seattle, Washington 98101
(206) 464-0404
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
promptly as practicable after this registration statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock 3,000,000 $2.00 $6,000,000.00 $1,770
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended.
(2) Consists of Common Stock issuable on conversion of the Debentures and
exercise of the Warrants described herein. The Registrant also registers
hereby such indeterminate number of additional shares of Common Stock as
may be issuable upon such conversion pursuant to the provisions of the
Debentures regarding determination of the applicable conversion price.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH A DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE>
PROSPECTUS
IAS COMMUNICATIONS, INC.
3,000,000 SHARES OF CLASS A COMMON STOCK
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The shares of Class A Common Stock (the "Common Stock") of IAS Communications,
Inc., an Oregon corporation, (the "Company") offered hereby (the "Shares") are
issuable on conversion of the 8% Redeemable Convertible Debentures, Series A and
B, (the "Debentures") and exercise of the Warrants (the "Warrants") of the
Company issued and to be issued in a private transaction pursuant to the
Subscription Agreement between the Company and Augustine Fund, LP dated as of
July 15, 1998 (the "Subscription Agreement") and may be offered and sold from
time to time by the holders thereof (the "Selling Shareholder"). The Company
will receive $2.85 per share upon exercise of the Warrants but will not receive
any of the proceeds from any such offers or sales of Shares by the Selling
Shareholder.
The Company has agreed to bear all expenses (other than selling commissions and
fees and stock transfer taxes) in connection with the registration and sale of
the Shares being offered by the Selling Shareholder. The Company has agreed to
indemnify the Selling Shareholder and any broker-dealers who act in connection
with the sale of the Shares hereunder against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities Act").
In connection with any sales, the Selling Shareholder and any brokers
participating in such sales may be deemed to be "underwriters" within the
meaning of the Securities Act. See "Selling Shareholder."
The Common Stock of the Company is traded on the NASDAQ over the counter
Bulletin Board under the symbol IASCA. On August 12, 1998, the last price for
the Common Stock was $1.65 per share.
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 3.
The Shares may be offered or sold from time to time by the Selling Shareholder
at market prices then prevailing, in negotiated transactions or otherwise.
Brokers or dealers will receive commissions or discounts from the Selling
Shareholder in amounts to be negotiated immediately prior to the sale. See
"PLAN OF DISTRIBUTION."
-------------------
The date of this Prospectus is August , 1998.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS AT THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (together with all amendments
and exhibits thereto, the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the securities offered
pursuant to this Prospectus. For further information, reference is made to the
Registration Statement. In addition, the Company is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith files periodic reports, proxy
statements and other information with the Commission. The Registration
Statement, reports and other information may be inspected and copies may be
obtained, at prescribed rates, at the Commission's Public Reference Section,
Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549, as well as the
following regional offices: 7 World Trade Center, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The Commission
maintains a Website that contains reports, proxy and information statements and
other information regarding reporting companies under the Exchange Act,
including the Company, at http:// www.sec.gov.
This Prospectus constitutes a part of the Registration Statement. This
Prospectus omits certain of the information contained in the Registration
Statement, and reference is hereby made to the Registration Statement and to the
exhibits relating thereto for further information with respect to the Company
and the Common Stock. Any statements contained herein concerning the provisions
of any documents are not necessarily complete, and reference is made to the copy
of such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety by
such reference. The information relating to the Company contained in this
Prospectus should be read together with the information contained in the
Incorporated Documents.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the Commission
pursuant to the Exchange Act are incorporated in this Prospectus by reference:
(a) the Company's Annual Report on Form 10-KSB for the year ended April 30,
1998, (b) the Company's Current Report on Form 8-K filed July 24, 1998, and (c)
the description of the Common Stock contained in the Company's registration
statement on Form 10SB filed with Commission on August 26, 1996 including any
amendment or report filed for the purpose of updating such description. In
addition, all reports and other documents filed by the Company pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering (the "Offering") shall
be deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of such documents (such documents, and the
documents enumerated above, being hereinafter referred to as "Incorporated
Documents"). Any statement contained in an Incorporated Document shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
Incorporated Document modifies or supersedes such statement. Any such statement
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
The Company hereby undertakes to provide without charge to each person to whom a
copy of this Prospectus has been delivered, including any beneficial owner, on
the written or oral request of any such person, a copy of any or all of the
Incorporated Documents, other than exhibits to such documents, unless such
exhibits are specifically incorporated by reference therein. Requests should be
directed to IAS Communications, Inc., 185-10751 Shellbridge Way, Richmond,
B.C., Canada V6X 2W8 Attention: John G. Robertson, President (telephone number
604-278-5996).
FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "PSLRA"). The PSLRA
provides a "safe harbor" for such statements to encourage companies to provide
prospective information about themselves so long as such information is
identified as forward-looking and is accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in the information. All statements other
than statements of historical fact made in this Prospectus or incorporated by
reference
-2-
<PAGE>
are forward-looking. In particular, the statements herein regarding the
availability of adequate funding and progress in the Company's CTHA project are
forward-looking statements. Forward-looking statements represent management's
current expectations and are inherently uncertain. Investors are warned that the
Company's actual results may differ significantly from management's expectations
and, therefore, from the results discussed in such forward-looking statements.
Factors that might cause such differences include, but are not limited to, the
"Risk Factors" described herein.
THE COMPANY
The Company was incorporated in Oregon in 1994. The Company's principal
executive offices are located at 185-10751 Shellbridge Way, Richmond, B. C.,
Canada V6X 2W8, and its telephone number is (604) 278-5996. The Company's
principal business operations are located in West Virginia and Illinois.
References in this Prospectus to the Company mean IAS Communications, Inc.,
unless the context requires otherwise.
RISK FACTORS
THIS PROSPECTUS AND THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE CONTAIN
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE STATEMENTS
CONTAINED IN THIS PROSPECTUS THAT ARE NOT PURELY HISTORICAL ARE FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION
21E OF THE EXCHANGE ACT, INCLUDING, WITHOUT LIMITATION, STATEMENTS REGARDING THE
COMPANY'S EXPECTATIONS, BELIEFS, ESTIMATES, INTENTIONS AND STRATEGIES ABOUT THE
FUTURE. WORDS SUCH AS "ANTICIPATES," "EXPECTS," "INTENDS," "PLANS," "BELIEVES,"
"SEEKS," ESTIMATES," VARIATIONS OF SUCH WORDS AND SIMILAR EXPRESSIONS ARE
INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS, BUT THEIR ABSENCE DOES NOT
MEAN THE STATEMENT IS NOT FORWARD-LOOKING. THESE STATEMENTS ARE NOT GUARANTEES
OF FUTURE PERFORMANCE AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND
ASSUMPTIONS THAT ARE DIFFICULT TO PREDICT; THEREFORE, ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE EXPRESSED OR FORECASTED IN ANY SUCH FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THE
FOLLOWING RISK FACTORS, ELSEWHERE IN THIS PROSPECTUS AND IN THE DOCUMENTS
INCORPORATED HEREIN BY REFERENCE. THE COMPANY UNDERTAKES NO OBLIGATION TO
UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW
INFORMATION, FUTURE EVENTS OR OTHERWISE. POTENTIAL INVESTORS SHOULD CONSIDER
CAREFULLY THE FOLLOWING FACTORS, AS WELL AS THE MORE DETAILED INFORMATION
CONTAINED IN THE DOCUMENTS INCORPORATED BY REFERENCE, BEFORE MAKING A DECISION
TO INVEST IN THE SHARES OFFERED HEREBY.
BUSINESS RISKS
1. LIMITED OPERATING HISTORY
The Company was incorporated in the state of Oregon on December 13, 1994. The
Company has conducted only limited business and has a very short operating
history. The Company is still in the startup stage. If the Company's plans
prove to be unsuccessful, the investors in this offering may lose all or a
substantial part of their investment.
2. CUMULATIVE VOTING, PREEMPTIVE RIGHTS AND CONTROL
There are no preemptive rights in connection with the shares of Common Stock.
Cumulative voting in the election of directors is not permitted. Accordingly,
the holders of a majority of the shares of Common Stock present in person or by
proxy, will be able to elect all of the Company's Board of Directors.
3. NEED FOR ADDITIONAL CAPITAL
Even if the all of the units contemplated by the Subscription Agreement are
sold, the proceeds available to the Company may not be adequate for it to
achieve its business objectives. The Company intends to use the proceeds from
the sale of such units for working capital, payment of accounts payable, further
research and development work, patent protection and prototype development.
Accordingly, the ultimate success of the Company will depend upon its ability to
raise additional capital or to have other parties bear a portion of the required
costs to further develop or exploit the potential market for its products. There
is no assurance that funds will be available from any source, and if not
available, it will be necessary for the Company to limit its operations to those
which can be financed from the proceeds of this offering.
-3-
<PAGE>
4. DEPENDENCE ON CONSULTANTS AND OUTSIDE MANUFACTURING FACILITIES
Since the Company's present plans provide for a shared research and development
staff and outside manufacturing facilities, the Company will be dependent upon
others to perform these functions and to provide the requisite expertise when
needed at affordable prices.
5. PRODUCT ACCEPTANCE
The profitability and survival of the Company will depend upon its ability to
develop a technically and commercially feasible product which will be accepted
by end users. The Toroidal Helical Antenna which the Company is developing (the
"CTHA") must be technologically superior to other antennas and must have a
competitive price/performance ratio to adequately penetrate its potential
markets. If it is not able to achieve this condition or if it does not remain
technologically competitive, the Company may be unprofitable and investors could
lose their entire investment. There can be no assurance that the Company will
be able to achieve and maintain end-user acceptance of its antenna.
6. COMPETITION
While not a highly competitive business in terms of numbers of competitors, the
business of developing antennas of a new design and attempting to either license
or produce them is nonetheless difficult because most existing antenna producers
are large, well financed companies which are very concerned about maintaining
their market position. There is no assurance that the Company will be
successful in meeting or overcoming competition which currently exists or may
develop in the future.
7. MANAGEMENT AND CONFLICTS OF INTEREST
The present officers and directors of the Company have other full-time positions
or part time employment which is unrelated to the Company. Some officers and
directors will be available to participate in management decisions on a part-
time or as needed basis only.
8. NEED FOR ADDITIONAL KEY PERSONNEL
At the present, the Company employs no full time employees. The success of the
Company's business will depend, in part, upon the ability to attract and retain
qualified employees. The Company believes that it will be able to attract
competent employees, but no assurance can be given that the Company will be
successful in this regard. If the Company is unable to engage and retain the
necessary personnel, its business would be materially and adversely affected.
9. NON-ARM'S LENGTH TRANSACTION
The number of shares of Common Stock issued to certain present shareholders of
the Company for cash and property and the price thereof was arbitrarily
determined and may not be considered the product of arm's length transactions.
10. INDEMNIFICATION OF OFFICERS AND DIRECTORS FOR SECURITIES LIABILITIES
The Bylaws of the Company provide that the Company may indemnify any Director,
Officer, agent and/or employee as to those liabilities and on those terms and
conditions as are specified in the Oregon Business Corporation Act. Further,
the Company may purchase and maintain insurance on behalf of any such persons
whether or not the Company would have the power to indemnify such person against
the liability insured against. The foregoing could result in substantial
expenditures by the Company and prevent any recovery from such Officers,
Directors, agents and employees for losses incurred by the Company as a result
of their actions. Further, the Company has been advised that in the opinion of
the Commission, indemnification is against public policy as expressed in the
Securities Act and is therefore, unenforceable.
11. LITIGATION
The Company was sued in April 1998 in a civil action filed in U.S. District
Court for the District of Oregon (the "Oregon Litigation"). The Plaintiff, Kirk
Vanvoorheis, ("Plaintiff") seeks money damages and equitable relief against the
Company alleging patent infringement by the Company for the CTHA. The Company
has notified West Virginia University ("WVU") of this claim and has contacted
WVU to assist in the defense. WVU owns the patent rights to the CTHA technology
which were licensed to the Company. Two patents were granted for the CTHA to
WVU; one in August 1995, and another in August 1997.
-4-
<PAGE>
The Plaintiff's patent was approved on March 31, 1998. Based upon the
information available to the Company at this time, the Company believes that the
Plaintiff's alleged claim of infringement is without legal or factual basis.
The Plaintiff in the Oregon Litigation is also a defendant in a pending civil
action in the U.S. District Court for the Northern District of West Virginia
brought by WVU (the "West Virginia Litigation") claiming that the CTHA invention
is owned by WVU. As alleged in the West Virginia Litigation, the Company
believes that the patent rights for the CTHA technology belongs to WVU and
therefore based on the license, the Company owns the world wide rights to the
CTHA commercial applications. The Company intends to vigorously defend the
Oregon Litigation. Dr. James Smith, the Chairman of the Board of the Company,
has been sued by Plaintiff in a third party complaint in the West Virginia
Litiagation together with WVU and Integral Concepts, Inc.
However if the Plaintiff in the Oregon Litigation is successful, it could
seriously affect the Company financially.
12. GENERAL FACTORS
The Company's areas of business may be affected from time to time by such
matters as changes in general economic conditions, changes in laws and
regulations, taxes, tax laws, prices and costs; and other factors of a general
nature which may have an adverse effect on the Company's business.
OFFERING RISKS
1. LIMITED PUBLIC MARKET FOR THE COMMON STOCK
At present, only a limited public market exists for the Common Stock on the
over-the-counter bulletin board and there is no assurance that a more active
trading market will develop, or, if developed, that it will be sustained. A
purchaser of the Shares may, therefore, find it difficult to resell the Shares
should he or she desire to do so. Furthermore, it is unlikely that a lending
institution will accept the Shares as pledged collateral for loans.
2. NO FORESEEABLE DIVIDENDS
The Company has not paid dividends on its Common Stock and does not anticipate
paying dividends on its Common Stock in the foreseeable future.
3. POSSIBLE VOLATILITY OF SECURITIES PRICES
The market price for the Company's Common Stock traded on the over-the-counter
bulletin board has been highly volatile since it began trading and will likely
to continue to behave in this manner in the future. Factors such as the
Company's operating results and other announcements by the Company regarding its
development work and business operations may have a significant impact on the
market price of the Common Stock. Additionally, market prices for securities of
many smaller companies have experienced wide fluctuations not necessarily
related to the operating performance of the companies themselves.
4. ABILITY TO ISSUE SHARES WITHOUT SHAREHOLDER APPROVAL
The Company has the ability to issue shares of preferred and Common Stock
without shareholder approval. The issuance of such shares could have a
deterrent effect upon third parties attempting to take control of the Company.
5. REQUIREMENTS OF SEC WITH REGARD TO LOW-PRICED SECURITIES
The Common Stock is subject to Rule 15g-9 under the Exchange Act, which imposes
additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and "accredited
investors" (generally, individuals with net worths in excess of $1,000,000 or
annual incomes exceeding $200,000, or $300,000 together with their spouses).
For transactions covered by this rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. Consequently, the rule may
adversely affect the ability of broker-dealers to sell the Common Stock and may
adversely affect the ability of purchasers in this offering to sell any of the
Shares in the secondary market.
-5-
<PAGE>
6. SHARES ELIGIBLE FOR FUTURE SALE
Sale of substantial amounts of the Company's Common Stock in the public market
or the prospect of such sales could materially and adversely affect the market
price of the Common Stock. As of July 13, 1998, the Company had outstanding
9,486,350 shares of Common Stock, warrants to purchase 670,600 shares of Common
Stock and debentures convertible into 11,667 shares of Common Stock. In
addition, as of such date, the Company had granted options to purchase 1,122,000
shares of Common Stock under its Stock Option Plan. (the "Stock Option Plan").
All of the shares purchased under the Stock Option Plan are available for sale
in the public market, subject in some cases to volume and other limitations.
A substantial number of the Company's presently outstanding shares of Common
Stock, are "restricted" securities and may be sold in compliance with Rule 144
or Regulation S adopted under the Securities Act if certain requirements are
met. Rule 144 provides, in essence, that after one year from the date of
acquisition, a person, including affiliates, of the Company (or persons whose
shares are aggregated) may sell an amount up of to one percent (1%) of the
issued and outstanding shares of Common Stock within any three month period,
provided that certain current public information about the Company is available.
A person who has not been an affiliate of the Company (or persons whose shares
are aggregated) who has owned restricted shares of Common Stock for at least two
years is entitled to sell such shares under Rule 144 without regard to any of
the limitations described above. Therefore, in each three month period over
100,000 shares of Common Stock could be sold under Rule 144 by each person
having held the securities for at least one year. Also any shares of Common
Stock currently held by non-residents of the United States may be sold after a
one-year holding period subject to the same volume restrictions as Rule 144
under Regulation S. Investors should be aware of the possibility that sales
under Rule 144 or shares issued pursuant to Regulation S may, in the future,
have a depressing effect on the price of the Common Stock.
Certain of the Company's outstanding shares of Common Stock may be sold without
substantial restrictions. The Shares registered pursuant to the Registration
Statement also includes such presently indeterminate number of additional shares
of Common Stock as may be issued on conversion of the Debentures and exercise of
Warrants to be issued in the transaction contemplated by the Subscription
Agreement.
Sales in the public market of substantial amounts of Common Stock, including
sales of Shares issued upon conversion of the Debentures and exercise of the
Warrants and conversion of the Debentures and exercise of the Warrants to be
issued pursuant to the Subscription Agreement, or the perception that such sales
could occur, could depress prevailing market prices for the Common Stock. The
existence of the Debentures and the Warrants and any other options, debentures
or warrants may prove to be a hindrance to future equity financing by the
Company. Further, the holders of such debentures, warrants and options may
exercise them at a time when the Company would otherwise be able to obtain
additional equity capital on terms more favorable to the Company.
SELLING SHAREHOLDER
The Selling Shareholder is the holder of the Debentures and the Warrants. The
Shares are obtainable on conversion of the Debentures and exercises of the
Warrants. The Selling Shareholder acquired the Debentures and Warrants and may
acquire additional Debentures and Warrants pursuant to the Subscription
Agreement from the Company for cash. Pursuant to the Subscription Agreement, the
Company sold to the Selling Shareholder one unit as of July 15, 1998 consisting
$500,000 in aggregate principal amount of Debentures (Series A) and one Warrant.
The Company may also require the Selling Shareholder to purchase up to an
additional nine (9) units in the future, each such unit consisting of $500,000
aggregate principal amount of Debentures (Series B) and one Warrant. The Series
A Debentures are convertible at any time after the effective date of the
Registration Statement.
