Exhibit 10.2
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Date: December 21, 1998
Chequemate International, Inc.
00 Xxxx 000 Xxxxx
Xxxxx 000
Xxxx Xxxx Xxxx, Xxxx 00000
Attention: Xx. Xxxxxxx Xxxx, President
Re: Subscription Agreement for 8% Convertible Redeemable Debentures
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Dear Sirs:
Pursuant to a private offering by Chequemate International, Inc., a Utah
corporation (the "Company"), the undersigned (the "Subscriber") hereby tenders
his or her subscription for the Company's units (the "Units"), each Unit
consisting of (i) the Company's 8% Convertible Redeemable Debentures
(collectively, the "Debentures" and each, a "Debenture") in the principal amount
of two hundred fifty thousand dollars ($250,000) and (ii) a warrant
(collectively, the "Warrants" and each, individually, a "Warrant") to purchase
twenty-four thousand seven hundred fifty-three (24,753) shares of the Company's
common stock, with a $0.0001 par value ("Common Stock"), at a purchase price of
two hundred fifty thousand dollars ($250,000) per Unit. As used in this
Agreement, the term "Conversion Shares" shall mean the shares of Common Stock
issuable upon conversion of the Debentures, the term "Warrant Shares" shall mean
the shares of Common Stock issuable upon exercise of the Warrants, the term
"Shares" shall mean the Warrant Shares and the Conversion Shares, and term
"Securities" shall mean the Units, the Debentures, the Warrants and the Shares.
The maturity date and conversion price of the Debentures and the exercise price
of the Warrants shall be determined in the manner provided in the form of
Debenture and Warrant included in the Disclosure Documents, as hereinafter
defined.
The Company is offering the Debentures to a limited number of accredited
investors, as defined in Rule 501 of the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to an exemption from the registration requirements of the
Securities Act provided by Sections 4(2) and 4(6) of the Securities Act and Rule
506 of the Commission under the Securities Act.
In consideration of the mutual covenants and agreements set forth herein, the
Company and the Subscriber hereby agree as follows:
a. The Subscriber hereby agrees to purchase from the Company, and
the Company agrees to sell to the Subscriber, not less than
three Units at a purchase price of seven hundred fifty
thousand dollars ($750,000). Payment of the purchase price
shall be made by check payable to the order of "Esanu Katsky
Xxxxxx & Siger, LLP, as escrow agent for Chequemate
International, Inc." or by wire transfer to the Esanu Katsky
Xxxxxx & Siger, LLP escrow account. The purchase price for the
Units shall be paid in installments as hereinafter provided.
i. The purchase price for the Unit shall be payable
within five (5) business days of the date of this
Agreement. The date on the Unit is purchased is
referred to as the "Closing Date."
ii. Proceeds from the sale of the Debentures will be held
until checks have cleared, after which the proceeds
will be disbursed.
iii. There is no placement agent in connection with the
offering of the Debentures. The Company has engaged
Xxxxxxx Capital Partners, Ltd. ("Xxxxxxx") as a
consultant in connection with this Offering, to which
the Company will pay compensation pursuant to an
agreement between the Company and Xxxxxxx.
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iv. The Company shall have the right, on written
notice to the Subscriber, to terminate the
Subscriber's obligation to purchase Units, provided,
however, that such termination shall not affect the
Company's obligations pursuant to Paragraphs 6 and 7
of this Agreement, which shall continue in full force
and effect, except that the Company's obligations
pursuant to Paragraph 6(b) shall terminate at such
time (prior to the date set forth therein) as all of
the Conversion Shares which have been issued or are
issuable upon conversion of outstanding Debentures
shall have been sold.
b. The Company represents and warrants to the Subscriber
as follows:
i. Organization and Qualification. The Company
is (i) a corporation duly organized and existing in
good standing under the laws of the State of Utah and
has the requisite corporate power to own its
properties and to carry on its business as now being
conducted and (ii) qualified to conduct business as a
foreign corporation to do business and in good
standing in every jurisdiction in which the nature of
the business conducted by it makes such qualification
necessary and where the failure so to qualify would
have a Material Adverse Effect. As used in this
Agreement, the term "Material Adverse Effect" means
any material adverse effect on (A) the Securities; (B)
the ability of the Company to perform its obligations
under this Agreement or under the Securities, or (C)
the business, operations, properties or financial
condition of the Company. The Company does not have
any equity investment or other interest, direct or
indirect, in, nor any outstanding loans, advances or
guarantees to, any domestic or foreign corporation,
association, partnership, limited liability company,
joint venture or other entity, except for the equity
interest in the Company's wholly owned subsidiary,
Chequemate Technologies, Inc. and except as reflected
on the Financial Statements referenced in Paragraph
2(f) herein.
ii. Authorization; Enforcement. The Company has
the requisite corporate power and authority to enter
into and perform its obligations under this Agreement,
to issue and sell the Units pursuant to this Agreement
and to issue the Shares in accordance with the terms
of the Debentures and Warrants, as the case may be.