The conversion price for the Series A Debentures is the lesser of seventy-five
percent (75%) of the average closing bid price of the Common Stock for the five
(5) trading days prior to the date on which the Debenture is presented for
conversion or $2.85 per share. The conversion price for the Series B Debentures
is the lesser of eighty-five percent (85%) of the average closing bid price of
the Common Stock for the five (5) trading days prior to the date on which the
Debenture is presented for conversion or $2.85 per share. The following table
sets forth certain information regarding ownership of the Debentures and
Warrants as of July 31, 1998 and the number of Shares that may be offered for
the account of the Selling Shareholder or their transferees or distributees from
time to time upon conversion of the Series A Debenture and the outstanding
Warrant. The Company will amend the Registration Statement and this Prospectus
from time to time to reflect the sale of additional units.
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<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OFFERING /(1)/ OWNED AFTER OFFERING/(1)/
---------------------------- SHARES -------------------------
NUMBER OF OFFERED FOR NUMBER OF
NAME SHARES /(1)/ PERCENT /(2)/ SALE SHARES PERCENT/(2)/
---- ------------ ------------ ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
Augustine Fund, L.P. 3,000,000 24 3,000,000 -0- - 0-
</TABLE>
- -------------
/(1)/ Assumes the purchase of all Debentures and Warrants contemplated by the
Subscription Agreement. The Selling Shareholder is deemed to beneficially own
the shares of Common Stock into which the Debenture held by it is convertible
and the shares of Common Stock issuable upon exercise the Warrant.
/(2)/ Total shares of Common Stock outstanding for the purpose of this
percentage calculation includes the Common Stock into which the Debentures is
convertible and the 500,000 shares issuable upon exercise of the Warrants but
does not include 1,122,000 shares of Common Stock issuable on exercise of
outstanding stock options or an additional 670,000 shares of Common Stock
issuable on exercise of warrants, 11,667 shares of Common Stock issuable upon
conversion of outstanding convertible debentures or shares that may be granted
under the Company's Performance Stock Plan. Pursuant to Rule 416 under the
Securities Act, the number of shares of Common Stock offered by the Selling
Shareholder hereby and included in the Registration Statement also includes such
presently indeterminate number of additional shares as may be issued on
conversion of the Debentures pursuant their terms regarding determination of the
applicable conversion price. Accordingly, the actual number of shares of Common
Stock issued or issuable upon conversion of the Debentures and exercise of the
Warrants is subject to adjustment depending upon factors which cannot be
predicted by the Company at this time, including, among others, the future
market prices of the Common Stock and the completion of the transaction
contemplated by the Subscription Agreement.
The Selling Shareholder has not had any material relationship with the Company,
or any of its affiliates, within the past three years.
The Selling Shareholder has represented to the Company that it purchased the
Shares for its own account for investment only and not with a view towards the
public sale or distribution thereof, except pursuant to sales registered under
the Securities Act or exemptions therefrom. In recognition of the fact that the
Selling Shareholder, even though purchasing the Shares for investment, may wish
to be legally permitted to sell its Shares when its deems appropriate, the
Company agreed with the Selling Shareholder to file with the Commission under
the Securities Act the Registration Statement with respect to the resale of the
Shares from time to time in transactions in the over-the-counter market, in
privately negotiated transactions, or through a combination of such methods of
sale, and has agreed to prepare and file such amendments and supplements to the
Registration Statement as may be necessary to keep the Registration Statement
effective until the Shares are no longer required to be registered for the sale
thereof by the Selling Shareholder.
PLAN OF DISTRIBUTION
All of the Shares offered hereby may be sold from time to time by the Selling
Shareholder, or by its pledgees, donees, distributees, transferees or other
successors-in-interest. The sale of the Shares by the Selling Shareholder may
be effected from time to time in transactions in the over-the-counter market, or
on one or more other securities markets and exchanges, in privately negotiated
transactions, or through a combination of such methods of sale, at fixed prices
that may be changed, at market prices prevailing at the time of sale, at prices
relating to such prevailing market prices or at negotiated prices. The Selling
Shareholder may effect the above-mentioned transactions by selling the Shares
directly to purchasers, acting as principals for their own accounts, or by or
through broker-dealers acting as agents for the Selling Shareholder, or to
broker-dealers who may purchase Shares as principals and thereafter sell such
Shares from time to time in transactions on any exchange or market on which such
securities are listed or quoted, as applicable, in negotiated transactions,
through a combination of such methods of sale, or otherwise. Such broker-
dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Shareholder and/or the purchasers of the Shares for
whom such broker-dealer may act as agents or to whom they may sell as
principals, or both (which compensation as to a particular broker-dealer may be
in excess of customary commissions). Any broker-dealer may act as a broker-
dealer on behalf of the Selling Shareholder in connection with the offering of
certain of the shares by the Selling Shareholder. None of the proceeds from the
sale of the Shares by the Selling Shareholder will be received by the Company.
In addition, any of the Shares that qualify for sale
-7-
<PAGE>
pursuant to Rule 144 promulgated under the Securities Act may be sold in
transactions complying with such Rule, rather than pursuant to this Prospectus.
The Company has the right to suspend use of this Prospectus for a discrete
period of time under certain circumstances.
To the extent required, the amount of the Shares to be sold, purchase prices,
public offering prices, the names of any agents, dealers or underwriters, and
any applicable commissions or discounts with respect to a particular offer will
be set forth by the Company in a Prospectus Supplement accompanying this
Prospectus or, if appropriate, a post-effective amendment to the Registration
Statement.
Any broker-dealers who act in connection with the sale of the Shares hereunder
may be deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act, and any commissions received by them and profit on any resale of
the Shares as principal may be deemed to be underwriting discounts and
commissions under the Securities Act. The Company has agreed to bear all
expenses (other than selling commissions and fees and stock transfer taxes) in
connection with the registration and sale of the Shares being offered by the
Selling Shareholder. The Company has agreed to indemnify the Selling
Shareholder and broker-dealers who act in connection with the sale of the Shares
hereunder against certain liabilities, including liabilities under the
Securities Act.
Offers or sales of the Shares have not been registered or qualified under the
laws of any country, other than the United States. To comply with certain
states' securities laws, if applicable, the Shares will be offered or sold in
such jurisdictions only through registered or licensed brokers or dealers.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of the Shares may be limited in its ability to engage
in market activities with respect to such Shares. In addition and without
limiting the foregoing, the Selling Shareholder will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder, which
provisions may limit the timing of purchases and sales of any of the Shares by
the Selling Shareholder. The foregoing may affect the marketability of the
Shares.
There can be no assurance that the Selling Shareholder will sell any or all of
the Shares offered by them hereunder.
LEGAL MATTERS
The validity of the Common Stock offered hereby has been passed upon for the
Company by Vandeberg Johnson & Gandara, Seattle, Washington.
EXPERTS
The consolidated financial statements of the Company appearing in the Company's
Annual Report (Form 10-KSB) for the year ended April 30, 1998, have been audited
by Elliot Tulk Pryce Anderson, Chartered Accountants, as set forth in their
report thereon (which contains an explanatory paragraph describing conditions
that raise substantial doubt about the Company's ability to continue as a going
concern as described in Note 1 to the consolidated financial statements)
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
-8-
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING HEREIN CONTAINED AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE SHARES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
--------------
PAGE
Available Information........................... 2
Incorporation of Certain Documents
by Reference................................... 2
Forward-Looking Statements...................... 2
Risk Factors.................................... 3
Selling Shareholder............................. 6
Plan of Distribution............................ 7
Legal Matters................................... 8
Experts......................................... 8
================================================================================
================================================================================
3,000,000 SHARES OF
COMMON STOCK
IAS COMMUNICATIONS, INC.
P R O S P E C T U S
August ___, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
All expenses in connection with the issuance and distribution of the securities
being registered, other than underwriting discounts and commissions, will be
paid by the Company. Such expenses are estimated as follows:
Registration fee..................... $ 1,770
Legal fees and expenses.............. $10,000
Accounting fees and expenses......... $ 1,000
Miscellaneous........................ $ 230
-------
Total.............................. $13,000
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Articles of Incorporation provide that the Company must indemnify
each of its (i) fiduciaries within the meaning of the Employee Retirement Income
Security Act of 1974, as amended, with respect to any employee benefit plan, and
(ii) directors and officers, to the fullest extent permitted under the Oregon
Business Corporation Act against all liabilities incurred by reason of the fact
that the person is or was a director or officer of the Company or a fiduciary of
an employee benefit plan, or is or was serving at the request of the Company as
a director or officer, or fiduciary of an employee benefit plan, of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise.
The effect of these provisions is potentially to indemnify the Company's
directors and officers from all costs and expenses of liability incurred by them
in connection with any action, suit or proceeding in which they are involved by
reason of their affiliation with the Company.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy and expressed in the Securities Act and is, therefore, unenforceable.
ITEM 16. EXHIBITS
4.1 Subscription Agreement between the Company and Augustine Fund, LP dated as
of July 15, 1998.
4.2 Form of Series A Debenture.
4.3 Form of Series B Debenture.
4.4 Form of Warrant.
5.1 Opinion of Vandeberg Johnson & Gandara.
23.1 Consent of Elliott Tulk Pryce Anderson.
23.2 Consent of Vandeberg Johnson & Gandara (included in Exhibit 5).
24.1 Powers of Attorney (included in this Registration Statement).
II-1
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-
effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered that remain unsold at the termination of
the offering.
(4) That, for purposes of determining any liability under the Securities Act,
each filing of the registrant's annual report pursuant to Section 13(a) or
15(d) of the Exchange Act (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act), that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be in the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Richmond, British Columbia, on August 14, 1998.
IAS COMMUNICATIONS, INC.
By /s/ John G. Robertson
--------------------------------------
John G. Robertson
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes and
appoints John G. Robertson as attorney-in-fact with full power of substitution,
to execute in the name and on the behalf of each person, individually and in
each capacity stated below, and to file, any and all amendments to this
Registration Statement, including any and all post-effective amendments, and any
related Rule 462(b) Registration Statement and any amendment thereto.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons on August 14, 1998 in
the capacities indicated.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
/s/ John G. Robertson President, Chief
- ---------------------------------------- Executive Officer and Director
John G. Robertson
/s/ James E. Smith Chairman of the
- ---------------------------------------- Board of Directors
James E. Smith
/s/ Patrick Badgley Director
- ----------------------------------------
Patrick Badgley
/s/ Paul Lamarche Director
- ----------------------------------------
Paul Lamarche
/s/ Jennifer Lorette Chief Financial Officer
- ---------------------------------------- and Principal Accounting
Jennifer Lorette Officer
</TABLE>
II-3
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4.1 Subscription Agreement between the Company and Augustine Fund, LP
dated as of July 15, 1998.
4.2 Form of Series A Debenture.
4.3 Form of Series B Debenture.
4.4 Form of Warrant.
5.1 Opinion of Vandeberg Johnson & Gandara.
23.1 Consent of Elliott Tulk Pryce Anderson.
23.2 Consent of Vandeberg Johnson & Gandara (included in Exhibit 5).
24.1 Powers of Attorney (included in this Registration Statement).
<PAGE>
EXHIBIT 4.1
Date: July 15, 1998
IAS Communications, Inc.
185-10751 Shellbridge Way
Richmond, BC Canada V6X 2W8
Attention: Mr. John G. Robertson, President
Subscription Agreement
Dear Sirs:
Pursuant to a private offering by IAS Communications, Inc., an Oregon
corporation (the "Company"), the undersigned (the "Subscriber") hereby tenders
his or her subscription for the Company's units (the "Units"), each Unit
consisting of (i) the Company's 8% Convertible Redeemable Debentures
(collectively, the "Debentures" and each, a "Debenture") in the principal amount
of five hundred thousand dollars ($500,000) and (ii) a warrant (collectively,
the "Warrants" and each, individually, a "Warrant") to purchase twenty five
thousand (25,000) shares of the Company's class A common stock, with no par
value ("Common Stock"), at a purchase price of five hundred thousand dollars
($500,000) per Unit. As used in this Agreement, the term "Conversion Shares"
shall mean the shares of Common Stock issuable upon conversion of the
Debentures, the term "Warrant Shares" shall mean the shares of Common Stock
issuable upon exercise of the Warrants, the term "Shares" shall mean the Warrant
Shares and the Conversion Shares, and term "Securities" shall mean the Units,
the Debentures, the Warrants and the Shares. The maturity date and conversion
price of the Debentures and the exercise price of the Warrants shall be
determined in the manner provided in the form of Debenture and Warrant included
in the Disclosure Documents, as hereinafter defined.
The Company is offering the Debentures to a limited number of accredited
investors, as defined in Rule 501 of the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to an exemption from the registration requirements of the
Securities Act provided by Sections 4(2) and 4(6) of the Securities Act and Rule
506 of the Commission under the Securities Act.
In consideration of the mutual covenants and agreements set forth herein, the
Company and the Subscriber hereby agree as follows:
1. (a) The Subscriber hereby agrees to purchase from the Company, and
the Company agrees to sell to the Subscriber, ten Units at a purchase price of
five million dollars ($5,000,000). Payment of the purchase price shall be made
by check payable to the order of "Esanu Katsky Korins & Siger, LLP, as escrow
agent for IAS Communications, Inc." or by wire transfer to the Esanu Katsky
Korins & Siger, LLP escrow account. The purchase price for the Units shall be
paid in installments as hereinafter provided.
<PAGE>
(b) (i) The purchase price for the first Unit shall be payable
within five (5) business days of the date of this Agreement. The date on the
first Unit is purchased is referred to as the "Initial Closing Date." The
purchase price for the remaining nine (9) Units shall be payable in accordance
with the following schedule, provided, that the Company shall have complied, to
the satisfaction of the Subscriber, with the conditions to subsequent closings
provided for in Paragraph 5(b) of this Agreement. The date on which any Unit
subsequent to the first Unit is purchased is referred to as a "Subsequent
Closing Date."
(ii) The second Unit shall be payable at such date as the
Company shall advise the Subscriber on not less than five (5) nor more than ten
(10) business days' written notice, which notice may not be given earlier than
the sixtieth (60th) day after the effective date of the Registration Statement,
as defined in Paragraph 7 of this Agreement; provided, however, that if the
Registration Statement shall not have been declared effective by the Commission
six months from the Initial Closing Date, the Subscriber's obligations to
purchase additional Units shall terminate.
(iii) The Company may elect to require the Subscriber to
purchase Units subsequent to the second Unit on not less than five (5) nor more
than ten (10) days' written notice, which notice may given not earlier than
sixty (60) days after the most recent Subsequent Closing Date; provided,
however, that if the Company shall exercise the Conversion Restriction Right, as
defined in the Debenture, such notice shall not, without the consent of the
Subscriber, be given earlier than sixty (60) days after the last day of the
Conversion Restriction Period, as defined in the Debenture.
(iv) The Subscriber shall not be required to purchase any Units
subsequent to two years from the Initial Closing Date.
(v) In the event that for any reason and for any period, the
Registration Statement may not be used to sell the Shares, the sixty (60) day
periods referred to in Paragraphs 1(b)(ii) and (iii) of this Agreement shall be
extended by two (2) days for each day that the Registration Statement may not be
used to sell Shares.
(c) Proceeds from the sale of the Debentures will be held until
checks have cleared, after which the proceeds will be disbursed.
(d) There is no placement agent in connection with the offering of
the Debentures. The Company has engaged Dutchess Capital Partners, Inc.
("Dutchess") as a consultant in connection with this Offering, to which the
Company will pay compensation pursuant to an agreement between the Company and
Dutchess.
(e) The Company shall have the right, on written notice to the
Subscriber, to terminate the Subscriber's obligation to purchase Units,
provided, however, that such termination shall not affect the Company's
obligations pursuant to Paragraphs 6 and 7 of this Agreement, which shall
continue in full force and effect, except that the Company's obligations
pursuant to Paragraph 6(b) shall terminate at such time (prior to the date set
forth therein) as all of the Conversion Shares which have been issued or are
issuable upon conversion of
-2-
<PAGE>
outstanding Debentures shall have been sold.
2. The Company represents and warrants to the Subscriber as follows:
(a) Organization and Qualification. The Company is (i) a corporation
duly organized and existing in good standing under the laws of the State of
Oregon and has the requisite corporate power to own its properties and to carry
on its business as now being conducted and (ii) qualified to conduct business as
a foreign corporation to do business and in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary and where the failure so to qualify would have a Material Adverse
Effect. As used in this Agreement, the term "Material Adverse Effect" means any
material adverse effect on (A) the Securities; (B) the ability of the Company to
perform its obligations under this Agreement or under the Securities, or (C) the
business, operations, properties or financial condition of the Company. Except
for its 50% equity interest in The Eclipse Antenna Manufacturing Corporation, a
West Virginia corporation ("TEAM"), a joint venture in which the Company and
Emergent Technology Corporation ("ETC") each have a fifty percent (50%) equity
interest, the Company has no subsidiaries, and it does not have any equity
investment or other interest, direct or indirect, in, nor any outstanding loans,
advances or guarantees to, any domestic or foreign corporation, association,
partnership, limited liability company, joint venture or other entity. In the
event that, subsequent to the Initial Closing Date, the Company creates or
acquires a subsidiary, all of the representations and warranties of this
Agreement which relate to the Company shall also relate to such subsidiary in
the same manner as such representations and warranties relate to TEAM. The
Company has the right to vote the shares of TEAM which are owned by ETC pursuant
to an agreement with ETC.
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, to issue and sell the Units pursuant to this Agreement and to
issue the Shares in accordance with the terms of the Debentures and Warrants, as
the case may be. The execution, delivery and performance of this Agreement, the
Debentures and the Warrants and the consummation by the Company of the
transactions contemplated by this Agreement, the Debentures and the Warrants
(including without limitation the issuance of the Debentures and Warrants and
the issuance and reservation for issuance of the Shares) have been duly
authorized by the Company's board of directors and no further consent or
authorization of the Company, its board of directors, or its stockholders is
required. This Agreement has been duly executed and delivered by the Company
and constitutes the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms.
(c) Capitalization. The authorized capital stock of the Company
consists of 50,000,000 shares of preferred stock, with no par value ("Preferred
Stock"), of which no shares are issued or outstanding, 100,000,000 shares of
Common Stock, of which 9,486,350 shares are outstanding, and 100,000,000 shares
of class B common stock, with no par value ("Class B Stock"), which is non-
voting, none of which are issued or outstanding. The document entitled "Capital
Stock" in the Disclosure Documents includes (i) a description of the rights,
preferences and privileges of holders of the Common Stock, Class B Stock and
each class or series of Preferred Stock, (ii) the number of shares of each class
or series of
-3-
<PAGE>
Preferred Stock which are (A) authorized, (B) issued, (C) outstanding and (D)
reserved for issuance, (ii) a listing of all shares of Common Stock or Class B
Stock which are reserved for issuance. No person has any preemptive rights,
rights of first refusal or any other similar rights of any stockholders of the
Company, whether by statute, pursuant to the certificate of incorporation or by-
laws of the Company or pursuant to any agreement (collectively, "Preemptive
Rights") with respect to the issued and outstanding shares of Common Stock or
with respect to the Debentures, the Warrants or the Shares and no person has the
right to nominate or designate directors or officer of the Company, including
any stockholders or voting trust agreements. All of the outstanding shares of
capital stock have been, or upon issuance will be, validly issued, fully paid
and nonassessable. No shares of capital stock of the Company (including the
Shares, if and when issued) are or will be subject to any Preemptive Rights.
(d) Issuance of Shares.
(i) The Shares are duly authorized and reserved for issuance,
and upon conversion of the Debentures or upon exercise of the Warrants, as the
case may be, in accordance with the respective terms thereof, will be validly
issued, fully paid and non-assessable, will be free from all taxes, liens,
claims and encumbrances and will not be subject to Preemptive Rights of
stockholders of the Company and or subject the holder to personal liability.
(ii) All of the outstanding shares of Common Stock have been
duly and validly authorized and issued, fully paid and nonassessable and were
not issued in violation of any Preemptive Rights, and were issued in transaction
that were either registered pursuant to the Securities Act or exempt from the
registration requirements of the Securities Act.
(e) No Conflicts. The execution, delivery and performance of this
Agreement by the Company, the performance by the Company of its obligations
under this Agreement and the Securities, and the consummation by the Company of
the transactions contemplated by this Agreement (including, without limitation,
the issuance of the Securities and the Shares) will not (i) result in a
violation of the Company's certificate of incorporation and by-laws, as
currently in effect (the "Organizational Documents") or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or TEAM is a party or by which it is bound, or
result in a violation of any law, rule, regulation, order, judgment or decree
(including, based on the accuracy the Subscriber's representations and
warranties set forth in this Agreement, Federal and state securities laws and
regulations) applicable to the Company or by which any of the Company's or
TEAM's property or asset is bound or affected. The Company is not in violation
of its Organizational Documents, and neither the Company nor TEAM is in default
(and no event has occurred which, with notice or lapse of time or both, would
put the Company or TEAM in default) under, nor has there occurred any event
giving others (with notice or lapse of time or both) any rights of termination,
amendment, acceleration or cancellation of, any Contract, as hereinafter
defined, to which the Company or TEAM is a party or by which it is bound, except
for possible defaults or rights as would not, individually or
-4-
<PAGE>
in the aggregate, have a Material Adverse Effect. The business of the Company
and TEAM is not being conducted in violation of any law, ordinance or regulation
of any governmental entity. The Company is not required to obtain any consent,
approval, authorization or order of, or make any filing or registration with,
any court or governmental agency or any regulatory or self regulatory agency or
other party (each of the foregoing being referred to as a "consent") in order
for it to execute, deliver or perform any of its obligations under this
Agreement or the Securities, in each case in accordance with the terms hereof or
thereof other than filings required pursuant to the Securities Act and
applicable state securities laws and except where the failure to obtain any such
consent would not have a Material Adverse Effect.
(f) Financial Statements. The Company's financial statements for the
years ended April 30, 1997 and 1996, which have been certified by Elliott Tulk
Price and Anderson, Chartered Accountants, and the unaudited financial
statements for the three and nine months ended January 31, 1998, including, in
each case, a balance sheet and the related statements of income, stockholders'
equity and cash flows, together with the related notes (collectively, the
"Financial Statements"), have been delivered to the Subscriber. The Financial
Statements were prepared in accordance with all books, records and accounts of
the Company, are true, correct and complete and have been prepared in accordance
with generally accepted accounting principles, consistently applied. Elliott
Tulk Price and Anderson is independent as to the Company under the rules of the
Commission pursuant to the Securities Act. The Financial Statements present
fairly the financial position of the Company at the respective balance sheet
dates, reflect all liabilities, contingent or other, of the Company of the type
required to be reflected on corporate balance sheets prepared in accordance with
generally accepted accounting principles as at such dates, and fairly present
the results of the Company's operations, changes in stockholders' equity and
cash flows for the periods covered. The unaudited financial statements for the
nine months ended January 31, 1998 include all adjustments (which include only
normal recurring adjustments) necessary to present fairly the information for
such period. Except as set forth in the January 31, 1998 Financial Statements,
the Company has no material liabilities, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business subsequent to the date
of such Financial Statements and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in such financial
statements, none of which are material to the Company.
(g) SEC Documents. The Common Stock is registered pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company
has delivered to the Subscriber its Form 10-KSB Annual Report, as amended by a
Form 10-KSB/A Amendment, for the fiscal year ended April 30, 1997, its Form 10-
QSB Quarterly Report for the quarter ended January 31, 1998, all Form 8-K
Reports which have been filed with the Commission subsequent to April 30, 1998,
the Company's definitive proxy statement for the 1998 Annual Meeting of
Stockholders and the Annual Report to Stockholders for the fiscal year ended
April 30, 1997, all of which are collectively referred to as the "SEC
Documents." The SEC Documents, taken as a whole, do not contain any
misstatement of fact or omit any statement of fact necessary to make them not
materially misleading. The Company will file its Form 10-KSB for the fiscal
year ended April 30, 1998 not later than July 29, 1998.
-5-
<PAGE>
(h) Form S-3 Eligibility. The Company meets each of the requirements
listed in General Instructions 1.A to Form S-3, and the Company is eligible to
register the Shares on a Form S-3.
(i) No Breach of Contract. Neither the Company nor TEAM is in
breach or violation of any contracts, agreements, leases or other instruments
(each a "Contract") to which the Company or TEAM is a party or by which the
Company or TEAM is bound or to which any of its properties or assets is subject,
which breach or violation would have a Material Adverse Effect.
(j) Absence of Certain Changes. Since January 31, 1998, there has
been no material adverse change in the business, properties, operations,
financial condition, or results of operations of the Company, or to the best of
the Company's knowledge, its prospects, except as disclosed in the Financial
Statements or the Disclosure Documents.
(k) Absence of Litigation. Except as disclosed in the Financial
Statements or the Disclosure Documents, there is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company or TEAM, threatened against or affecting the Company, TEAM or any of
their respective directors or officers in their capacities as such wherein an
unfavorable decision, ruling or finding would have a Material Adverse Effect.
(l) Intellectual Property. Each of the Company and TEAM owns or is
licensed to use all patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, copyright applications,
licenses, permits, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures) and
other similar rights and proprietary knowledge (collectively, "Intangibles")
necessary for the conduct of its business as now being conducted and as
described in the Disclosure Documents. Except as disclosed in the document
"Risk Factors" in the Disclosure Documents, the Company has not received any
formal or informal notice (including any demand or request that the Company
enter into a license or other agreement in order to avoid any claim of
infringement) to the effect that any of its products or any Intangibles infringe
upon the proprietary rights of any other person. To the best knowledge of the
Company, neither the Company nor TEAM infringes or is in conflict with any right
of any other person with respect to any Intangibles which, individually or in
the aggregate, if the subject of an unfavorable decision, ruling or finding,
would have a Material Adverse Effect.
(m) Management. The document entitled "Management" in the Disclosure
Documents sets forth information concerning (i) each officer and director, (ii)
compensation information consistent with such information required to be
included in the Summary Compensation Table pursuant to Item 402 of Regulation
S-B, (iii) a summary of all outstanding options and a description of all
outstanding stock option or other equity-based incentive plans, and (iv) the
information to be provided by Items 403 and 404 of Regulation S-B. Such
document shall update information included in the Company's Form 10-KSB for the
fiscal year ended April 30, 1997.
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<PAGE>
(n) Foreign Corrupt Practices. Neither the Company, nor TEAM nor any
director, officer, agent, employee or other person acting on behalf of the
Company or TEAM has, in the course of his actions for or on behalf of, the
Company, used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expenses relating to political activity; made
any direct or indirect unlawful payment to any foreign or domestic government
official or employee from corporate funds; violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977; or made any bribe,
rebate, payoff, influence payment, kickback or other unlawful payment to any
foreign or domestic government official or employee.
(o) Disclosure. All information relating to or concerning the
Company set forth in this Agreement or included in the Disclosure Documents, as
hereinafter defined, taken together, is true and correct in all material
respects, and the Company has not omitted to state any material fact necessary
in order to make the statements made herein or therein, in light of the
circumstances under which they were made, not misleading. The Subscriber shall
be entitled to rely upon the Company's representations and warranties contained
in this Agreement, notwithstanding any independent investigation made by the
Subscriber.
(p) 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 securities or solicited any offerers
to buy any security under circumstances that would require registration of the
Units being offered hereby under the Securities Act.
3. The Subscriber understands and agrees that, after the Company's
receipt of this Agreement, the Company will review the Subscriber's eligibility
and will determine whether to accept or reject this subscription in whole or in
part. The Company may determine to reject this subscription in whole or in part
in its sole and absolute discretion. In making such determination, the Company
may request, and the Subscriber agrees to provide, additional financial and
other information about the Subscriber. If this subscription is accepted in
whole, then the Company will issue the Debentures subscribed for to the
Subscriber. If this subscription is rejected in whole, this Agreement and any
other subscription materials will be promptly returned to the Subscriber and the
Subscriber's subscription payment will be refunded to the Subscriber without
interest. In that event, the Subscriber and the Company will have no further
rights or claims against each other by virtue of this Agreement. If this
subscription is accepted in part and rejected in part, the Company is authorized
to amend this Agreement to reflect the number of Units for which this
subscription is accepted, and the Company will issue the Debentures and Warrants
comprising the Units as to which this subscription is accepted at the same time
as if this subscription had been accepted in whole.
4. The Subscriber hereby represents and warrants to, and covenants and
agrees with, the Company as follows:
(a) The Subscriber understands that the offer and sale of the Units
is being made only by means of this Agreement. In deciding to subscribe for
Units, the Subscriber has not considered any information other than that
contained in this Agreement and in the
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<PAGE>
documents listed in Exhibit A to this Agreement (the "Disclosure Documents"), a
copy of each of which has been provided to the Subscriber and reviewed by the
Subscriber to the extent that the Subscriber deemed necessary or advisable. In
particular, the Subscriber understands that the Company has not authorized the
use of, and the Subscriber confirms that he or she is not relying upon, any
other information, written or oral, other than material contained in this
Agreement and the Disclosure Documents. The Subscriber is aware that the
purchase of the Units involves a high degree of risk and that the Subscriber may
sustain, and has the financial ability to sustain, the loss of his or her entire
investment. The Subscriber understands that the Company is a development stage
corporation, has incurred significant losses and no assurance can be given that
the Company will be profitable in the future, that the failure of the Company to
raise funds, in addition to the proceeds from the sale of the Units, may have a
material adverse effect upon its business and, if sufficient additional funds
are not raised, the Company may not be able to pay the Debentures when due, and
that there is no assurance that there will be a market for the Company's Common
Stock or other securities. FURTHERMORE, IN SUBSCRIBING FOR THE UNITS, THE
SUBSCRIBER ACKNOWLEDGES THAT THE COMPANY HAS NOT MADE, AND THE SUBSCRIBER IS NOT
RELYING IN ANY MANNER UPON, ANY PROJECTIONS OR FORECASTS OF FUTURE OPERATIONS.
The Subscriber has had the opportunity to ask questions of, and receive answers
from, the Company's management regarding the Company.
(b) The Subscriber represents to the Company that he or she (i) is an
accredited investor within the meaning of Rule 501 under the Securities Act,
(ii) understands that in order to be treated as an accredited investor, the
Subscriber must meet one of the tests for an accredited investor set forth on
Exhibit B to this Agreement, and (iii) has read Exhibit B and is an accredited
investor as set forth on the signature page of this Agreement. The Subscriber
further represents that he or she has such knowledge and experience in financial
and business matters as to enable him or her to understand the nature and extent
of the risks involved in purchasing the Units. The Subscriber is fully aware
that such investments can and sometimes do result in the loss of the entire
investment. The Subscriber can afford to sustain the loss of his or her entire
investment, and the Subscriber's purchase of the Units is being made from funds
which the Subscriber has allocated to high risk, illiquid investments and such
funds are not required by the Subscriber to meet his or her normal expenses.
The Subscriber has engaged his or her own counsel and accountants to the extent
that he deems it necessary.
(c) The Subscriber acknowledges that the Company is relying on the
Subscriber's representations contained in this Agreement in executing this
Agreement and issuing the Units and its counsel is relying on such statements
and representations in rendering its opinion pursuant to Paragraph 5(a)(v) of
this Agreement, and the Subscriber agrees to indemnify and hold harmless the
Company, and its officers, directors, controlling persons and counsel from and
against all manner of loss, liability, damage or expense which they or any of
them may incur as a result of any material misstatement of fact or omission of a
material fact by the Subscriber in this Agreement.
(d) The Subscriber is acquiring the Units pursuant to this Agreement
for investment and not with a view to the sale or distribution thereof, for his
or her own account
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<PAGE>
and not on behalf of others; has not granted any other person any interest or
participation in or right or option to purchase all or any portion of the Units;
is aware that the Units are restricted securities within the meaning of Rule 144
of the Commission under the Securities Act, and may not be sold or otherwise
transferred other than pursuant to an effective registration statement or an
exemption from registration; and understands and agrees that the Units may bear
the Company's standard investment legend. The Subscriber understands the meaning
of these restrictions.
(e) The Subscriber will not transfer the Securities except in
compliance with all applicable Federal and state securities laws and
regulations. The Subscriber understands and agrees that the Company is not
obligated to recognize any transfer of any Securities unless it is satisfied in
its reasonable discretion that there has been compliance with such securities
laws and regulations, and, in such connection, the Company may request an
opinion of counsel acceptable to the Company as to the availability of any
exemption.
(f) The Subscriber has been informed by the Company that the issuance
of the Units pursuant to this Agreement will be exempt under Section 4(2) or
4(6) of the Securities Act and/or Regulation D, and in particular, Rule 506, of
the Commission under the Securities Act and applicable exemption under state
securities laws, and the Subscriber understands that such exemption is dependent
upon the accuracy of the information contained in the Subscriber's
representations set forth in this Agreement.
(g) The Subscriber represents and warrants that no broker or finder
was involved directly or indirectly in connection with the Subscriber's purchase
of the Units. The Subscriber shall indemnify and hold harmless the Company from
and against any manner of loss, liability, damage or expense, including fees and
expenses of counsel, resulting from a breach of the Subscriber's warranty
contained in this Paragraph 4(g).
(h) To the extent that the Subscriber has deemed it necessary, the
Subscriber has consulted his or her own legal, accounting, tax, investment and
other advisors.
(i) If the Subscriber is a corporation, all corporate action
necessary for the execution, delivery and performance by the Subscriber has been
taken and the person executing this Agreement on behalf of the Subscriber is an
authorized officer of the Subscriber. If the Subscriber is a limited partnership
or limited liability company, the person executing this Agreement is a general
partner or managing member of the Subscriber. If the Subscriber is a trust,
estate or other fiduciary, the person executing this Agreement is the trustee,
executor, administrator or other fiduciary.
5. (a) It shall be a condition precedent to the Subscriber's obligation
to pay for the Units that the following conditions shall have been met:
(i) The Company shall have delivered to the Subscriber or his or
her representative:
(A) A copy of the certificate of incorporation of the
Company,
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<PAGE>
certified by the Secretary of State of Oregon as of a current date.
(B) A copy of the by-laws of the Company, certified by the
Secretary of the Company.
(C) Resolutions of the Company's board of directors
authorizing the transactions contemplated by this Agreement, certified by the
Secretary of the Company.
(ii) All of the Company's representation and warranties set
forth in this Agreement shall be true and correct in all material respects on
such date with the same effect as if such representations and warranties were
made on such date, the Company shall have complied in all material respects with
all of its obligations to be performed by it on or prior to the such date.
(iii) No Material Adverse Change in the business or financial
condition of the Company shall have occurred or be threatened since the date of
this Agreement, and no proceedings shall be threatened or pending before any
governmental entity or authority which is likely to result in a restraint,
prohibition or the obtaining of damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated by this
Agreement.
(iv) The Company shall have delivered to the Subscriber the
certificate of its chief executive and financial officers dated the Initial
Closing Date as to the matters set forth in Paragraphs 5(a)(ii) and (iii) of
this Agreement.
(v) The Subscriber shall have received the opinion of Vandeberg,
Johnson & Gandara ("VJD"), counsel to the Company, dated the Initial Closing
Date, that:
(A) The Company is a corporation organized and existing in
good standing under the laws of the State of Oregon with the corporate power to
conduct it business as the same is presently conducted.
(B) All corporate action necessary for the execution,
delivery and performance by the Company of this Agreement, the Debentures and
the Warrants has been taken, and this Agreement, the Debentures and Warrants
constitute, the valid and binding obligations of the Company, enforceable in
accordance with their respective terms, except as enforceability may be affected
by customary principles governing equitable relief generally and to any
applicable bankruptcy, moratorium, equitable subordination, insolvency,
fraudulent conveyance, usury or other laws affecting creditors' rights and their
enforcement generally, and except that no opinion is given as to the
enforceability of any indemnification provisions.
(C) The Shares have been reserved for issuance and, when
issued upon conversion of the Debentures or exercise of the Warrants, will be
duly and validly authorized and issued, fully paid and nonassessable and free
from Preemptive Rights.
(D) In reliance upon the accuracy of the representations
and
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<PAGE>
warranties of the Subscriber contained in this Agreement and assuming that the
Company files in a timely manner a Form D pursuant to Regulation D of the
Commission pursuant to the Securities Act, the sale of the Units is exempt from
the registration requirements of the Securities Act.
(vi) A Form D shall have been prepared for filing with the
Commission.
(vii) The Company shall have paid to Dutchess the compensation
due to Dutchess.
(viii) The Company shall have paid to Esanu Katsky Korins &
Siger, LLP, its legal fees of fifteen thousand dollars ($15,000) plus
disbursements.
(b) It shall be a condition precedent to the Subscriber's obligation
to pay for any Unit subsequent to the purchase of the first Unit that the
following conditions shall have been met:
(i) The conditions set forth in Paragraphs 5(a)(ii) and (iii) of
this Agreement shall have been met as of such Subsequent Closing Date, and the
Company shall delivered the certificate of the chief executive and financial
officers dated such Subsequent Closing Date to such effect and as to the matters
set forth in Paragraphs 5(b)(ii) and (iii) of this Agreement.