The execution, delivery and performance of this
Agreement, the Debentures and the Warrants and the
consummation by the Company of the transactions
contemplated by this Agreement, the Debentures and the
Warrants (including without limitation the issuance of
the Debentures and Warrants and the issuance and
reservation for issuance of the Shares) have been duly
authorized by the Company's board of directors and no
further consent or authorization of the Company, its
board of directors, or its stockholders is required.
This Agreement has been duly executed and delivered by
the Company and constitutes the valid and binding
obligation of the Company enforceable against the
Company in accordance with its terms.
iii. Capitalization. The authorized capital stock
of the Company consists of 500,000,000 shares of
Common Stock, of which 19,360,252 shares are issued
and outstanding. The document entitled "Capital Stock"
in the Disclosure Documents includes a description of
the rights, preferences and privileges of holders of
the Common Stock and a listing of all shares of Common
Stock which are reserved for issuance. No person has
any preemptive rights, rights of first refusal or any
other similar rights of any stockholders of the
Company, whether by statute, pursuant to the
certificate of incorporation or by-laws of the Company
or pursuant to any agreement (collectively,
"Preemptive Rights") with respect to the issued and
outstanding shares of Common Stock or with respect to
the Debentures, the Warrants or the Shares. Except for
an agreement that expires in May 1999, no person has
the right to nominate or designate directors or
officer of the Company, including any stockholders or
voting trust agreements. All of the outstanding shares
of Capital Stock have been, or upon issuance will be,
validly issued, fully paid and nonassessable. No
shares of capital stock of the Company (including the
Shares, if and when issued) are or will be subject to
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any Preemptive Rights.
iv. Issuance of Shares.
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(1) The Shares are duly authorized and
reserved for issuance, and upon conversion
of the Debentures or upon exercise of the
Warrants, as the case may be, in accordance
with the respective terms thereof, will be
validly issued, fully paid and
non-assessable, will be free from all taxes,
liens, claims and encumbrances and will not
be subject to Preemptive Rights of
stockholders of the Company and or subject
the holder to personal liability.
(2) All of the outstanding shares of Common
Stock have been duly and validly authorized
and issued, fully paid and nonassessable and
were not issued in violation of any
Preemptive Rights, and were issued in
transaction that were either registered
pursuant to the Securities Act or exempt
from the registration requirements of the
Securities Act.
v. No Conflicts. The execution, delivery and
performance of this Agreement by the Company, the
performance by the Company of its obligations under
this Agreement and the Securities, and the
consummation by the Company of the transactions
contemplated by this Agreement (including, without
limitation, the issuance of the Securities and the
Shares) will not (i) result in a violation of the
Company's certificate of incorporation and by-laws, as
currently in effect (the "Organizational Documents")
or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would
become a default) under, or give to others any rights
of termination, amendment, acceleration or
cancellation of, any agreement, indenture or
instrument to which the Company is a party or by which
it is bound, or result in a violation of any law,
rule, regulation, order, judgment or decree
(including, based on the accuracy the Subscriber's
representations and warranties set forth in this
Agreement, Federal and state securities laws and
regulations) applicable to the Company or by which any
of the Company's property or asset is bound or
affected. The Company is not in violation of its
Organizational Documents, and the Company is not in
default (and no event has occurred which, with notice
or lapse of time or both, would put the Company in
default) under, nor has there occurred any event
giving others (with notice or lapse of time or both)
any rights of termination, amendment, acceleration or
cancellation of, any Contract, as hereinafter defined,
to which the Company is a party or by which it is
bound, except for possible defaults or rights as would
not, individually or in the aggregate, have a Material
Adverse Effect. The business of the Company is not
being conducted in violation of any law, ordinance or
regulation of any governmental entity. The Company is
not required to obtain any consent, approval,
authorization or order of, or make any filing or
registration with, any court or governmental agency or
any regulatory or self regulatory agency or other
party (each of the foregoing being referred to as a
"consent") in order for it to execute, deliver or
perform any of its obligations under this Agreement or
the Securities, in each case in accordance with the
terms hereof or thereof other than filings required
pursuant to the Securities Act and applicable state
securities laws and except where the failure to obtain
any such consent would not have a Material Adverse
Effect.
vi. Financial Statements. The Company's
financial statements for the years ended March 31,
1998 and 1997, which have been certified by Xxxxx,
Xxxxxx & Company, and the unaudited financial
statements for the period ended September 30, 1998,
including, in each case, a balance sheet and the
related statements of income, stockholders' equity
and cash flows, together with the related notes
(collectively, the "Financial Statements"), have been
delivered to the Subscriber. The Financial Statements
were prepared in accordance with all books, records
and accounts of the Company, are true, correct and
complete and have been prepared in accordance with
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generally accepted accounting principles,
consistently applied. Xxxxx, Xxxxxx & Company is
independent as to the Company under the rules of the
Commission pursuant to the Securities Act. The
Financial Statements present fairly the financial
position of the Company at the respective balance
sheet dates, reflect all liabilities, contingent or
other, of the Company of the type required to be
reflected on corporate balance sheets prepared in
accordance with generally accepted accounting
principles as at such dates, and fairly present the
results of the Company's operations, changes in
stockholders' equity and cash flows for the periods
covered. The unaudited financial statements for the
period ended September 30, 1998 include all
adjustments (which include only normal recurring
adjustments) necessary to present fairly the
information for such period. Except as set forth in
the March 31, 1998 Financial Statements, the Company
has no material liabilities, contingent or otherwise,
other than (i) liabilities incurred in the ordinary
course of business subsequent to the date of such
Financial Statements and (ii) obligations under
contracts and commitments incurred in the ordinary
course of business and not required under generally
accepted accounting principles to be reflected in
such financial statements, none of which are material
to the Company.
vii. SEC Documents. The Common Stock is
registered pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act"). The Company
has delivered to the Subscriber its Form 10-KSB
Annual Report, as amended by a Form 10-KSB Amendment,
for the fiscal year ended March 31, 1998, its Form
10-QSB Quarterly Report for the quarter ended
September 30, 1998 and all other filings made with
the Commission through the date hereof, all of which
are collectively referred to as the "SEC Documents."
The SEC Documents, taken as a whole, do not contain
any misstatement of fact or omit any statement of
fact necessary to make them not materially
misleading.
viii. Form S-3 Eligibility. The Company meets each
of the requirements listed in General Instructions
1.A to Form S-3, and the Company is eligible to
register the Shares on a Form S-3, or other
appropriate registration form.
ix. No Breach of Contract. Except as provided in
Schedule 2(i) attached hereto, the Company is not in
breach or violation of any contracts, agreements,
leases or other instruments (each a "Contract") to
which the Company is a party or by which the Company
is bound or to which any of its properties or assets
is subject, which breach or violation would have a
Material Adverse Effect.
x. Absence of Certain Changes. Since September
30, 1998, there has been no material adverse change
in the business, properties, operations, financial
condition, or results of operations of the Company,
or to the best of the Company's knowledge, its
prospects, except as disclosed in the Financial
Statements or the SEC Documents.
xi. Absence of Litigation. Except as disclosed
in the Financial Statements or the Disclosure
Documents, there is no action, suit, proceeding,
inquiry or investigation before or by any court,
public board, government agency, self-regulatory
organization or body pending or, to the knowledge of
the Company, threatened against or affecting the
Company or any of its respective directors or
officers in their capacities as such wherein an
unfavorable decision, ruling or finding would have a
Material Adverse Effect.
xii. Intellectual Property. Except as provided in
Schedule 2(l), the Company owns or is licensed to use
all patents, patent applications, trademarks,
trademark applications, trade names, service marks,
copyrights, copyright applications, licenses,
permits, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) and
other similar rights and proprietary knowledge
(collectively, "Intangibles") necessary for the
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conduct of its business as now being conducted and as
described in the Disclosure Documents. Except as
disclosed in the document "Risk Factors" in the
Disclosure Documents, the Company has not received
any formal or informal notice (including any demand
or request that the Company enter into a license or
other agreement in order to avoid any claim of
infringement) to the effect that any of its products
or any Intangibles infringe upon the proprietary
rights of any other person. To the best knowledge of
the Company, the Company does not infringe or is in
conflict with any right of any other person with
respect to any Intangibles which, individually or in
the aggregate, if the subject of an unfavorable
decision, ruling or finding, would have a Material
Adverse Effect.
xiii. Management. The document entitled
"Management" in the Disclosure Documents sets forth
information concerning (i) each officer and director,
(ii) compensation information consistent with such
information required to be included in the Summary
Compensation Table pursuant to Item 402 of Regulation
S-B, (iii) a summary of all outstanding options and a
description of all outstanding stock option or other
equity-based incentive plans, and (iv) the
information to be provided by Items 403 and 404 of
Regulation S-B. Such document shall update
information included in the Company's Form 10-KSB for
the fiscal year ended March 31,1998.