(ii) The Registration Statement shall have been declared
effective by the Commission, all Shares issuable upon conversion of the
Debenture and upon exercise of the Warrant to be issued on such Subsequent
Closing Date shall have been registered, no stop order shall be pending or shall
have been threatened with respect to the Registration Statement, and no event
shall have occurred which could in any manner prohibit the use of the
Registration Statement to sell any of the Shares.
(iii) There shall have been no changes in the Company's
certificate of incorporation or by-laws from those delivered pursuant to
Paragraph 5(a)(i) of this Agreement, and the resolutions described in Paragraph
5(a)(i)(C) of this Agreement shall be in full force and effect.
(iv) The Company shall have paid to Dutchess the compensation
due to Dutchess on such Subsequent Closing Date.
(v) The Company shall have delivered an opinion letter from VJD,
dated such Subsequent Closing Date, updating the opinion delivered pursuant to
Paragraph 5(a)(v) of this Agreement.
6. The Company hereby covenants and agrees with the Subscriber that:
(a) The Company will, promptly, but in no event later than three (3)
business days after each closing, file (i) the Form D with the Commission and
(ii) all documents and instruments required by the state securities laws of any
state in which any purchaser of Units
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<PAGE>
lives.
(b) During the period commencing on the Initial Closing Date and each
Subsequent Closing Date and ending ninety (90) days after such Initial or
Subsequent Closing Date, the Company will not, without the prior consent of the
holders of a majority of the principal amount of Debentures then outstanding,
issue or sell or enter into any agreement to issue or sell any shares of Common
Stock or any Convertible Securities (i.e., any warrants or options or
convertible debt or equity securities or other securities upon the exercise or
conversion of which shares of Common Stock may be issued), except that this
Paragraph 6(b) shall not be construed to prohibit the Company from (i) issuing
Common Stock or Convertible Securities in connection with an acquisition or
pursuant to options or warrants which are outstanding on such Initial or
Subsequent Closing Date or (ii) issuing options to employees or consultants at
an exercise price not less than the fair market value on the date of grant
pursuant to the Company's present stock option plan and performance stock plan
or (iii) issuing restricted stock grants to employees or consultants pursuant to
the Company's present performance stock plan; provided, however, that in no
event shall the number of options and stock grants issued during any such ninety
(90) day period exceed two hundred fifty thousand (250,000) shares. References
to consultants in this Paragraph 6(b) shall mean only consultants who (x)
perform functions that would otherwise be performed by employees of the Company
and (y) whose services do not relate to the raising of money.
(c) As long as the Subscriber or any transferee (other than a
transferee pursuant to the Registration Statement) shall own any Securities, (i)
the Company shall file all annual, quarterly and periodic reports with the
Commission not later than the last day on which such filings may be made
pursuant to the Exchange Act, and (ii) the Company shall continue to be eligible
to use a Form S-3 registration statement for the sale of the Shares.
(d) As long as the Subscriber shall own any Securities, the Company
will provide the Subscriber with a copy of each Form 10-K or Form 10-KSB Annual
Report, Form 10-Q or Form 10-QSB Quarterly Report, each current report on Form
8-K and any definitive proxy material, at the times such filings are made with
the Commission and will in addition provide the Subscriber with all materials
that are mailed to stockholders at such time as the materials are mailed to the
stockholders.
(e) The Company will comply with its obligations pursuant to the
Debentures and the Warrants.
(f) If the Company exercises the Conversion Restriction Right, as
defined in the form of Debenture included in the Disclosure Documents, any
Debentures issued subsequent to the date such right is issued shall reflect the
revised percentages as set forth in such form of Debenture.
7. (a) The Company shall (i) file or cause to be filed with the
Commission, not later than thirty (30) days after the Initial Closing Date, a
registration statement (the "Registration Statement") on Form S-3 providing for
the sale by the Subscriber of all of the Shares and (ii) use its best efforts to
have the Registration Statement declared effective by the
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<PAGE>
Commission not later than ninety (90) days from the Initial Closing Date, time
being of the essence. The Registration Statement shall register a sufficient
number of shares of Common Stock to cover the maximum possible number of shares
of Common Stock issuable upon conversion of the Debentures and upon exercise of
the Warrants. The Registration Statement shall cover the issuance of the Shares
and the sale by the Subscriber or the Subscriber's transferee in the manner or
manners designated by the Subscriber. The Company agrees to keep the
Registration Statement continuously effective until all of the Shares have been
sold. References in this Paragraph 7 to the Subscriber shall include, in
addition to the Subscriber, any holder of the Shares or the Securities, other
than pursuant to the Registration Statement. Such Shares shall be registered
regardless of whether, at the effective date of the Registration Statement, the
Debentures shall have been issued or converted or the Warrants shall have been
issued or converted.
(b) The Company shall pay all expenses incident to the Company's
performance of or compliance with its obligations under this Paragraph 7.
including, without limitation, all registration, filing, listing, stock
exchange, Nasdaq and NASD fees, all fees and expenses of complying with state
securities or blue sky laws all word processing, duplicating and printing
expenses, messenger and delivery expenses, the fees, disbursements and other
charges of counsel for the Company and of its independent public accountants,
but excluding commissions and applicable transfer taxes, if any, which
commissions and transfer taxes shall be borne by the seller or sellers of Shares
in all cases.
(c) In complying with its obligations pursuant to Paragraph 7(a) of
this Agreement, the Company shall, as expeditiously as possible:
(i) Prepare and file with the Commission the Registration
Statement to effect such registration and thereafter use its best efforts to
cause such registration statement to become effective as promptly as possible.
(ii) Notify the Subscriber at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, upon
discovery that, or upon the happening of any event as a result of which, the
prospectus included in the Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made, and
promptly, but not later than ten (10) business days after the happening of such
event, prepare and file with the Commission such amendments and supplements to
the Registration Statement and the prospectus used in connection therewith as
may be necessary to keep the Registration Statement effective and to comply with
the provisions of the Securities Act and the Exchange Act with respect to the
disposition of all Shares until such time as all of the Shares have been
disposed of in accordance with the method of disposition set forth in such
registration statement.
(iii) Before filing the Registration Statement or prospectus or
any amendments or supplements thereto, furnish to and afford the Subscriber a
reasonable opportunity (unless waived in writing by the Subscriber) to review
copies of all such documents
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<PAGE>
(including copies of any documents to be incorporated by reference therein and
all exhibits thereto) proposed to be filed (at least ten (10) business days
prior to such filing). The Company shall not file any registration statement or
prospectus or any amendments or supplements thereto in respect if the holders of
a majority of the Shares included in the Registration Statement shall reasonably
object.
(iv) Use its best efforts to obtain the prompt withdrawal of any
order suspending the effectiveness of a registration statement, and in any event
shall, within thirty (30) days of such cessation of effectiveness, use its best
efforts to amend the registration statement in a manner reasonably expected to
obtain the withdrawal of the order suspending the effectiveness thereof, or file
an additional registration statement pursuant to Rule 415 covering all of the
Shares and use its best efforts to cause the Registration Statement to be
declared effective as soon as practicable after such filing and to remain
effective as provided in this Paragraph 7.
(v) In the event of any transfer of Shares or Securities which
requires a supplement or post-effective amendment to the Registration Statement
or prospectus, promptly file such supplement or post-effective amendment and use
its best efforts to have such filing declared effective by the Commission as
promptly as possible after the filing thereof.
(vi) Furnish to the Subscriber such number of copies of such
drafts and final conformed versions of such registration statement and of each
such amendment and supplement thereto (in each case including all exhibits and
any documents incorporated by reference), such number of copies of such drafts
and final versions of the prospectus contained in such registration statement
(including each preliminary prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 under the Securities Act, in conformity with the
requirements of the Securities Act, and such other documents, as such seller may
reasonably request in writing.
(vii) use its best efforts (i) to register or qualify all Shares
under such other securities or blue sky laws of such states or other
jurisdictions of the United States of America as the Subscriber shall reasonably
request in writing, (ii) to keep such registration or qualification in effect
for so long as such registration statement remains in effect, (iii) to prevent
the issuance of any order suspending the effectiveness of a registration
statement or of any order preventing or suspending the use of a prospectus or
suspending the qualification (or exemption from qualification) of any of the
Shares for sale in any jurisdiction, and, if any such order is issued, to use
its best efforts to obtain the withdrawal of any such order at the earliest
possible moment, and (iv) to take any other action that may be reasonably
necessary or advisable to enable such sellers to consummate the disposition in
such jurisdictions of the securities to be sold by such sellers, except that the
Company shall not for any such purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction wherein it would not but
for the requirements of this Paragraph 7(c)(vii) be obligated to be so
qualified, to subject itself to taxation in such jurisdiction or to consent to
general service of process in any such jurisdiction.
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<PAGE>
(viii) Use its best efforts to cause all Shares to be registered
with or approved by such other federal or state governmental agencies or
authorities as may be necessary in the opinion of counsel to the Company and
counsel to the Subscriber to enable the seller or sellers thereof to consummate
the disposition of such Shares in the manner set forth in the Registration
Statement.
(ix) Otherwise comply with all applicable rules and regulations
of the Commission and any other governmental agency or authority having
jurisdiction over the offering, and make available to its security holders, as
soon as reasonably practicable, an earnings statement covering the period of at
least twelve months, but not more than eighteen months, beginning with the first
full calendar month after the effective date of such registration statement,
which earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 promulgated thereunder, and furnish to each seller
of Shares at least ten days prior to the filing thereof a copy of any amendment
or supplement to such registration statement or prospectus.
(d) The Registration Statement, when declared effective by the
Commission or when subsequently amended (by an amendment which is declared
effective by the Commission) or any prospectus in the form included in the
registration statement as declared effective by the Commission or when
subsequently supplemented will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
(e) The Company may require the Subscriber to furnish the Company
such information regarding such seller and the distribution of the securities
covered by the Registration Statement as the Company may from time to time
reasonably request in writing and as is required by applicable laws and
regulations.
(f) The Company hereby agrees to indemnify and hold harmless the
Subscriber, including any other holder of Shares, and their respective
directors, officers, agents and advisers (collectively, the "Agents") and each
person, if any, who controls within the meaning of Section 15 of the Securities
Act (the "Control Person") the Subscriber or any such holder against any losses,
claims, damages or liabilities, joint or several, to which the Subscriber, any
such other holder of Shares, any such Agent, or any such Control Person may
become subject, under the Securities Act, the Exchange Act or any other Federal
or state law, including common law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of a material fact contained in
(A) in any registration statement, including (I) any pre- or post-effective
amendments or supplements thereof or and (II) any preliminary prospectus or
final prospectus contained therein or any pre- or post-effective amendments or
supplements thereto, filed for any registration under this Agreement, (B) in any
Blue Sky Law application or other document executed by the Company specifically
for such registration or (C) based upon information furnished by the Company
filed in any state or other jurisdiction in order to qualify any or all of the
Shares under the securities laws thereof (any such application, document or
information in (B) and (C) above being hereinafter referred to as a "Blue Sky
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<PAGE>
Application"); (iii) the omission or alleged omission to state in such
registration statement or Blue Sky Application a material fact required to be
stated therein or necessary to make the statements therein not misleading; or
(iv) any untrue statement or alleged untrue statement of a material fact
contained in such registration statement or Blue Sky Application or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and will reimburse
such parties for any reasonable attorneys' fees or other expenses reasonably
incurred by them or any of them in connection with investigating or defending
against any such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable or responsible for reimbursement of expenses
in any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in reliance upon and in conformity with
written information furnished to the Company by or on behalf of such indemnified
party specifically for use with reference to or in the preparation of a
registration statement, any such pre- or post-effective amendment or supplement
thereof, or any Blue Sky Application. This indemnity agreement is in addition
to any liability which the Company may otherwise have. The indemnity agreement
of the Company contained in this Paragraph 7(f) shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
any of the Subscriber, any other holder of Shares, any Agent or any Control
Person and shall survive the registration and sale of any Shares by the
Subscriber or any such holder.
(g) The Subscriber and each other holder of Shares, by including such
holder's Shares in the Registration Statement, agrees, severally, to indemnify
and hold harmless the Company, its Agents and the Control Persons thereof to the
same extent as the indemnity from the Company to the Subscriber, such other
holders, their respective Agents and Control Persons but only with respect to
any untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon or in conformity with written information relating to such
person by such person expressly for use in connection with any registration
statement, pre- or post-effective amendment or supplement thereto or in any Blue
Sky Application filed pursuant to this Agreement. The liability of any Holder
under this Paragraph 7(g) shall be limited to the amount of net proceeds to such
Holder from the Shares sold pursuant to the registration statement which gives
rise to such liability. This indemnity agreement will be in addition to any
liability that the Subscriber or any such other holder may otherwise have. The
indemnity agreement of the Subscriber and such other holders contained in this
Paragraph 7(g) shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of the Company or any of its Control
Persons and shall survive the registration and sale of any Shares and the
expiration or termination of this Agreement.
(h) If any action or claim shall be brought or asserted by a party
entitled to indemnification Paragraph 7(f) or 7(g) (as the case may be) of this
Agreement (each an "Indemnified Party") in respect of which indemnity may be
sought from the responsible party identified in said Paragraph 7(f) or 7(g) (as
the case may be) (the "Indemnifying Party"), the Indemnified Party shall
promptly notify the Indemnifying Party in writing, and the Indemnifying Party
shall assume the defense thereof, including the employment of counsel
satisfactory to
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<PAGE>
each Indemnified Party and the payment of all reasonable legal and other
expenses. The failure of any Indemnified Party to notify the Indemnifying Party
will not relieve the Indemnifying Party of any liability for indemnification
which it may have to any Indemnified Party under this Paragraph 7 unless the
Indemnifying Party has been substantially prejudiced by such failure and in no
event will such failure relieve the Indemnifying Party from any liability it may
have to any Indemnified Party otherwise than under this Paragraph 7. Each
Indemnified Party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of such Indemnified Party unless (i) the
employment thereof has been specifically authorized by the Indemnifying Party in
writing, or (ii) the Indemnifying Party has failed to assume the defense and
employ counsel or (iii) the named parties to any such action (including any
impleaded parties) include both (A) any Indemnified Party and (B) the
Indemnifying Party, and, in the judgment of counsel to any Indemnified Party, it
is advisable for such Indemnified Party to be represented by separate counsel
(in which case the Indemnifying Party shall not have the right to assume the
defense of such action on behalf of such Indemnified Party; provided, however,
it being understood that the Indemnifying Party shall, in connection with any
one such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of only one separate firm of
attorneys at any time for each Indemnified Party pursuant to this Agreement in
each jurisdiction, and each such firm shall be designated in writing by such
Indemnified Party holding a majority of the Shares being registered for all
Indemnified Parties). The Indemnifying Party shall not be liable for any
settlement of any such action effected by an Indemnified Party without the
written consent of the Indemnifying Party (which shall not be withheld
unreasonably in light of all factors of importance to such Indemnified Party),
but if settled with such written consent, or if there be a final judgment or
decree for the plaintiff in any such action by a court of competent jurisdiction
and the time to appeal shall have expired or the last appeal shall have been
denied, the Indemnifying Party agrees to indemnify and hold harmless each
Indemnified Party from and against any loss or liability by reason of such
settlement or judgment.
(i) If the indemnification provided for in this Agreement is held by
a court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage or expense referred to therein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
thereunder, shall contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, liability, claim, damage or expense in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and of the Indemnified Party on the other hand in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relevant fault of the Indemnifying Party and the Indemnified
Party shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the Indemnifying Party or by
the Indemnified Party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
Notwithstanding the foregoing, the amount any Holder is obligated to contribute
pursuant to this Agreement shall be limited to the net proceeds to such Holder
from the Shares sold pursuant to the Registration Statement which gives rise to
such obligation to
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<PAGE>
contribute (less the aggregate amount of any damages which the Subscriber or
such other holder has otherwise been required to pay in respect of such loss,
claim, damage, liability or action or any substantially similar loss, claim,
damage, liability or action arising from the sale of such Shares). The foregoing
contribution agreement shall in no way affect the contribution liabilities of
any persons having liability under Section 11 of the Securities Act other than
the Company, the Subscriber and such other holders. No contribution shall be
requested with regard to the settlement of any matter from any party who did not
consent to the settlement, provided, however, that such consent shall not be
unreasonably withheld in light of all factors of importance to such party.
Notwithstanding any provisions of this Paragraph 7, no person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
8. All notices provided for in this Agreement shall be in writing signed
by the party giving such notice, and delivered personally or sent by overnight
courier or messenger against receipt thereof or sent by registered or certified
mail (air mail if overseas), return receipt requested or by telecopier of
receipt of transmission is confirmed or if transmission is confirmed by mail as
provided in this Paragraph 8. Notices shall be deemed to have been received on
the date of personal delivery or telecopy or, if sent by certified or registered
mail, return receipt requested, shall be deemed to be delivered on the fifth
(5th) business day after the date of mailing. Notices shall be sent to the
Company at 185-10751 Shellbridge Way, Richmond, BC Canada V6X 2W8, Attention:
Mr. John G. Robertson, President, telecopier (604) 278-3409, and to the
Subscriber at his or her address and telecopier number set forth on the
signature page or to such other address as any party shall designate in the
manner provided in this Paragraph 8.
9. (a) This Agreement constitutes the entire agreement between the
parties relating to the subject matter hereof, superseding any and all prior or
contemporaneous oral and prior written agreements, understandings and letters of
intent. This Agreement may not be modified or amended nor may any right be
waived except by a writing which expressly refers to this Agreement, states that
it is a modification, amendment or waiver and is signed by all parties with
respect to a modification or amendment or the party granting the waiver with
respect to a waiver. No course of conduct or dealing and no trade custom or
usage shall modify any provisions of this Agreement.
(b) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to agreements executed and to
be performed wholly within such state, without regard for principles of
conflicts of law. The Company hereby (i) consents to the exclusive
jurisdiction of the United States District Court for the Southern District of
New York and Supreme Court of the State of New York in the County of New York in
any action relating to or arising out of this Debenture, (ii) agrees that any
process in any such action may be served upon it, in addition to any other
method of service permitted by law, by certified or registered mail, return
receipt requested, or by an overnight courier service which obtains evidence of
delivery, with the same full force and effect as if personally served upon him
in New York City, and (iii) waives any claim that the jurisdiction of any such
tribunal is not a convenient forum for any such action and any defense of lack
of in personam jurisdiction
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<PAGE>
with respect thereto.