xiv. Foreign Corrupt Practices. Neither the
Company, nor any director, officer, agent, employee
or other person acting on behalf of the Company has,
in the course of his actions for or on behalf of, the
Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful
expenses relating to political activity; made any
direct or indirect unlawful payment to any foreign or
domestic government official or employee from
corporate funds; violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act
of 1977; or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment to any
foreign or domestic government official or employee.
xv. Subscriber's Legal Fees. The Company will
pay Subscriber, upon request, two thousand five
hundred dollars ($2,500) for its legal fees, in
addition to the fees paid to Esanu, Katsky Xxxxxx &
Siger, LLP referenced herein.
xvi. Disclosure. All information relating to or
concerning the Company set forth in this Agreement or
included in the Disclosure Documents, as hereinafter
defined, taken together, is true and correct in all
material respects, and the Company has not omitted to
state any material fact necessary in order to make
the statements made herein or therein, in light of
the circumstances under which they were made, not
misleading. The Subscriber shall be entitled to rely
upon the Company's representations and warranties
contained in this Agreement, notwithstanding any
independent investigation made by the Subscriber.
xvii. No Integrated Offering. Except as provided
in Schedule 2(q), neither the Company nor any of its
affiliates, nor any person acting on its or their
behalf, has directly or indirectl} made any offers or
sales of any securities or solicited any offerers to
buy any security under circumstances that would
require registration of the Units being offered
hereby under the Securities Act.
c. The Subscrmber understands$and agrees that, after the
Company's receipt of thiw Agreement, the Company will review
the Subscriber's eligibility and will determmne whether to
accept or reject this subscrmption in whole or in part. The
Comtany may determine to renect this subscviption mn whole or
in part in its sole end absolute discretion. If this
subscription is$accepted in whole, then the Company will issue
the Debentures subscribed for to the Subscriber. If this
subscription is rejected in whole, this Agreement and any
other subscription materials will be promptly returned to the
Subscriber and the Subscriber's subscription payment will be
refunded to the Subscriber without interest. In that event,
the Subscriber and the Company will have no further rights or
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claims against each other by virtue of this Agreement. If this
subscription is accepted in part and rejected in part, the
Company is authorized to amend this Agreement to reflect the
number of Units for which this subscription is accepted, and
the Company will issue the Debentures and Warrants comprising
the Units as to which this subscription is accepted at the
same time as if this subscription had been accepted in whole.
d. The Subscriber hereby represents and warrants to, and
covenants and agrees with, the Company as follows:
i. The Subscriber understands that the offer
and sale of the Units is being made only by means of
this Agreement. In deciding to subscribe for Units,
the Subscriber has not considered any information
other than that contained in this Agreement and in
the documents listed in Exhibit A to this Agreement
(the "Disclosure Documents"), a copy of each of which
has been provided to the Subscriber and reviewed by
the Subscriber to the extent that the Subscriber
deemed necessary or advisable. In particular, the
Subscriber understands that the Company has not
authorized the use of, and the Subscriber confirms
that he or she is not relying upon, any other
information, written or oral, other than material
contained in this Agreement and the Disclosure
Documents. The Subscriber is aware that the purchase
of the Units involves a high degree of risk and that
the Subscriber may sustain, and has the financial
ability to sustain, the loss of his or her entire
investment. The Subscriber understands that the
Company is a development stage corporation, has
incurred significant losses and no assurance can be
given that the Company will be profitable in the
future, that the failure of the Company to raise
funds, in addition to the proceeds from the sale of
the Units, may have a material adverse effect upon
its business and, if sufficient additional funds are
not raised, the Company may not be able to pay the
Debentures when due, and that there is no assurance
that there will be a market for the Company's Common
Stock or other securities. Furthermore, in
subscribing for the Units, the Subscriber
acknowledges that the Company has not made, and the
Subscriber is not relying in any manner upon, any
projections or forecasts of future operations. The
Subscriber has had the opportunity to ask questions
of, and receive answers from, the Company's
management regarding the Company.