(c) Any termination of this Agreement shall not affect in any manner
the Company's obligations pursuant to Paragraphs 6, 7, 8 and 9 of this
Agreement, which such survive such termination.
(d) This Agreement shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
(e) In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
(f) Each party shall, without payment of any additional consideration
by any other party, at any time on or after the sale of the Units take such
further action and execute such other and further documents and instruments as
the other party may request in order to provide the other party with the
benefits of this Agreement.
(g) All references to any gender shall be deemed to include the
masculine, feminine or neuter gender, the singular shall include the plural, and
the plural shall include the singular.
(h) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same document.
(i) The various representations, warranties, and covenants set forth
in this Agreement or in any other writing delivered in connection therewith
shall survive the issuance of the Units.
Please confirm your agreement with the foregoing by signing this Agreement
where indicated.
Very truly yours,
Number of Units
Subscribed for: ____________________________________________
ten Name of Subscriber
Total
Purchase Price: By:_________________________________________
$5,000,000. (Signature)
Title, if applicable________________________
Address: __________________________
___________________________________
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<PAGE>
Telecopier Number:___________
Social Security No. or Tax I.D. No.:__________________
The Subscriber is an accredited investor based on the following paragraphs of
Exhibit B to this Agreement:___________________________
Accepted this day of
, 1998
IAS COMMUNICATIONS, INC.
By:____________________________________
John G. Robertson, President
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<PAGE>
Exhibit A
Disclosure Documents
1. Risk Factors
2. Form 10-KSB/A for the fiscal year ended April 30, 1997
3. Form 10-QSB for the quarter ended January 31, 1998
4. Form 8-K Reports dated July 11, 1997
5. Proxy Statement for 1998 Annual Meeting of Stockholders
6. Annual Report to Stockholders for fiscal year ended April 30, 1997
7. Capital Stock
8. Management
9. Form of Debenture
10. Form of Warrant
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<PAGE>
Exhibit B
A Subscriber who meets any one of the following tests is an accredited
investor:
(a) The Subscriber is an individual who has a net worth, or joint net
worth with the Subscriber's spouse, of at least $1,000,000.
(b) The Subscriber is an individual who had individual income of more
than $200,000 (or $300,000 jointly with the Subscriber's spouse) for the past
two years, and the Subscriber has a reasonable expectation of having income of
at least $200,000 (or $300,000 jointly with the Subscriber's spouse) for the
current year.
(c) The Subscriber is an officer or director of the Company.
(d) The Subscriber is a bank as defined in Section 3(a)(2) of the
Securities Act or any savings and loan association or other institution as
defined in Section 3(a)(5)(A) of the Securities Act whether acting in its
individual or fiduciary capacity.
(e) The Subscriber is a broker or dealer registered pursuant to
Section 15 of the Securities Exchange Act of 1934.
(f) The Subscriber is an insurance company as defined in Section
2(13) of the Securities Act.
(g) The Subscriber is an investment company registered under the
Investment Company Act of 1940 or a business development company as defined in
Section 2(a)(48) of that Act.
(h) The Subscriber is a small Business Investment Company licensed by
the U.S. Small Business Administration under Section 301(c) or (d) of the Small
Business Investment Act of 1958.
(i) The Subscriber is an employee benefit plan within the meaning of
Title I of the Employee Retirement Income Security Act of 1974, if the
investment decision is made by a plan fiduciary, as defined in Section 3(21) of
such Act, which is either a bank, savings and loan association, insurance
company, or registered investment adviser, or if the employee benefit plan has
total assets in excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are accredited investors.
(j) The Subscriber is a private business development company as
defined in Section 202(a)(22) of the Investment Advisers Act of 1940.
(k) The Subscriber is an organization described in Section 501(c)(3)
of the Internal Revenue Code, corporation, Massachusetts or similar business
trust, or partnership, not formed for the specific purpose of acquiring the
securities offered, with total assets in excess of $5,000,000.
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<PAGE>
(l) The Subscriber is a trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring the securities
offered, whose purchase is directed by a sophisticated person as described in
Rule 506(b)(2)(ii) of the Commission under the Securities Act.
(m) The Subscriber is an entity in which all of the equity owners are
accredited investors (i.e., all of the equity owners meet one of the tests for
an accredited investor).
If an individual investor qualifies as an accredited investor, such
individual may purchase the Units in the name of his individual retirement
account ("IRA").
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<PAGE>
EXHIBIT 4.2
NEITHER THIS DEBENTURE NOR THE SHARES OF CLASS A COMMON STOCK ISSUANEITHER THIS
DEBENTURE NOR THE SHARES OF CLASS A COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS DEBENTURE HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAW, AND SUCH SECURITIES MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT
OR STATE LAW OR AN OPINION OF COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
- --------------------------------------------------------------------------------
NA-1 New York, New York
$ ,000 July 20, 1998
- --------------------------------------------------------------------------------
IAS COMMUNICATIONS, INC.
8% REDEEMABLE CONVERTIBLE DEBENTURE DUE JULY 15, 2001 (SERIES A)
FOR VALUE RECEIVED, IAS Communications, Inc., an Oregon corporation (the
"Company"), hereby promises to pay to the order of Augustine Fund LP ,
the principal amount of thousand dollars ($ ,000) on July
15, 2001. Interest on this Debenture shall be payable quarterly, on the 15th day
of each October, January, April and July of each year to the holder of record of
this Debenture on the last day of September, December, March and June,
respectively, with the first interest payment being due on October 15, 1998.
Interest shall be payable at the rate of eight percent (8%) per annum (computed
on the basis of a 360-day year, using the number of days actually elapsed).
Interest shall be payable, to the extent permitted by law, at the rate equal to
the lesser of (i) eighteen percent (18%) per annum or (ii) the maximum rate
permitted by law, on the entire unpaid principal amount of this Debenture from
and after the time that such principal amount shall have become due and payable
(whether at maturity or by acceleration). In no event shall the rate of interest
exceed the maximum interest rate which may legally be charged, and any payments
which would result in an interest payment being in excess of such legal rate
shall be treated for all purposes as payments of principal. This Debenture is
one of the Company's 8% Redeemable Convertible Debentures due July 15, 2001
(collectively, the "Debentures"), which were issued in the aggregate maximum
principal amount of five million dollars ($5,000,000) (the "Maximum Principal
Amount"), which includes Debentures denominated as Series A and Series B.
ARTICLE 1.
Covenants of the Company
Until the principal of and interest on the Debentures shall have been paid
in full:
(a) Continued Organization; Good Standing. Each of the Company and each
of its present or future subsidiaries (each, a "Subsidiary") will continue its
corporate existences and good standing in the state or province of its
organization and in each other state or province in which it owns or leases real
property.
(b) Filings under the Securities Exchange Act of 1934. The Common Stock
has been registered pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). The Company shall file all reports required by Section 12
of the Exchange Act not later
<PAGE>
than the date that such reports are due.
(c) Issue Additional Debentures. The Company will not issue any
Debentures in excess of the Maximum Principal Amount.
(d) Comply with Obligations under Subscription Agreement. The Company
shall comply in all material respects with its obligations pursuant to the
subscription agreements (collectively, the "Subscription Agreements") pursuant
to which the Debentures were issued.
ARTICLE 2.
Events of Default and Acceleration
(a) Events of Default Defined. The entire unpaid principal amount of this
Debenture, together with interest thereon shall, at the option of the holder
this Debenture, exercised by written notice to the Company, forthwith become and
be due and payable if any one or more the following events ("Events of Default")
shall have occurred (for any reason whatsoever and whether such happening shall
be voluntary or involuntary or be affected or come about by operation of law
pursuant to or in compliance with any judgment, decree, or order of any court or
any order, rule or regulation of any administrative or governmental body) and be
continuing. An Event of Default shall occur:
(i) if failure shall be made in the due and punctual payment of the
principal of this Debenture when and as the same shall become due; or
(ii) if failure shall be made in the due and punctual payment of any
installment of interest on this Debenture when and as the same shall become due
and payable whether at maturity or otherwise and such failure shall continue for
five (5) days after the date such payment is due; or
(iii) if the Company shall violate or breach any of the covenants set
forth in this Debenture and such violation or breach shall continue for twenty
(20) days after notice thereof shall be given to the Company by the holder of
any Debenture; or
(iv) If the Company shall violate or breach any of the
representations, warranties, covenants or agreements contained in any of the
Subscription Agreements, and such violation or breach shall continue for twenty
(20) days after notice shall be given to the Company by the holder of any
Debentures.
(v) if the Company or any Subsidiary shall consent to the
appointment of a receiver, trustee or liquidator of itself or of a substantial
part of its property, or shall admit in writing its inability to pay its debts
generally as they become due, or shall make a general assignment for the benefit
of creditors, or shall file a voluntary petition in bankruptcy, or an answer
seeking reorganization in a proceeding under any bankruptcy law (as now or
hereafter in effect) or an answer admitting the material allegations of a
petition filed against the Company or any Subsidiary, in any such proceeding, or
shall by voluntary petition, answer or consent, seek relief under the provisions
of any other now existing or future bankruptcy or other similar law providing
for the reorganization or winding up of corporations, or an arrangement,
composition, extension or adjustment with its or their creditors, or shall, in a
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<PAGE>
petition in bankruptcy filed against it or them be adjudicated a bankrupt, or
the Company or any Subsidiary or their directors or a majority of its
stockholders shall vote to dissolve or liquidate the Company or any Subsidiary
other than a liquidation involving a transfer of assets from a Subsidiary to the
Company or another Subsidiary; or
(vi) if an involuntary petition shall be filed against the Company
or any Subsidiary seeking relief against the Company or any Subsidiary under any
now existing or future bankruptcy, insolvency or other similar law providing for
the reorganization or winding up of corporations, or an arrangement,
composition, extension or adjustment with its or their creditors, and such
petition shall not be vacated or set aside within sixty (60) days from the
filing thereof; or
(vii) if a court of competent jurisdiction shall enter an order,
judgment or decree appointing, without consent of the Company or any Subsidiary,
a receiver, trustee or liquidator of the Company or any Subsidiary, or of all or
any substantial part of the property of the Company or any Subsidiary, or
approving a petition filed against the Company or any Subsidiary seeking a
reorganization or arrangement of the Company or any Subsidiary under the Federal
bankruptcy laws or any other applicable law or statute of the United States of
America or any State thereof, or any substantial part of the property of the
Company or any Subsidiary shall be sequestered; and such order, judgment or
decree shall not be vacated or set aside within sixty (60) days from the date of
the entry thereof; or
(viii) if, under the provisions of any law for the relief or aid of
debtors, any court of competent jurisdiction shall assume custody or control of
the Company or any Subsidiary or of all or any substantial part of the property
of the Company or any Subsidiary and such custody or control shall not be
terminated within sixty (60) days from the date of assumption of such custody or
control.
(b) Rights of Debenture Holder. Nothing in this Debenture shall be
construed to modify, amend or limit in any way the right of the holder of this
Debenture to bring an action against the Company.
ARTICLE 3.
Conversion
(a) Right of Conversion.
(i) At any time on or after the Initial Conversion Date, as
hereinafter defined, and subject to the rights of the Company to redeem
Debentures or restrict conversion pursuant to Paragraph 3(f) of this Debenture,
the holder of this Debenture shall have the right, in whole at any time and in
part from time to time, prior to payment of the principal of this Debenture, to
convert all or any part of the principal amount of this Debenture outstanding
from time to time and accrued interest into such number of shares of Common
Stock at the conversion price hereinafter defined (the "Conversion Price");
provided, that the right to conversion shall terminate at 5:00 P.M. New York
City time on the business day prior to the maturity date of this Debenture.
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<PAGE>
(ii) The "Initial Conversion Date" shall mean the first to occur of:
(A) October 13, 1998 (the "Registration Date"), or
(B) The effective date of the Registration Statement, as
hereinafter defined.
(b) Exercise of Conversion Right. In order to exercise the conversion
right, the holder of this Debenture shall surrender this Debenture at the office
of the Company together with written instructions specifying the portion of the
principal amount of and accrued interest on this Debenture which the holder
elects to convert and the registration and delivery of certificates for shares
of Common Stock issuable upon such conversion. The shares of Common Stock
issuable upon conversion of this Debenture are referred to as the "Conversion
Shares." The number of Conversion Shares shall be determined by dividing the
amount of principal and interest being converted by the Conversion Price in
effect on the date of such conversion, which shall be the date this Debenture is
delivered to the Company for conversion. The holder shall thereupon be deemed
the holder of the shares of Common Stock so issued and the principal amount of
and interest on the Debenture, to the extent so converted, shall be deemed to
have been paid in full. If this Debenture shall have been converted in part,
the holder of this Debenture shall be entitled to a new Debenture representing
the unpaid principal balance of such Debenture remaining after deducting the
principal amount of the Debenture converted. Any interest not converted into
Common Stock pursuant to this Paragraph 3 shall be paid to the holder in cash at
the time of conversion.
(c) Conversion Price.
(i) The Conversion Price shall be the lesser of the Maximum
Conversion Price, as hereinafter defined, or the Current Conversion Price, as
hereinafter defined, which shall be subject to adjustment as hereinafter
provided.
(ii) The Maximum Conversion Price shall mean two and 85/100 dollars
($2.85).
(iii) The Current Conversion Price shall mean seventy five percent
(75%) of the average closing bid price of the Common Stock for the five (5)
trading days prior to the date on which this Debenture is presented for
conversion on the principal stock exchange or market on which the Common Stock
is traded. If there is more than one reported closing bid price on any day, the
lowest closing bid price shall be used for the closing bid price on such day.
If this Debenture is being converted in part only, then the Current Conversion
Price shall relate to the Debenture to the extent that principal and interest is
converted, and the Current Conversion Price for any subsequent conversion shall
be determined in accordance with this Paragraph 3(c)(iii) at the time of such
subsequent conversion.
(iv) The Maximum Conversion Price shall be subject to adjustment as
follows:
(A) If the Company shall, subsequent to July 13, 1998, (A) pay
a dividend or make a distribution on its shares of Common Stock in shares of
Common Stock, (B) subdivide or reclassify its outstanding Common Stock into a
greater number of shares, or (C) combine or reclassify its outstanding Common
Stock into a smaller number of shares or
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<PAGE>
otherwise effect a reverse split, the Maximum Conversion Price in effect at the
time of the record date for such dividend or distribution or of the effective
date of such subdivision, combination or reclassification shall be
proportionately adjusted upward or downward, as the case may be. Such adjustment
shall be made successively whenever any event listed in this Paragraph
3(c)(iv)(A) shall occur.
(B) In case the Company shall, subsequent to July 13, 1998,
issue rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (or having a conversion price per share) less than the
current market price of the Common Stock (as defined in Paragraph 3(c)(iv)(D) of
this Debenture) on the record date mentioned below, the Maximum Conversion Price
shall be adjusted so that the Maximum Conversion Price shall equal the price
determined by multiplying the Maximum Conversion Price in effect immediately
prior to the date of such issuance by a fraction, the numerator of which shall
be the number of shares of Common Stock outstanding on the record date mentioned
below plus the number of additional shares of Common Stock which the aggregate
offering price of the total number of shares of Common Stock so offered (or the
aggregate conversion price of the convertible securities so offered) would
purchase at such current market price per share of the Common Stock, and the
denominator of which shall be the number of shares of Common Stock outstanding
on such record date plus the maximum number of additional shares of Common Stock
offered for subscription or purchased (or into which the convertible securities
so offered are convertible). Such adjustment shall be made successively whenever
such rights or warrants are issued and shall become effective immediately after
the record date for the determination of stockholders entitled to receive such
rights or warrants; and to the extent that shares of Common Stock or securities
convertible into Common Stock are not delivered after the expiration of such
rights or warrants, the Maximum Conversion Price shall be readjusted to the
Maximum Conversion Price which would then be in effect had the adjustments made
upon the issuance of such rights or warrants been made upon the basis of
delivery of only the number of shares of Common Stock (or securities convertible
into Common Stock) actually delivered.
(C) In case the Company shall, subsequent to July 13, 1998,
distribute to all holders of Common Stock evidences of its indebtedness or
assets (excluding cash dividends or distributions paid out of current earnings
and dividends or distributions referred to in Paragraph 3(c)(iv)(A) of this
Debenture) or subscription rights or warrants (excluding those referred to in
Paragraph 3(c)(iv)(B) of this Debenture), then in each such case the Maximum
Conversion Price in effect thereafter shall be determined by multiplying the
Maximum Conversion Price in effect immediately prior thereto by a fraction, of
which the numerator shall be the total number of shares of Common Stock
outstanding multiplied by the current market price per share of Common Stock (as
defined in Paragraph 3(c)(iv)(D) of this Debenture), less the fair market value
(as determined by the Company's Board of Directors) of said assets or evidences
of indebtedness so distributed or of such rights or warrants, and of which the
denominator shall be the total number of shares of Common Stock outstanding
multiplied by such current market price per share of Common Stock. Such
adjustment shall be made successively whenever such a record date is fixed. Such
adjustment shall be made whenever any such distribution is made and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such distribution.
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<PAGE>
(D) For the purpose of any computation under Paragraphs
3(c)(iv)(B) and (C) of this Debenture, the current market price per share of
Common Stock at any date shall be deemed to be the average of the daily closing
prices for ten (10) consecutive trading days commencing twenty (20) trading days
before such date. The closing price for each day shall be the reported closing
price on the principal national securities exchange or market on which the
Common Stock is admitted to trading or listed, or if not listed or admitted to
trading on any such exchange or such market or if there is no trading on any day
in the computation period, the closing low bid price as reported by the Nasdaq
Stock Market ("Nasdaq"), the National Quotation Bureau, Inc. or other similar
organization, shall be used, or if such prices are not available, the fair
market price as determined in good faith by the Board of Directors.
(v) In the event that, during any five (5) trading day period
during which a computation of the Current Market Price is being made, there is a
record date for an event described in Paragraphs 3(c)(iv)(A), (B) or (C) of this
Debenture, the closing bid price of the Common Stock for each day in such period
which is prior to such record date shall be adjusted in the same manner as the
Maximum Conversion Price.