ii. The Subscriber represents to the Company
that he or she (i) is an accredited investor within
the meaning of Rule 501 under the Securities Act,
(ii) understands that in order to be treated as an
accredited investor, the Subscriber must meet one of
the tests for an accredited investor set forth on
Exhibit B to this Agreement, and (iii) has read
Exhibit B and is an accredited investor as set forth
on the signature page of this Agreement. The
Subscriber further represents that he or she has such
knowledge and experience in financial and business
matters as to enable him or her to understand the
nature and extent of the risks involved in purchasing
the Units. The Subscriber is fully aware that such
investments can and sometimes do result in the loss
of the entire investment. The Subscriber can afford
to sustain the loss of his or her entire investment,
and the Subscriber's purchase of the Units is being
made from funds which the Subscriber has allocated to
high risk, illiquid investments and such funds are
not required by the Subscriber to meet his or her
normal expenses. The Subscriber has engaged his or
her own counsel and accountants to the extent that he
deems it necessary.
iii. The Subscriber acknowledges that the Company
is relying on the Subscriber's representations
contained in this Agreement in executing this
Agreement and issuing the Units and its counsel is
relying on such statements and representations in
rendering its opinion pursuant to Paragraph 5(a)(v)
of this Agreement, and the Subscriber agrees to
indemnify and hold harmless the Company, and its
officers, directors, controlling persons and counsel
from and against all manner of loss, liability,
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damage or expense which they or any of them may incur
as a result of any material misstatement of fact or
omission of a material fact by the Subscriber in this
Agreement.
iv. The Subscriber is acquiring the Units
pursuant to this Agreement for investment and not
with a view to the sale or distribution thereof, for
his or her own account and not on behalf of others;
has not granted any other person any interest or
participation in or right or option to purchase all
or any portion of the Units; is aware that the Units
are restricted securities within the meaning of Rule
144 of the Commission under the Securities Act, and
may not be sold or otherwise transferred other than
pursuant to an effective registration statement or an
exemption from registration; and understands and
agrees that the Units may bear the Company's standard
investment legend. The Subscriber understands the
meaning of these restrictions.
v. The Subscriber will not transfer the
Securities except in compliance with all applicable
Federal and state securities laws and regulations.
The Subscriber understands and agrees that the
Company is not obligated to recognize any transfer of
any Securities unless it is satisfied in its
reasonable discretion that there has been compliance
with such securities laws and regulations, and, in
such connection, the Company may request an opinion
of counsel acceptable to the Company as to the
availability of any exemption.
vi. The Subscriber has been informed by the
Company that the issuance of the Units pursuant to
this Agreement will be exempt under Section 4(2) or
4(6) of the Securities Act and/or Regulation D, and
in particular, Rule 506, of the Commission under the
Securities Act and applicable exemption under state
securities laws, and the Subscriber understands that
such exemption is dependent upon the accuracy of the
information contained in the Subscriber's
representations set forth in this Agreement.
vii. The Subscriber represents and warrants that
it has engaged no broker and that no finder was
involved directly or indirectly in connection with
the Subscriber's purchase of the Units. The
Subscriber shall indemnify and hold harmless the
Company from and against any manner of loss,
liability, damage or expense, including fees and
expenses of counsel, resulting from a breach of the
Subscriber's warranty contained in this Paragraph
4(g).
viii. To the extent that the Subscriber has deemed
it necessary, the Subscriber has consulted his or her
own legal, accounting, tax, investment and other
advisors.
ix. If the Subscriber is a corporation, all
corporate action necessary for the execution,
delivery and performance by the Subscriber has been
taken and the person executing this Agreement on
behalf of the Subscriber is an authorized officer of
the Subscriber. If the Subscriber is a limited
partnership or limited liability company, the person
executing this Agreement is a general partner or
managing member of the Subscriber. If the Subscriber
is a trust, estate or other fiduciary, the person
executing this Agreement is the trustee, executor,
administrator or other fiduciary.
(j) Neither the Subscriber nor its affiliates will sell
short or sell against the box any securities of the Company owned by the
undersigned or with respect to which the undersigned has the power to vote or
transfer such securities.
(k) The subscriber shall not transfer the Units,
Debentures, or Warrants to another holder until after the effective date of the
Registration Statement. After the effective date of the Registration Statement,
any such transferee shall be required to make in writing all of the
representations and warranties set forth in paragraph 4(a) through 4(j) hereof.
e. It shall be a condition precedent to the Subscriber's
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obligation to pay for the Units that the following conditions shall have been
met:
(1) The Company shall have delivered to
the Subscriber or his or her representative:
(a) A copy of the certificate of
incorporation of the Company,
certified by the Secretary of State
of Utah as of a current date.
(b) A copy of the by-laws of the
Company, certified by the Secretary
of the Company.
(c) Resolutions of the Company's
board of directors authorizing the
transactions contemplated by this
Agreement, certified by the
Secretary of the Company.
(2) All of the Company's
representations and warranties set forth in
this Agreement shall be true and correct in
all material respects on such date with the
same effect as if such representations and
warranties were made on such date, the
Company shall have complied in all material
respects with all of its obligations to be
performed by it on or prior to the such
date.
(3) No Material Adverse Change in the
business or financial condition of the
Company shall have occurred or be threatened
since the date of this Agreement, and no
proceedings shall be threatened or pending
before any governmental entity or authority
which is likely to result in a restraint,
prohibition or the obtaining of damages or
other relief in connection with this
Agreement or the consummation of the
transactions contemplated by this Agreement.
(4) The Company shall have delivered
to the Subscriber the certificate of its
chief executive and financial officers dated
the Closing Date as to the matters set forth
in Paragraphs 5(a)(ii) and (iii) of this
Agreement. . (5) The Subscriber shall have
received the opinion of Xxxxx X. Xxxx,
counsel to the Company, dated the Closing
Date, that:
(a) The Company is a
corporation organized and existing
in good standing under the laws of
the State of Utah with the corporate
power to conduct it business as the
same is presently conducted.
(b) All corporate action
necessary for the execution,
delivery and performance by the
Company of this Agreement, the
Debentures and the Warrants has been
taken, and this Agreement, the
Debentures and Warrants constitute,
the valid and binding obligations of
the Company, enforceable in
accordance with their respective
terms, except as enforceability may
be affected by customary principles
governing equitable relief generally
and to any applicable bankruptcy,
moratorium, equitable subordination,
insolvency, fraudulent conveyance,
usury or other laws affecting
creditors' rights and their
enforcement generally, and except
that no opinion is given as to the
enforceability of any
indemnification provisions.
(c) The Shares have been
reserved for issuance and, when
issued upon conversion of the
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Debentures or exercise of the
Warrants, will be duly and validly
authorized and issued, fully paid
and nonassessable and free from
Preemptive Rights.
(d) In reliance upon the
accuracy of the representations and
warranties of the Subscriber
contained in this Agreement and
assuming that the Company files in a
timely manner a Form D pursuant to
Regulation D of the Commission
pursuant to the Securities Act, the
sale of the Units is exempt from the
registration requirements of the
Securities Act.
(6) A Form D shall have been prepared
for filing with the Commission.
(7) The Company shall have paid to
Xxxxxxx the compensation due to Xxxxxxx.
(8) The Company shall have paid to Esanu Katsky
Xxxxxx & Siger, LLP, its legal fees of twelve thousand
five hundred dollars ($12,500) plus disbursements.
f. The Company hereby covenants and agrees with the
Subscriber that:
i. The Company will, promptly, but in no event
later than three (3) business days after each closing,
file (i) the Form D with the Commission and (ii) all
documents and instruments required by the state
securities laws of any state in which any purchaser of
Units lives.
ii. During the period commencing on the Closing
Date and ending ninety (90) days after such Closing
Date, the Company will not, without the prior consent of
the holders of a majority of the principal amount of
Debentures then outstanding, issue or sell or enter into
any agreement to issue or sell any shares of Common
Stock or any Convertible Securities (i.e., any warrants
or options or ---- convertible debt or equity securities
or other securities upon the exercise or conversion of
which shares of Common Stock may be issued), except that
this Paragraph 6(b) shall not be construed to prohibit
the Company from (i) issuing Common Stock or Convertible
Securities in connection with an acquisition or pursuant
to options or warrants which are outstanding on such
Closing Date or (ii) entering into any agreement to
issue, or issuing, any convertible securities or common
stock pursuant to an equity line of credit currently
contemplated by the Company or (iii) issue common stock
with regard to a Regulation S private placement funded
in the Company's fiscal third and fourth quarters or
(iv) issuing options to employees or consultants at an
exercise price not less than the fair market value on
the date of grant pursuant to the Company's present
stock option plan and performance stock plan or (v)
issuing restricted stock grants to employees or
consultants pursuant to the Company's present
performance stock plan; provided, however, that in no
event shall the number of options and stock grants
issued during any such ninety (90) day period exceed
Three Hundred Thousand (300,000) shares. References to
consultants in this Paragraph 6(b) shall mean only
consultants who (x) perform functions that would
otherwise be performed by employees of the Company and
(y) whose services do not relate to the raising of
money.
iii. As long as the Subscriber or any transferee
(other than a transferee pursuant to the Registration
Statement) shall own any Securities, (i) the Company
shall file all annual, quarterly and periodic reports
with the Commission not later than the last day on which
such filings may be made pursuant to the Exchange Act,
and (ii) the Company shall continue to be eligible to
use a Form S-3 or a Form SB-2 registration statement for
the sale of the Shares.