(d) Reclassification, Reorganization or Merger. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a Subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock or the class issuable upon conversion of this
Debenture) or in case of any sale, lease or conveyance to another corporation of
the property of the Company as an entirety, the Company shall, as a condition
precedent to such transaction, cause effective provisions to be made so that the
holder of this Debenture shall have the right thereafter by converting this
Debenture, to purchase the kind and amount of shares of stock and other
securities and property receivable upon such reclassification, capital
reorganization and other change, consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock which might have been purchased
upon conversion of this Debenture immediately prior to such reclassification,
change, consolidation, merger, sale or conveyance. Any such provision shall
include provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Debenture. The foregoing
provisions of this Paragraph 3(d) shall similarly apply to successive
reclassifications, capital reorganizations and changes of shares of Common Stock
and to successive consolidations, mergers, sales or conveyances. In the event
that in connection with any such capital reorganization or reclassification,
consolidation, merger, sale or conveyance, additional shares of Common Stock
shall be issued in exchange, conversion, substitution or payment, in whole in
part, for a security of the Company other than Common Stock, such transaction
shall be treated as a reclassification or reorganization pursuant to this
Paragraph 3(d).
(e) Fractional Shares. No fractional shares or script representing
fractional shares shall be issued upon the conversion of any Debentures. If,
upon any full or partial conversion of this Debenture, the holder would, except
for the provisions of this Paragraph 3(e), be entitled to receive a fractional
share of Common Stock, then the Company shall pay the holder, at the time the
shares of Common Stock are issued on such conversion, an amount equal to such
fractional share multiplied by the then current value per share of Common
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<PAGE>
Stock, determined as follows:
(i) If the Common Stock is listed on a national securities exchange
or admitted to unlisted trading privileges on such exchange or listed for
trading on Nasdaq or other automated quotation system which provides information
as to the last sale price, the current value shall be the average of the
reported last sale prices of one share of Common Stock on such exchange or
system on the last trading days prior to the date of conversion, or if, on such
date, no such sale is made on such day, the average of the closing bid and asked
prices for such date on such exchange or system shall be used; or
(ii) If the Common Stock is not so listed or admitted to unlisted
trading privileges, the current value shall be the mean the average of the
reported last bid and asked prices of one share of Common Stock as reported by
Nasdaq, the National Quotation Bureau, Inc. or other similar reporting service,
on the trading day prior to the date of conversion; or
(iii) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the current
value of one share of Common Stock shall be an amount, not less than book value,
determined in such reasonable manner as may be prescribed by the Board of
Directors of the Company.
(f) Right of Company to Redeem or Restrict Conversion.
(i) In the event that, on the date any Debentures are presented for
conversion (a "Conversion Date"), the closing price per share of the Common
Stock is less than five-twelfths (5/12) of the Maximum Conversion Price, then
the Company shall have the right to exercise either the Redemption Right, as
hereinafter defined, or the Conversion Restriction Right, as hereinafter
defined. The Redemption Right and the Conversion Restriction Right may only be
exercised prior to noon, New York City time, on the date following such
Conversion Date. If the Redemption Right or the Conversion Restriction Right is
not exercised by such time, it may not be exercised with respect to such
conversion, although it may be exercised with respect to a future Conversion
Date if, and only if, the conditions set forth in this Paragraph 3(f)(i) shall
occur on such subsequent Conversion Date. Notice (the "Notice") of the exercise
of the Redemption Right or the Conversion Restriction Right must be given by
telephone, and confirmed by telecopier and by mail as provided in Paragraph 5(g)
of this Debenture.
(ii) The Redemption Right shall mean the right to redeem the
Debentures that are tendered for conversion on the Conversion Date at a
redemption price equal to one hundred twenty percent (120%) of the principal
amount of the Debenture to the extent that the Debenture is tendered for
conversion, plus accrued interest on such principal amount. Payment of such
redemption price shall be made by certified or official bank check or by wire
transfer in accordance with instructions from the holder of this Debenture. The
redemption price shall be paid not later than the business day following the
date on which the Company exercises the Redemption Right. The exercise of the
Redemption Right on any occasion shall not affect the ability of the Company to
exercise the Redemption Right on a subsequent Conversion Date; provided,
however, that in the event that the Company fails to pay the Redemption Price on
the date such payment is to be made pursuant to this Paragraph 3(f)(ii), then
(A) the right to redeem the Debentures and the Conversion Restriction Right
shall
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<PAGE>
terminate, and the Company shall have no right thereafter to redeem any
Debentures or to restrict conversion of Debentures, and (B) from and after the
Redemption Date, the Conversion Price of all Debentures shall be seventy five
percent (75%) of the Conversion Price determined pursuant to Paragraph 3(c) of
this Debenture.
(iii) The Conversion Restriction Right shall mean the right of the
Company to restrict conversion of any Debentures for a period (the "Conversion
Restriction Period") of nor more than thirty (30) days commencing on the
Conversion Date that the Company exercises the Conversion Restriction Right and
ending on the date set forth in the Notice. During the Conversion Restriction
Period, no Debentures may be converted. The Conversion Restriction Right shall
not be effective unless notice thereof is given to all holders of Debentures as
provided in Paragraph 3(f)(i) of this Debenture. The Conversion Restriction
Right may be exercised on one occasion only, and may not be exercised with
respect to any Debentures issued subsequent to the date the Conversion
Restriction Right is exercised.
(iv) Commencing with the first trading day following the last day of
the Conversion Restriction Period, the percentage set forth in Paragraph
3(c)(iii) of this Debenture and any other Debentures then outstanding shall be
automatically changed from seventy five percent (75%) to seventy percent (70%).
ARTICLE 4.
Filing of S-3 Registration Statement; Payment for Failure to Register.
(a) Not later than August 19, 1998, the Company shall file a registration
statement (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act") on Form S-3 covering the issuance and sale of the
Conversion Shares issuable upon conversion of all of the Debentures, and the
Company will use its best efforts to have such registration statement declared
effective as soon as possible thereafter. The Company shall take such steps to
insure that the Registration Statement is current and effective until all of the
Conversion Shares shall have been sold or until such time as all of the
Conversion Shares issuable upon all of the Debentures may be sold without
registration pursuant to Rule 144 of the Securities and Exchange Commission (the
"Commission") or any similar subsequent rule without regard to volume
limitations and filing requirements.
(b) The Company recognizes that its agreement to have the Conversion
Shares registered pursuant to the Securities Act was a material inducement for
the holder of this Debenture to purchase this Debenture. Accordingly, if the
Registration Statement is not declared effective by the Commission by the
Registration Date, the Company shall pay the holder of this Debenture, as
liquidated damages for such failure, the Registration Payment, as hereinafter
defined.
(c) The Registration Payment shall mean the Applicable Percentage, as
hereinafter defined, multiplied by the number of days between Registration Date
and the date on which the Registration Statement is declared effective by the
Commission. In making such computation, the Registration Date shall not be
counted, and the date on which the Registration Statement is declared effective
shall be counted.
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<PAGE>
(d) The Applicable Percentage shall mean (A) one-thirtieth of one percent
(.033 1/3%) for each of the first thirty (30) days after Registration Date that
the Registration Statement has not been declared effective by the Commission
plus (B) one-fifteenth of one percent (.066 2/3%) for each day after the
expiration of such thirty (30) day period that the Registration Statement has
not been declared effective by the Commission.
(e) Payment of the Registration Payment shall be made on the first day of
each calendar month following the Registration Date, based on the amount accrued
to the day prior to the date of such payment, except that the last payment shall
be made within two (2) business days after the effective date of the
Registration Statement.
ARTICLE 5.
Miscellaneous
(a) Transferability. This Debenture shall not be transferred except in a
transaction exempt from registration pursuant to the Securities Act and
applicable state securities law. The Company shall treat as the owner of this
Debenture the person shown as the owner on its books and records.
(b) Right of Prepayment. Subject to the right of the Company to exercise
the Redemption Right, the Company may, but only with the written consent of the
holder of this Debenture, prepay all, and not less than all, of the principal
amount of this Debenture plus accrued interest, provided, that in the event that
the Company elects to make such prepayment it shall offer to prepay all of the
outstanding Debentures.
(c) Waiver of Trial by Jury. In any legal proceeding to enforce payment
of this Debenture, the Company waives trial by jury, claims for offset and
counterclaims, if any.
(d) Legal Fees. In the event that the holder of this Debenture engages
counsel in connection with the administration or enforcement of this Debenture,
the Company shall pay all reasonable legal fees and expenses incurred by the
holder, regardless of whether an action has been commenced.
(e) Governing Law. This Debenture shall be governed by the laws of the
State of New York applicable to agreement executed and to be performed wholly
within such State without regard to principles of conflict of laws.
(f) Court Jurisdiction. The Company hereby (i) consents to the exclusive
jurisdiction of the United States District Court for the Southern District of
New York and Supreme Court of the State of New York in the County of New York in
any action relating to or arising out of this Debenture, (ii) agrees that any
process in any such action may be served upon it, in addition to any other
method of service permitted by law, by certified or registered mail, return
receipt requested, or by an overnight courier service which obtains evidence of
delivery, with the same full force and effect as if personally served upon him
in New York City, and (iii) waives any claim that the jurisdiction of any such
tribunal is not a convenient forum for any such action and any defense of lack
of in personam jurisdiction with respect thereto.
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<PAGE>
(g) Notices. Notice to the Company shall be given to the Company at 185-
10751 Shellbridge Way, Richmond, BC, Canada V6X 2W8, telecopier (604) 278-3409,
Attention of Mr. John G. Robertson, President, or to the holder at the address
set forth on the Company's records, or to such other address as the Company or
the holder may advise by hand delivery, certified or registered mail, return
receipt requested, overnight courier service, or by telecopier if confirmation
of receipt is given or of confirmation of transmission is sent by mail as herein
provided.
IN WITNESS WHEREOF, the Company has executed this Agreement as of the date
and year first aforesaid.
IAS COMMUNICATIONS, INC.
By:_________________________________________
John G. Robertson, President
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<PAGE>
NOTICE OF CONVERSION
[To be Signed Only Upon Conversion
of Part or All of Debentures]
IAS COMMUNICATIONS, INC.
The undersigned, the holder of the foregoing Debenture, hereby surrenders
such Debenture for conversion into shares of Common Stock of IAS Communications,
Inc. to the extent of $ * unpaid principal amount of and interest due on
such Debenture, and requests that the certificates for such shares be issued in
the name of ____________________, and delivered to ___________________________,
whose address is __________________________________________.
DATED:
- ---------------------------------
(Signature)
(Signature must conform in all respects to name of holder as specified on
the face of the Debenture.)
- -----------
* Insert here the unpaid principal amount of the Debenture (or, in the case
of a partial conversion, the portion thereof as to which the Debenture is
being converted). In the case of a partial conversion, a new Debenture
will be issued and delivered, representing the unconverted portion of the
unpaid principal amount of this Debenture, to or upon the order of the
holder surrendering such Debenture.
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<PAGE>
EXHIBIT 4.3
NEITHER THIS DEBENTURE NOR THE SHARES OF CLASS A COMMON STOCK ISSUABLE UPON
CONVERSION OF THIS DEBENTURE HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAW, AND SUCH SECURITIES MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SAID ACT OR STATE LAW OR AN OPINION OF COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED.
<TABLE>
<S> <C> <C>
NA-1 New York, New York
$ ,000 July 20, 1998
- ----------------------------------------------------------------------------------------------------------
</TABLE>
IAS COMMUNICATIONS, INC.
8% REDEEMABLE CONVERTIBLE DEBENTURE DUE JULY 15, 2001 (SERIES B)
FOR VALUE RECEIVED, IAS Communications, Inc., an Oregon corporation (the
"Company"), hereby promises to pay to the order of Augustine Fund LP,
the principal amount of thousand dollars ($ ,000) on July
15, 2001. Interest on this Debenture shall be payable quarterly, on the 15th
day of each October, January, April and July of each year to the holder of
record of this Debenture on the last day of September, December, March and June,
respectively, with the first interest payment being due on October 15, 1998.
Interest shall be payable at the rate of eight percent (8%) per annum (computed
on the basis of a 360-day year, using the number of days actually elapsed).
Interest shall be payable, to the extent permitted by law, at the rate equal to
the lesser of (i) eighteen percent (18%) per annum or (ii) the maximum rate
permitted by law, on the entire unpaid principal amount of this Debenture from
and after the time that such principal amount shall have become due and payable
(whether at maturity or by acceleration). In no event shall the rate of
interest exceed the maximum interest rate which may legally be charged, and any
payments which would result in an interest payment being in excess of such legal
rate shall be treated for all purposes as payments of principal. This Debenture
is one of the Company's 8% Redeemable Convertible Debentures due July 15, 2001
(collectively, the "Debentures"), which were issued in the aggregate maximum
principal amount of five million dollars ($5,000,000) (the "Maximum Principal
Amount"), which includes Debentures denominated as Series A and Series B.
ARTICLE 1.
Covenants of the Company
Until the principal of and interest on the Debentures shall have been paid
in full:
(a) Continued Organization; Good Standing. Each of the Company and each of
its present or future subsidiaries (each, a "Subsidiary") will continue its
corporate existences and good standing in the state or province of its
organization and in each other state or province in which it owns or leases real
property.
(b) Filings under the Securities Exchange Act of 1934. The Common Stock
has been registered pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). The Company shall file all reports required by Section 12
of the Exchange Act not later
<PAGE>
than the date that such reports are due.
(c) Issue Additional Debentures. The Company will not issue any Debentures
in excess of the Maximum Principal Amount.
(d) Comply with Obligations under Subscription Agreement. The Company
shall comply in all material respects with its obligations pursuant to the
subscription agreements (collectively, the "Subscription Agreements") pursuant
to which the Debentures were issued.
ARTICLE 2.
Events of Default and Acceleration
(a) Events of Default Defined. The entire unpaid principal amount of this
Debenture, together with interest thereon shall, at the option of the holder
this Debenture, exercised by written notice to the Company, forthwith become and
be due and payable if any one or more the following events ("Events of Default")
shall have occurred (for any reason whatsoever and whether such happening shall
be voluntary or involuntary or be affected or come about by operation of law
pursuant to or in compliance with any judgment, decree, or order of any court or
any order, rule or regulation of any administrative or governmental body) and be
continuing. An Event of Default shall occur:
(i) if failure shall be made in the due and punctual payment of the
principal of this Debenture when and as the same shall become due; or
(ii) if failure shall be made in the due and punctual payment of any
installment of interest on this Debenture when and as the same shall become due
and payable whether at maturity or otherwise and such failure shall continue for
five (5) days after the date such payment is due; or
(iii) if the Company shall violate or breach any of the covenants set
forth in this Debenture and such violation or breach shall continue for twenty
(20) days after notice thereof shall be given to the Company by the holder of
any Debenture; or
(iv) If the Company shall violate or breach any of the
representations, warranties, covenants or agreements contained in any of the
Subscription Agreements, and such violation or breach shall continue for twenty
(20) days after notice shall be given to the Company by the holder of any
Debentures.
(v) if the Company or any Subsidiary shall consent to the appointment
of a receiver, trustee or liquidator of itself or of a substantial part of its
property, or shall admit in writing its inability to pay its debts generally as
they become due, or shall make a general assignment for the benefit of
creditors, or shall file a voluntary petition in bankruptcy, or an answer
seeking reorganization in a proceeding under any bankruptcy law (as now or
hereafter in effect) or an answer admitting the material allegations of a
petition filed against the Company or any Subsidiary, in any such proceeding, or
shall by voluntary petition, answer or consent, seek relief under the provisions
of any other now existing or future bankruptcy or other similar law providing
for the reorganization or winding up of corporations, or an arrangement,
composition, extension or adjustment with its or their creditors, or shall, in a
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<PAGE>
petition in bankruptcy filed against it or them be adjudicated a bankrupt, or
the Company or any Subsidiary or their directors or a majority of its
stockholders shall vote to dissolve or liquidate the Company or any Subsidiary
other than a liquidation involving a transfer of assets from a Subsidiary to the
Company or another Subsidiary; or
(vi) if an involuntary petition shall be filed against the Company or
any Subsidiary seeking relief against the Company or any Subsidiary under any
now existing or future bankruptcy, insolvency or other similar law providing for
the reorganization or winding up of corporations, or an arrangement,
composition, extension or adjustment with its or their creditors, and such
petition shall not be vacated or set aside within sixty (60) days from the
filing thereof; or
(vii) if a court of competent jurisdiction shall enter an order,
judgment or decree appointing, without consent of the Company or any Subsidiary,
a receiver, trustee or liquidator of the Company or any Subsidiary, or of all or
any substantial part of the property of the Company or any Subsidiary, or
approving a petition filed against the Company or any Subsidiary seeking a
reorganization or arrangement of the Company or any Subsidiary under the Federal
bankruptcy laws or any other applicable law or statute of the United States of
America or any State thereof, or any substantial part of the property of the
Company or any Subsidiary shall be sequestered; and such order, judgment or
decree shall not be vacated or set aside within sixty (60) days from the date of
the entry thereof; or
(viii) if, under the provisions of any law for the relief or aid of
debtors, any court of competent jurisdiction shall assume custody or control of
the Company or any Subsidiary or of all or any substantial part of the property
of the Company or any Subsidiary and such custody or control shall not be
terminated within sixty (60) days from the date of assumption of such custody or
control.
(b) Rights of Debenture Holder. Nothing in this Debenture shall be
construed to modify, amend or limit in any way the right of the holder of this
Debenture to bring an action against the Company.
ARTICLE 3.
Conversion
(a) Right of Conversion.
(i) At any time on or after the Initial Conversion Date, as
hereinafter defined, and subject to the rights of the Company to redeem
Debentures or restrict conversion pursuant to Paragraph 3(f) of this Debenture,
the holder of this Debenture shall have the right, in whole at any time and in
part from time to time, prior to payment of the principal of this Debenture, to
convert all or any part of the principal amount of this Debenture outstanding
from time to time and accrued interest into such number of shares of Common
Stock at the conversion price hereinafter defined (the "Conversion Price");
provided, that the right to conversion shall terminate at 5:00 P.M. New York
City time on the business day prior to the maturity date of this Debenture.
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<PAGE>
(ii) The "Initial Conversion Date" shall mean the first to occur of:
(A) October 13, 1998 (the "Registration Date"), or
(B) The effective date of the Registration Statement, as
hereinafter defined.