Page 44 of 81
iv. As long as the Subscriber shall own any
Securities, the Company will provide the Subscriber with
a copy of each Form 10-K or Form 10-KSB Annual Report,
Form 10-Q or Form 10-QSB Quarterly Report, each current
report on Form 8-K and any definitive proxy material, at
the times such filings are made with the Commission and
will in addition provide the Subscriber with all
materials that are mailed to stockholders at such time
as the materials are mailed to the stockholders.
v. The Company will comply with its obligations
pursuant to the Debentures and the Warrants.
vi. Until the earlier of (i) July 1, 1999 or (ii)
such date as all of the principal and interest on the
Debentures shall have been paid in full or (iii) such
date as all of the Debentures shall have been converted,
neither the Company nor any of its subsidiaries shall
borrow any money or incur any obligations pursuant to a
certain proposed equity line of credit agreement between
Bristol Asset Management, LLC (or a substitute lender)
and the Company, as the same may hereafter be modified,
amended or replaced. The present terms of such agreement
have been previously disclosed to the Subscriber. This
Paragraph 6(f) shall apply to any credit line facility
entered into by the Company during the period between
the date of this Agreement and July 1, 1999.
g. The Company shall (i) file or cause to be filed with the
Commission, not later than forty-five (45) days after the
Closing Date, a registration statement (the "Registration
Statement") on Form S-3 or other applicable form, providing
for the sale by the Subscriber of all of the Shares and (ii)
use its best efforts to have the Registration Statement
declared effective by the Commission not later than one
hundred twenty (120) days from the Closing Date, time being of
the essence. The Registration Statement shall register such
number of shares of Common Stock equal to two hundred percent
(200%) of the number of shares of Common Stock which would be
issuable upon conversion of the Debentures and upon exercise
of the Warrants in the event such conversion or exercise
occurred at the lowest closing bid price of the Common Stock
for the sixty (60) trading days prior to the date of the
execution of this Agreement. The Registration Statement shall
cover the issuance of the Shares and the sale by the
Subscriber or the Subscriber's transferee in the manner or
manners designated by the Subscriber. The Company agrees to
keep the Registration Statement continuously effective until
all of the Shares have been sold. References in this Paragraph
7 to the Subscriber shall include, in addition to the
Subscriber, any holder of the Shares or the Securities, other
than pursuant to the Registration Statement. Such Shares shall
be registered regardless of whether, at the effective date of
the Registration Statement, the Debentures shall have been
issued or converted or the Warrants shall have been issued or
converted. In the event the Registration Statement does not
register a sufficient number of shares to cover all the shares
underlying such the Debenture and Warrant, the Company shall
file an additional registration statement not later than
ninety (90) days from the date the Registration Statement is
declared effective by the Commission covering such number of
additional shares of Common Stock as the Subscriber may
reasonably request.
i. The Company shall pay all expenses incident to
the Company's performance of or compliance with its
obligations under this Paragraph 7, including, without
limitation, all registration, filing, listing, stock
exchange, Nasdaq and NASD fees, all fees and expenses of
complying with state securities or blue sky laws all
word processing, duplicating and printing expenses,
messenger and delivery expenses, the fees, disbursements
and other charges of counsel for the Company and of its
independent public accountants, but excluding
commissions and applicable transfer taxes, if any, which
commissions and transfer taxes shall be borne by the
seller or sellers of Shares in all cases.
ii. In complying with its obligations pursuant to
Paragraph 7(a) of this Agreement, the Company shall, as
expeditiously as possible:
Page 45 of 81
(1) Prepare and file with the
Commission the Registration Statement to
effect such registration and thereafter use
its best efforts to cause such registration
statement to become effective as promptly as
possible.
(2) Notify the Subscriber at any time
when a prospectus relating thereto is
required to be delivered under the
Securities Act, upon discovery that, or upon
the happening of any event as a result of
which, the prospectus included in the
Registration Statement, as then in effect,
includes an untrue statement of a material
fact or omits to state any material fact
required to be stated therein or necessary
to make the statements therein not
misleading in the light of the circumstances
under which they were made, and promptly,
but not later than ten (10) business days
after the happening of such event, prepare
and file with the Commission such amendments
and supplements to the Registration
Statement and the prospectus used in
connection therewith as may be necessary to
keep the Registration Statement effective
and to comply with the provisions of the
Securities Act and the Exchange Act with
respect to the disposition of all Shares
until such time as all of the Shares have
been disposed of in accordance with the
method of disposition set forth in such
registration statement.