(b) Exercise of Conversion Right. In order to exercise the conversion
right, the holder of this Debenture shall surrender this Debenture at the office
of the Company together with written instructions specifying the portion of the
principal amount of and accrued interest on this Debenture which the holder
elects to convert and the registration and delivery of certificates for shares
of Common Stock issuable upon such conversion. The shares of Common Stock
issuable upon conversion of this Debenture are referred to as the "Conversion
Shares." The number of Conversion Shares shall be determined by dividing the
amount of principal and interest being converted by the Conversion Price in
effect on the date of such conversion, which shall be the date this Debenture is
delivered to the Company for conversion. The holder shall thereupon be deemed
the holder of the shares of Common Stock so issued and the principal amount of
and interest on the Debenture, to the extent so converted, shall be deemed to
have been paid in full. If this Debenture shall have been converted in part,
the holder of this Debenture shall be entitled to a new Debenture representing
the unpaid principal balance of such Debenture remaining after deducting the
principal amount of the Debenture converted. Any interest not converted into
Common Stock pursuant to this Paragraph 3 shall be paid to the holder in cash at
the time of conversion.
(c) Conversion Price.
(i) The Conversion Price shall be the lesser of the Maximum
Conversion Price, as hereinafter defined, or the Current Conversion Price, as
hereinafter defined, which shall be subject to adjustment as hereinafter
provided.
(ii) The Maximum Conversion Price shall mean two and 85/100
dollars ($2.85).
(iii) The Current Conversion Price shall mean eighty five percent
(85%) of the average closing bid price of the Common Stock for the five (5)
trading days prior to the date on which this Debenture is presented for
conversion on the principal stock exchange or market on which the Common Stock
is traded. If there is more than one reported closing bid price on any day, the
lowest closing bid price shall be used for the closing bid price on such day.
If this Debenture is being converted in part only, then the Current Conversion
Price shall relate to the Debenture to the extent that principal and interest is
converted, and the Current Conversion Price for any subsequent conversion shall
be determined in accordance with this Paragraph 3(c)(iii) at the time of such
subsequent conversion.
(iv) The Maximum Conversion Price shall be subject to adjustment as
follows:
(A) If the Company shall, subsequent to July 13, 1998, (A) pay a
dividend or make a distribution on its shares of Common Stock in shares of
Common Stock, (B) subdivide or reclassify its outstanding Common Stock into a
greater number of shares, or (C) combine or reclassify its outstanding Common
Stock into a smaller number of shares or
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<PAGE>
otherwise effect a reverse split, the Maximum Conversion Price in effect at the
time of the record date for such dividend or distribution or of the effective
date of such subdivision, combination or reclassification shall be
proportionately adjusted upward or downward, as the case may be. Such adjustment
shall be made successively whenever any event listed in this Paragraph
3(c)(iv)(A) shall occur.
(B) In case the Company shall, subsequent to July 13, 1998, issue
rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (or having a conversion price per share) less than the
current market price of the Common Stock (as defined in Paragraph 3(c)(iv)(D) of
this Debenture) on the record date mentioned below, the Maximum Conversion Price
shall be adjusted so that the Maximum Conversion Price shall equal the price
determined by multiplying the Maximum Conversion Price in effect immediately
prior to the date of such issuance by a fraction, the numerator of which shall
be the number of shares of Common Stock outstanding on the record date mentioned
below plus the number of additional shares of Common Stock which the aggregate
offering price of the total number of shares of Common Stock so offered (or the
aggregate conversion price of the convertible securities so offered) would
purchase at such current market price per share of the Common Stock, and the
denominator of which shall be the number of shares of Common Stock outstanding
on such record date plus the maximum number of additional shares of Common Stock
offered for subscription or purchased (or into which the convertible securities
so offered are convertible). Such adjustment shall be made successively
whenever such rights or warrants are issued and shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such rights or warrants; and to the extent that shares of Common
Stock or securities convertible into Common Stock are not delivered after the
expiration of such rights or warrants, the Maximum Conversion Price shall be
readjusted to the Maximum Conversion Price which would then be in effect had the
adjustments made upon the issuance of such rights or warrants been made upon the
basis of delivery of only the number of shares of Common Stock (or securities
convertible into Common Stock) actually delivered.
(C) In case the Company shall, subsequent to July 13, 1998,
distribute to all holders of Common Stock evidences of its indebtedness or
assets (excluding cash dividends or distributions paid out of current earnings
and dividends or distributions referred to in Paragraph 3(c)(iv)(A) of this
Debenture) or subscription rights or warrants (excluding those referred to in
Paragraph 3(c)(iv)(B) of this Debenture), then in each such case the Maximum
Conversion Price in effect thereafter shall be determined by multiplying the
Maximum Conversion Price in effect immediately prior thereto by a fraction, of
which the numerator shall be the total number of shares of Common Stock
outstanding multiplied by the current market price per share of Common Stock (as
defined in Paragraph 3(c)(iv)(D) of this Debenture), less the fair market value
(as determined by the Company's Board of Directors) of said assets or evidences
of indebtedness so distributed or of such rights or warrants, and of which the
denominator shall be the total number of shares of Common Stock outstanding
multiplied by such current market price per share of Common Stock. Such
adjustment shall be made successively whenever such a record date is fixed. Such
adjustment shall be made whenever any such distribution is made and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such distribution.
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<PAGE>
(D) For the purpose of any computation under Paragraphs 3(c)(iv)(B)
and (C) of this Debenture, the current market price per share of Common Stock at
any date shall be deemed to be the average of the daily closing prices for ten
(10) consecutive trading days commencing twenty (20) trading days before such
date. The closing price for each day shall be the reported closing price on the
principal national securities exchange or market on which the Common Stock is
admitted to trading or listed, or if not listed or admitted to trading on any
such exchange or such market or if there is no trading on any day in the
computation period, the closing low bid price as reported by the Nasdaq Stock
Market ("Nasdaq"), the National Quotation Bureau, Inc. or other similar
organization, shall be used, or if such prices are not available, the fair
market price as determined in good faith by the Board of Directors.
(v) In the event that, during any five (5) trading day period during
which a computation of the Current Market Price is being made, there is a record
date for an event described in Paragraphs 3(c)(iv)(A), (B) or (C) of this
Debenture, the closing bid price of the Common Stock for each day in such period
which is prior to such record date shall be adjusted in the same manner as the
Maximum Conversion Price.
(d) Reclassification, Reorganization or Merger. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a Subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock or the class issuable upon conversion of this
Debenture) or in case of any sale, lease or conveyance to another corporation of
the property of the Company as an entirety, the Company shall, as a condition
precedent to such transaction, cause effective provisions to be made so that the
holder of this Debenture shall have the right thereafter by converting this
Debenture, to purchase the kind and amount of shares of stock and other
securities and property receivable upon such reclassification, capital
reorganization and other change, consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock which might have been purchased
upon conversion of this Debenture immediately prior to such reclassification,
change, consolidation, merger, sale or conveyance. Any such provision shall
include provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Debenture. The foregoing
provisions of this Paragraph 3(d) shall similarly apply to successive
reclassifications, capital reorganizations and changes of shares of Common Stock
and to successive consolidations, mergers, sales or conveyances. In the event
that in connection with any such capital reorganization or reclassification,
consolidation, merger, sale or conveyance, additional shares of Common Stock
shall be issued in exchange, conversion, substitution or payment, in whole in
part, for a security of the Company other than Common Stock, such transaction
shall be treated as a reclassification or reorganization pursuant to this
Paragraph 3(d).
(e) Fractional Shares. No fractional shares or script representing
fractional shares shall be issued upon the conversion of any Debentures. If,
upon any full or partial conversion of this Debenture, the holder would, except
for the provisions of this Paragraph 3(e), be entitled to receive a fractional
share of Common Stock, then the Company shall pay the holder, at the time the
shares of Common Stock are issued on such conversion, an amount equal to such
fractional share multiplied by the then current value per share of Common
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<PAGE>
Stock, determined as follows:
(i) If the Common Stock is listed on a national securities exchange
or admitted to unlisted trading privileges on such exchange or listed for
trading on Nasdaq or other automated quotation system which provides information
as to the last sale price, the current value shall be the average of the
reported last sale prices of one share of Common Stock on such exchange or
system on the last trading days prior to the date of conversion, or if, on such
date, no such sale is made on such day, the average of the closing bid and asked
prices for such date on such exchange or system shall be used; or
(ii) If the Common Stock is not so listed or admitted to unlisted
trading privileges, the current value shall be the mean the average of the
reported last bid and asked prices of one share of Common Stock as reported by
Nasdaq, the National Quotation Bureau, Inc. or other similar reporting service,
on the trading day prior to the date of conversion; or
(iii) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the current
value of one share of Common Stock shall be an amount, not less than book value,
determined in such reasonable manner as may be prescribed by the Board of
Directors of the Company.
(f) Right of Company to Redeem or Restrict Conversion.
(i) In the event that, on the date any Debentures are presented for
conversion (a "Conversion Date"), the closing price per share of the Common
Stock is less than five-twelfths (5/12) of the Maximum Conversion Price, then
the Company shall have the right to exercise either the Redemption Right, as
hereinafter defined, or the Conversion Restriction Right, as hereinafter
defined. The Redemption Right and the Conversion Restriction Right may only be
exercised prior to noon, New York City time, on the date following such
Conversion Date. If the Redemption Right or the Conversion Restriction Right is
not exercised by such time, it may not be exercised with respect to such
conversion, although it may be exercised with respect to a future Conversion
Date if, and only if, the conditions set forth in this Paragraph 3(f)(i) shall
occur on such subsequent Conversion Date. Notice (the "Notice") of the exercise
of the Redemption Right or the Conversion Restriction Right must be given by
telephone, and confirmed by telecopier and by mail as provided in Paragraph 5(g)
of this Debenture.
(ii) The Redemption Right shall mean the right to redeem the
Debentures that are tendered for conversion on the Conversion Date at a
redemption price equal to one hundred twenty percent (120%) of the principal
amount of the Debenture to the extent that the Debenture is tendered for
conversion, plus accrued interest on such principal amount. Payment of such
redemption price shall be made by certified or official bank check or by wire
transfer in accordance with instructions from the holder of this Debenture. The
redemption price shall be paid not later than the business day following the
date on which the Company exercises the Redemption Right. The exercise of the
Redemption Right on any occasion shall not affect the ability of the Company to
exercise the Redemption Right on a subsequent Conversion Date; provided,
however, that in the event that the Company fails to pay the Redemption Price on
the date such payment is to be made pursuant to this Paragraph 3(f)(ii), then
(A) the right to redeem the Debentures and the Conversion Restriction Right
shall
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<PAGE>
terminate, and the Company shall have no right thereafter to redeem any
Debentures or to restrict conversion of Debentures, and (B) from and after the
Redemption Date, the Conversion Price of all Debentures shall be seventy five
percent (75%) of the Conversion Price determined pursuant to Paragraph 3(c) of
this Debenture.
(iii) The Conversion Restriction Right shall mean the right of the
Company to restrict conversion of any Debentures for a period (the "Conversion
Restriction Period") of nor more than thirty (30) days commencing on the
Conversion Date that the Company exercises the Conversion Restriction Right and
ending on the date set forth in the Notice. During the Conversion Restriction
Period, no Debentures may be converted. The Conversion Restriction Right shall
not be effective unless notice thereof is given to all holders of Debentures as
provided in Paragraph 3(f)(i) of this Debenture. The Conversion Restriction
Right may be exercised on one occasion only, and may not be exercised with
respect to any Debentures issued subsequent to the date the Conversion
Restriction Right is exercised.
(iv) Commencing with the first trading day following the last day of
the Conversion Restriction Period, the percentage set forth in Paragraph
3(c)(iii) of this Debenture and any other Debentures then outstanding shall be
automatically changed from eighty five percent (85%) to eighty percent (80%).
ARTICLE 4.
Filing of S-3 Registration Statement; Payment for Failure to Register.
(a) Not later than August 19, 1998, the Company shall file a registration
statement (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act") on Form S-3 covering the issuance and sale of the
Conversion Shares issuable upon conversion of all of the Debentures, and the
Company will use its best efforts to have such registration statement declared
effective as soon as possible thereafter. The Company shall take such steps to
insure that the Registration Statement is current and effective until all of the
Conversion Shares shall have been sold or until such time as all of the
Conversion Shares issuable upon all of the Debentures may be sold without
registration pursuant to Rule 144 of the Securities and Exchange Commission (the
"Commission") or any similar subsequent rule without regard to volume
limitations and filing requirements.
(b) The Company recognizes that its agreement to have the Conversion
Shares registered pursuant to the Securities Act was a material inducement for
the holder of this Debenture to purchase this Debenture. Accordingly, if the
Registration Statement is not declared effective by the Commission by the
Registration Date, the Company shall pay the holder of this Debenture, as
liquidated damages for such failure, the Registration Payment, as hereinafter
defined.
(c) The Registration Payment shall mean the Applicable Percentage, as
hereinafter defined, multiplied by the number of days between Registration Date
and the date on which the Registration Statement is declared effective by the
Commission. In making such computation, the Registration Date shall not be
counted, and the date on which the Registration Statement is declared effective
shall be counted.
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<PAGE>
(d) The Applicable Percentage shall mean (A) one-thirtieth of one percent
(.033 1/3%) for each of the first thirty (30) days after Registration Date that
the Registration Statement has not been declared effective by the Commission
plus (B) one-fifteenth of one percent (.066 2/3%) for each day after the
expiration of such thirty (30) day period that the Registration Statement has
not been declared effective by the Commission.
(e) Payment of the Registration Payment shall be made on the first day of
each calendar month following the Registration Date, based on the amount accrued
to the day prior to the date of such payment, except that the last payment shall
be made within two (2) business days after the effective date of the
Registration Statement.
ARTICLE 5.
Miscellaneous
(a) Transferability. This Debenture shall not be transferred except in a
transaction exempt from registration pursuant to the Securities Act and
applicable state securities law. The Company shall treat as the owner of this
Debenture the person shown as the owner on its books and records.
(b) Right of Prepayment. Subject to the right of the Company to exercise
the Redemption Right, the Company may, but only with the written consent of the
holder of this Debenture, prepay all, and not less than all, of the principal
amount of this Debenture plus accrued interest, provided, that in the event that
the Company elects to make such prepayment it shall offer to prepay all of the
outstanding Debentures.
(c) Waiver of Trial by Jury. In any legal proceeding to enforce payment
of this Debenture, the Company waives trial by jury, claims for offset and
counterclaims, if any.
(d) Legal Fees. In the event that the holder of this Debenture engages
counsel in connection with the administration or enforcement of this Debenture,
the Company shall pay all reasonable legal fees and expenses incurred by the
holder, regardless of whether an action has been commenced.
(e) Governing Law. This Debenture shall be governed by the laws of the
State of New York applicable to agreement executed and to be performed wholly
within such State without regard to principles of conflict of laws.
(f) Court Jurisdiction. The Company hereby (i) consents to the exclusive
jurisdiction of the United States District Court for the Southern District of
New York and Supreme Court of the State of New York in the County of New York in
any action relating to or arising out of this Debenture, (ii) agrees that any
process in any such action may be served upon it, in addition to any other
method of service permitted by law, by certified or registered mail, return
receipt requested, or by an overnight courier service which obtains evidence of
delivery, with the same full force and effect as if personally served upon him
in New York City, and (iii) waives any claim that the jurisdiction of any such
tribunal is not a convenient forum for any such action and any defense of lack
of in personam jurisdiction with respect thereto.
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<PAGE>
(g) Notices. Notice to the Company shall be given to the Company at 185-
10751 Shellbridge Way, Richmond, BC, Canada V6X 2W8, telecopier (604) 278-3409,
Attention of Mr. John G. Robertson, President, or to the holder at the address
set forth on the Company's records, or to such other address as the Company or
the holder may advise by hand delivery, certified or registered mail, return
receipt requested, overnight courier service, or by telecopier if confirmation
of receipt is given or of confirmation of transmission is sent by mail as herein
provided.
IN WITNESS WHEREOF, the Company has executed this Agreement as of the date
and year first aforesaid.
IAS COMMUNICATIONS, INC.
By:____________________________________
John G. Robertson, President
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<PAGE>
NOTICE OF CONVERSION
[To be Signed Only Upon Conversion
of Part or All of Debentures]
IAS COMMUNICATIONS, INC.
The undersigned, the holder of the foregoing Debenture, hereby surrenders
such Debenture for conversion into shares of Common Stock of IAS Communications,
Inc. to the extent of $ * unpaid principal amount of and interest due on
such Debenture, and requests that the certificates for such shares be issued in
the name of ____________________, and delivered to __________________________,
whose address is _____________________________.
DATED:
- ----------------------
(Signature)
(Signature must conform in all respects to name of holder as specified on
the face of the Debenture.)
- -----------
* Insert here the unpaid principal amount of the Debenture (or, in the case
of a partial conversion, the portion thereof as to which the Debenture is
being converted). In the case of a partial conversion, a new Debenture
will be issued and delivered, representing the unconverted portion of the
unpaid principal amount of this Debenture, to or upon the order of the
holder surrendering such Debenture.
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<PAGE>
EXHIBIT 4.4
- --------------------------------------------------------------------------------
Warrant to Purchase
WA-1 **25,000**
Shares of Common Stock
- --------------------------------------------------------------------------------
NEITHER THIS WARRANT NOR THE SHARES OF CLASS A COMMON STOCK ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND NEITHER THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN
EXEMPTION SHALL BE APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
VOID AFTER 5:00 P.M. NEW YORK CITY TIME ON JULY 15, 2001
SERIES A COMMON STOCK PURCHASE WARRANT
OF
IAS COMMUNICATIONS, INC.
This is to certify that, FOR VALUE RECEIVED, or
registered assigns ("Holder"), is entitled to purchase, on the terms and
subject to the provisions of this Warrant, from IAS Communications, Inc., an
Oregon corporation (the "Company"), at an exercise price per share of
and /100 dollars ($ . ), twenty five thousand
(25,000) shares of no par value class A common stock ("Common Stock"), of the
Company at any time during the period (the "Exercise Period"), commencing on the
date of issuance of this Warrant and ending at 5:00 P.M. New York City time, on
July 15, 2001; provided, however, that if such date is a day on which banking
institutions in the State of New York are authorized by law to close, then on
the next succeeding day which shall not be such a day. The number of shares of
Common Stock to be issued upon the exercise of this Warrant and the price to be
paid for a share of Common Stock may be adjusted from time to time in the manner
set forth in this Warrant. The shares of Common Stock deliverable upon such
exercise, and as adjusted from time to time, are hereinafter sometimes referred
to as "Warrant Shares," and the exercise price for the purchase of a share of
Common Stock pursuant to this Warrant, as the same may be adjusted from time to
time is hereinafter sometimes referred to as the "Exercise Price." Reference in
the Warrant to the "Series A Warrants" shall mean any or all of the warrants
designated as Series A Common Stock Purchase Warrants by the Company. The Series
A Warrants were issued pursuant to a subscription agreement dated July 13, 1998
(the "Subscription Agreement"), between the Company and the initial holder of
the Warrant.
(a) EXERCISE OF WARRANT.
(1) This Warrant may be exercised in whole at any time or in part
from time to time during the Exercise Period by presentation and surrender of
this Warrant to the Company at its principal office, or at the office of its
stock transfer agent, if any, with the Purchase Form
<PAGE>
annexed hereto duly executed and accompanied by payment of the Exercise Price
for the number of shares of Common Stock specified in such form. Payment of the
Exercise Price may be made either by check (subject to collection) in the amount
of the Exercise Price or by delivery of such number of shares of Common Stock as
has a current value, determined in the manner provided for in Paragraph (a)(2)
of this Warrant (with the current value being based on the market price of the
Common Stock on the date the Warrant, accompanied by the shares of Common Stock
delivered in respect of such exercise, is received by the Company or its
transfer agent), equal to the Exercise Price. If this Warrant should be
exercised in part only, whether pursuant to this Paragraph (a)(1) or pursuant to
Paragraph (a)(2) of this Warrant, the Company shall, upon surrender of this
Warrant for cancellation, execute and deliver a new Warrant evidencing the
rights of the Holder hereof to purchase the balance of the shares of Common
Stock purchasable hereunder. Upon receipt by the Company of this Warrant at its
office, or by the stock transfer agent of the Company at its office, in proper
form for exercise, the Holder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of the Company shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered to
the Holder.
(2) In lieu of exercising this Warrant by payment of the Exercise
Price pursuant to Paragraph (a)(1) of this warrant, the Holder shall have the
right to convert this Warrant, in whole or in part to the extent that this
Warrant has not been exercised pursuant to said Paragraph (a)(1), for the number
of shares of Common Stock determined by (i) multiplying (x) the number of shares
as to which this Warrant is being exercised by (y) the difference between the
current value per share of Common Stock on the date of exercise and the Exercise
Price per share, as in effect on such date, and (ii) dividing the result so
obtained by the current value per share of Common Stock on the date of exercise.
The date of exercise shall mean, for purposes of this Paragraph (a)(2), the date
on which this Warrant accompanied by the notice of exercise is received by the
Company. The current value per share of Common Stock shall be determined as
follows:
(A) If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange or listed
for trading on the Nasdaq Stock Market ("Nasdaq") or other automated quotation
system which provides information as to the last sale price, the current value
shall be the average of the reported last sale prices of one share of Common
Stock on such exchange or system on the last five (5) trading days prior to the
date of exercise of this Warrant, or if, on any of such dates, no such sale is
made, the average of the closing bid and asked prices for such date on such
exchange or system shall be used; or
(B) If the Common Stock is not so listed or admitted to unlisted
trading privileges, the current value shall be the mean the average of the
reported last bid and asked prices of one share of Common Stock as reported by
Nasdaq, the National Quotation Bureau, Inc. or other similar reporting service,
on the last five (5) trading day prior to the date of the exercise of this
Warrant; or
(C) If the Common Stock is not so listed or admitted to unlisted
trading
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<PAGE>
privileges and bid and asked prices are not so reported, the current value of
one share of Common Stock shall be an amount, not less than book value,
determined in such reasonable manner as may be prescribed by the Board of
Directors of the Company.
(b) RESERVATION OF SHARES. The Company hereby agrees that at all times
there shall be reserved for issuance and/or delivery upon exercise of this
Warrant such number of shares of Common Stock as shall be required for issuance
and delivery upon exercise of this Warrant and that it shall not, without the
prior approval of the holders of a majority of the Series A Warrants then
outstanding, increase the par value of the Common Stock.
(c) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise of this Warrant,
the Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of such fractional share, determined in
the manner set forth in Paragraph (a)(2) of this Warrant, except that the price
shall be based on the closing price on the last trading day before the date of
exercise.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, for other Warrants of different denominations entitling the
holder thereof to purchase in the aggregate the same number of shares of Common
Stock purchasable hereunder. Subject to the provisions of Paragraph (k) of this
Warrant, upon surrender of this Warrant to the Company or at the office of its
stock transfer agent, if any, with the Assignment Form annexed hereto duly
executed and funds sufficient to pay any transfer tax, the Company shall,
without charge, execute and deliver a new Warrant in the name of the assignee
named in such instrument of assignment and this Warrant shall promptly be
canceled. This Warrant may be divided or combined with other Warrants which
carry the same rights upon presentation hereof at the office of the Company or
at the office of its stock transfer agent, if any, together with a written
notice specifying the names and denominations in which new Warrants are to be
issued and signed by the Holder hereof. The term "Warrant" as used herein
includes any Warrants into which this Warrant may be divided or exchanged. Upon
receipt by the Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will execute and deliver
a new Warrant of like tenor. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the Company,
whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at
any time enforceable by anyone.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue of this
Warrant, be entitled to any rights of a stockholder in the Company, either at
law or equity, and the rights of the Holder are limited to those expressed in
the Warrant and are not enforceable against the Company except to the extent set
forth in this Warrant.
(f) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time
and the
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<PAGE>
number and kind of securities purchasable upon exercise of each Warrant shall be
subject to adjustment as follows:
(1) In case the Company shall, subsequent to July 6, 1998, (A) pay a
dividend or make a distribution on its shares of Common Stock in shares of
Common Stock (B) subdivide or reclassify its outstanding Common Stock into a
greater number of shares, or (C) combine or reclassify its outstanding Common
Stock into a smaller number of shares or otherwise effect a reverse split, the
Exercise Price in effect at the time of the record date for such dividend or
distribution or of the effective date of such subdivision, combination or
reclassification shall be proportionately adjusted so that the Holder of this
Warrant exercised after such date shall be entitled to receive the aggregate
number and kind of shares which, if this Warrant had been exercised immediately
prior to such time, he would have owned upon such exercise and been entitled to
receive upon such dividend, subdivision, combination or reclassification. Such
adjustment shall be made successively whenever any event listed in this
Paragraph (f)(1) shall occur.
(2) In case the Company shall, subsequent to July 6, 1998, issue
rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (or having a conversion price per share) less than the
current market price of the Common Stock (as defined in Paragraph (f)(5) of this
Warrant) on the record date mentioned below, the Exercise Price shall be
adjusted so that the same shall equal the price determined by multiplying the
Exercise Price in effect immediately prior to the date of such issuance by a
fraction, of which the numerator shall be the number of shares of Common Stock
outstanding on the record date mentioned below plus the number of shares
determined by multiplying the price or the conversion price at which additional
shares of Common Stock are offered by the number of shares of Common Stock being
offered by the number of shares being issued, including shares being issued upon
conversion of any convertible securities, and dividing the result so obtained by
the current market price of the Common Stock, and of which the denominator shall
be the number of shares of Common Stock outstanding on such record date plus the
number of additional shares of Common Stock offered for subscription or
purchased (or into which the convertible securities so offered are convertible).
Such adjustment shall be made successively whenever such rights or warrants are
issued and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants; and
to the extent that shares of Common Stock or securities convertible into Common
Stock are not delivered after the expiration of such rights or warrants, the
Exercise Price shall be readjusted to the Exercise Price which would then be in
effect had the adjustments made upon the issuance of such rights or warrants
been made upon the basis of delivery of only the number of shares of Common
Stock (or securities convertible into Common Stock) actually delivered.
(3) In case the Company shall, subsequent to July 6, 1998, distribute
to all holders of Common Stock evidences of its indebtedness or assets
(excluding cash dividends or distributions paid out of current earnings and
dividends or distributions referred to in Paragraph (f)(1) of this Warrant) or
subscription rights or warrants (excluding those referred to in Paragraph (f)(2)
of this Warrant), then in each such case the Exercise Price in effect thereafter
shall be determined by multiplying the Exercise Price in effect
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<PAGE>
immediately prior thereto by a fraction, of which the numerator shall be the
total number of shares of Common Stock outstanding multiplied by the current
market price per share of Common Stock (as defined in Paragraph (f)(5) of this
Warrant), less the fair market value (as determined by the Company's Board of
Directors) of said assets or evidences of indebtedness so distributed or of such
rights or warrants, and of which the denominator shall be the total number of
shares of Common Stock outstanding multiplied by such current market price per
share of Common Stock. Such adjustment shall be made successively whenever such
a record date is fixed. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive such
distribution.
(4) Whenever the Exercise Price payable upon exercise of each Warrant
is adjusted pursuant to Paragraphs (f)(1), (2) or (3) of this Warrant, the
number of shares of Common Stock purchasable upon exercise of each Warrant shall
simultaneously be adjusted by multiplying the number of shares of Common Stock
issuable upon exercise of each Warrant in effect on the date thereof by the
Exercise Price in effect on the date thereof and dividing the product so
obtained by the Exercise Price, as adjusted. In no event shall the Exercise
Price per share be less than the par value per share, and, if any adjustment
made pursuant to Paragraph (f)(1), (2) or (3) would result in an exercise price
of less than the par value per share, then, in such event, the Exercise Price
per share shall be the par value per share. The Company agrees not to increase
the par value of the Common Stock other than in connection with a reverse split
or combination or shares or other recapitalization, in which event any such
increase shall not be greater that which would result from the application of
the adjustments provided in Paragraph (f)(1) of this Warrant to the par value.
(5) For the purpose of any computation under Paragraphs (f)(2) and
(3) of this Warrant, the current market price per share of Common Stock at any
date shall be deemed to be the average of the daily closing prices for thirty
(30) consecutive trading days commencing forty five (45) trading days before
such date. The closing price for each day shall be the reported last sale price
regular way or, in case no such reported sale takes place on such day, the
average of the reported last bid and asked prices regular way, in either case on
the principal national securities exchange on which the Common Stock is admitted
to trading or listed or on Nasdaq, or if not listed or admitted to trading on
such exchange or such market, the average of the reported highest bid and
reported lowest asked prices as reported by Nasdaq, the National Quotation
Bureau, Inc. or other similar organization if Nasdaq is no longer reporting such
information, or if not so available, the fair market price as determined by the
Board of Directors.
(6) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least one cent ($0.01) in
such price; provided, however, that any adjustments which by reason of this
Paragraph (f)(6) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Paragraph
(f) shall be made to the nearest cent or to the nearest one-hundredth of a
share, as the case may be. Anything in this Paragraph (f) to the contrary
notwithstanding, the Company shall be entitled, but shall not be required, to
make
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<PAGE>
such changes in the Exercise Price, in addition to those required by this
Paragraph (f), as it in its discretion shall determine to be advisable in order
that any dividend or distribution in shares of Common Stock, subdivision,
reclassification or combination of Common Stock, issuance of warrants to
purchase Common Stock or distribution of evidences of indebtedness or other
assets (excluding cash dividends) referred to hereinabove in this Paragraph (f)
hereafter made by the Company to the holders of its Common Stock shall not
result in any tax to the holders of its Common Stock or securities convertible
into Common Stock.
(7) The Company may retain a firm of independent public accountants
of recognized standing selected by the Board of Directors (who may be the
regular accountants engaged by the Company) to make any computation required by
this Paragraph (f), and a certificate signed by such firm shall be conclusive
evidence of the correctness of such adjustment.
(8) In the event that at any time, as a result of an adjustment made
pursuant to Paragraph (f)(1) of this Warrant, the Holder of any Warrant
thereafter shall become entitled to receive any shares of the Company, other
than Common Stock, thereafter the number of such other shares so receivable upon
exercise of any Warrant shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Common Stock contained in Paragraphs (f)(1) to (6), inclusive, of
this Warrant.
(9) Irrespective of any adjustments in the Exercise Price or the
number or kind of shares purchasable upon exercise of Warrants, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in this and similar Warrants initially
issued by the Company.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be adjusted
as required by the provisions of Paragraph (f) of this Warrant, the Company
shall forthwith file in the custody of its Secretary or an Assistant Secretary
at its principal office and with its stock transfer agent, if any, an officer's
certificate showing the adjusted Exercise Price and the adjusted number of
shares of Common Stock issuable upon exercise of each Warrant, determined as
herein provided, setting forth in reasonable detail the facts requiring such
adjustment, including a statement of the number of additional shares of Common
Stock, if any, and such other facts as shall be necessary to show the reason for
and the manner of computing such adjustment. Each such officer's certificate
shall be made available at all reasonable times for inspection by the Holder,
and the Company shall, forthwith after each such adjustment, mail, by first
class mail, a copy of such certificate to the Holder at the Holder's address set
forth in the Company's Warrant Register.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (1) if the Company shall pay any dividend or make any distribution
upon Common Stock (other than a regular cash dividend payable out of retained
earnings) or (2) if the Company shall offer to the holders of Common Stock for
subscription or purchase by them any share of any class or any other rights or
(3) if any capital reorganization of the Company, reclassification of the
capital stock of the Company, consolidation or merger of the Company
-6-
<PAGE>
with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail, return receipt requested, to the Holder, at
least fifteen days prior to the date specified in clauses (i) and (ii), as the
case may be, of this Paragraph (h) a notice containing a brief description of
the proposed action and stating the date on which (i) a record is to be taken
for the purpose of such dividend, distribution or rights, or (ii) such
reclassification, reorganization, consolidation, merger, conveyance, lease,
dissolution, liquidation or winding up is to take place and the date, if any is
to be fixed, as of which the holders of Common Stock or other securities shall
receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
(i) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger in which the
Company is the continuing corporation and which does not result in any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the class issuable upon exercise of this Warrant) or in case
of any sale, lease or conveyance to another corporation of the property of the
Company as an entirety, the Company shall, as a condition precedent to such
transaction, cause effective provisions to be made so that the Holder shall have
the right thereafter by exercising this Warrant, to purchase the kind and amount
of shares of stock and other securities and property receivable upon such
reclassification, capital reorganization and other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
which might have been purchased upon exercise of this Warrant immediately prior
to such reclassification, change, consolidation, merger, sale or conveyance. Any
such provision shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Warrant. The foregoing provisions of this Paragraph (i) shall similarly apply to
successive reclassifications, capital reorganizations and changes of shares of
Common Stock and to successive consolidations, mergers, sales or conveyances.
(j) REGISTRATION UNDER THE SECURITIES ACT OF 1933.
(1) The holder of this Warrant and/or the Warrant Shares shall be
entitled to the benefits of the registration provisions of the Subscription
Agreement with the same effect as if such rights were set forth verbatim in this
Warrant.
(2) In the event that, for any reason and for any period, the Warrant
Shares shall not be registered pursuant to a current and effective registration
statement or such registration statement shall cease to be current, the last day
of the exercise period shall be extended by two (2) days for each day that the
registration statement shall not be available to the holder of this Warrant or
the Warrant Shares.
(k) TRANSFER TO COMPLY WITH THE SECURITIES ACT. This Warrant or the
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<PAGE>
Warrant Shares or any other security issued or issuable upon exercise of this
Warrant may not be sold or otherwise disposed of except as follows:
(1) To a person who, in the opinion of counsel for the Company, is a
person to whom this Warrant or Warrant Shares may legally be transferred without
registration and without the delivery of a current prospectus under the
Securities Act with respect thereto and then only against receipt of an
agreement of such person to comply with the provisions of this Paragraph (k)
with respect to any resale or other disposition of such securities which
agreement shall be satisfactory in form and substance to the Company and its
counsel; or
(2) to any person upon delivery of a prospectus then meeting the
requirements of the Securities Act relating to such securities and the offering
thereof for such sale or disposition.
Dated as of , 1998
IAS COMMUNICATIONS, INC.
By:______________________________________
John G. Robertson
President and Chief Executive Officer
-8-
<PAGE>
PURCHASE FORM
Dated:
____ The undersigned hereby irrevocably exercises this Warrant to the extent of
purchasing ______________ shares of Common Stock and hereby makes payment
of $________________ in payment of the Exercise Price therefor.
____ The undersigned hereby irrevocably exercises this Warrant to the extent of
purchasing__________ shares of Common Stock and hereby makes payment of
$________________ in payment of the Exercise Price therefor by delivery of
shares of Common Stock pursuant to Paragraph (a)(1) of this Warrant.
____ The undersigned hereby irrevocably elects to exchange this Warrant to the
extent of __________________ shares of Common Stock pursuant to the
provision of Paragraph (a)(2) of this Warrant.
-----------------------------
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name _____________________________________________
(Please typewrite or print in block letters)
Signature ________________________________________
Social Security or Employer Identification No. _________________
ASSIGNMENT FORM
FOR VALUE RECEIVED, hereby sells,
assigns and transfer unto
Name _____________________________________________
(Please typewrite or print in block letters)
Address __________________________________________
Social Security or Employer Identification No. _________________
The right to purchase Common Stock represented by this Warrant to the extent of
________________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint ____________________________________ attorney
to transfer the same on the books of the Company with full power of
substitution.
Signature ________________________________________
Signature Medallion Guaranteed:
__________________________________________________
-9-
<PAGE>
EXHIBIT 5.1
[VJG letterhead]
August 17, 1998
Board of Directors
IAS Communications, Inc.
Gentlemen:
We have acted as counsel to IAS Communications, Inc. (the "Company") in
connection with the filing of a Registration Statement on Form S-3 (the
"Registration Statement") under the Securities Act of 1933, as amended, relating
to the issuance of up to 3,000,000 shares of Common Stock (the "Shares"), which
are issuable upon conversion of the Company's 8% Redeemable Convertible
Debentures (the "Debentures") and exercise of Warrants (the "Warrants"), both
issued or to be issued pursuant to Subscription Agreement dated as of July 15,
1998, between the Company and Augustine Fund LP. We have reviewed the corporate
actions of the Company in connection with this matter, and we have examined such
corporate records and other documents as we deemed necessary for the purposes of
this opinion.
Based upon the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized and validly existing under
the laws of the State of Oregon.
2. The Shares have been duly reserved for issuance upon conversion of the
Debentures and exercise of the Warrants, and when issued upon such conversion or
exercise in accordance with the terms of the Debentures or Warrants and in
accordance with the terms of the Company's Articles of Incorporation and Bylaws,
the Shares will be validly issued, fully paid, and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ VANDEBERG JOHNSON & GANDARA
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
July 29, 1998, appearing on page 12 of IAS Communications, Inc.'s Annual Report
on Form 10-K for the year ended April 30, 1998. We also consent to the
incorporation by reference of our report on the Financial Statement Schedule,
which appears on page 36 of such Annual Report on Form 10-K. We also consent to
the reference to us under the heading "Experts" in such Prospectus.
/s/ ELLIOTT TULK PRYCE ANDERSON, CHARTERED ACCOUNTANTS
Vancouver, British Columbia
August 14, 1998