(3) Before filing the Registration
Statement or prospectus or any amendments or
supplements thereto, furnish to and afford
the Subscriber a reasonable opportunity
(unless waived in writing by the Subscriber)
to review copies of all such documents
(including copies of any documents to be
incorporated by reference therein and all
exhibits thereto) proposed to be filed (at
least five (5) business days prior to such
filing). The Company shall not file any
registration statement or prospectus or any
amendments or supplements thereto in respect
to the shares if the holders of a majority
of the Shares included in the Registration
Statement shall reasonably object.
(4) Use its best efforts to obtain the
prompt withdrawal of any order suspending
the effectiveness of a registration
statement, and in any event shall, within
thirty (30) days of such cessation of
effectiveness, use its best efforts to amend
the Registration Statement in a manner
reasonably expected to obtain the withdrawal
of the order suspending the effectiveness
thereof, or file an additional registration
statement pursuant to Rule 415 covering all
of the Shares and use its best efforts to
cause the Registration Statement to be
declared effective as soon as practicable
after such filing and to remain effective as
provided in this Paragraph 7.
(5) In the event of any transfer of
Shares or Securities which requires a
supplement or post-effective amendment to
the Registration Statement or prospectus,
promptly file such supplement or
post-effective amendment and use its best
efforts to have such filing declared
effective by the Commission as promptly as
possible after the filing thereof.
(6) Furnish to the Subscriber such
number of copies of such drafts and final
conformed versions of such Registration
Statement and of each such amendment and
supplement thereto (in each case including
all exhibits and any documents incorporated
by reference), such number of copies of such
drafts and final versions of the prospectus
contained in such Registration Statement
(including each preliminary prospectus and
any summary prospectus) and any other
prospectus filed under Rule 424 under the
Securities Act, in conformity with the
Page 46 of 81
requirements of the Securities Act, and such
other documents, as such seller may
reasonably request in writing.
(7) Use its best efforts (i) to
register or qualify all Shares under such
other securities or blue sky laws of not
more than 20 states or other jurisdictions
of the United States of America as the
Subscriber shall reasonably request in
writing, (ii) to keep such registration or
qualification in effect for so long as such
registration statement remains in effect,
(iii) to prevent the issuance of any order
suspending the effectiveness of a
registration statement or of any order
preventing or suspending the use of a
prospectus or suspending the qualification
(or exemption from qualification) of any of
the Shares for sale in any jurisdiction,
and, if any such order is issued, to use its
best efforts to obtain the withdrawal of any
such order at the earliest possible moment,
and (iv) to take any other action that may
be reasonably necessary or advisable to
enable such sellers to consummate the
disposition in such jurisdictions of the
securities to be sold by such sellers,
except that the Company shall not for any
such purpose be required to qualify
generally to do business as a foreign
corporation in any jurisdiction wherein it
would not but for the requirements of this
Paragraph 7(c)(vii) be obligated to be so
qualified, to subject itself to taxation in
such jurisdiction or to consent to general
service of process in any such jurisdiction.
(8) Use its best efforts to cause all
Shares to be registered with or approved by
such other federal or state governmental
agencies or authorities as may be necessary
in the opinion of counsel to the Company and
counsel to the Subscriber to enable the
seller or sellers thereof to consummate the
disposition of such Shares in the manner set
forth in the Registration Statement.
(9) Otherwise comply with all
applicable rules and regulations of the
Commission and any other governmental agency
or authority having jurisdiction over the
offering, and make available to its security
holders, as soon as reasonably practicable,
an earnings statement covering the period of
at least twelve months, but not more than
eighteen months, beginning with the first
full calendar month after the effective date
of such Registration Statement, which
earnings statement shall satisfy the
provisions of Section 11(a) of the
Securities Act and Rule 158 promulgated
thereunder, and furnish to each seller of
Shares at least ten days prior to the filing
thereof a copy of any amendment or
supplement to such Registration Statement or
prospectus.
iii. The Registration Statement, when declared
effective by the Commission or when subsequently
amended (by an amendment which is declared effective
by the Commission) or any prospectus in the form
included in the registration statement as declared
effective by the Commission or when subsequently
supplemented will not contain an untrue statement of
a material fact or omit to state a material fact
required to be stated therein or necessary to make
the statements therein, in light of the circumstances
under which they were made, not misleading.
iv. The Company may require the Subscriber to
furnish the Company such information regarding such
seller and the distribution of the securities covered
by the Registration Statement as the Company may from
time to time reasonably request in writing and as is
required by applicable laws and regulations.
v. The Company hereby agrees to indemnify and
hold harmless the Subscriber, including any other
holder of Shares, and their respective directors,
officers, agents and advisers (collectively, the
"Agents") and each person, if any, who controls
within the meaning of Section 15 of the Securities
Page 47 of 81
Act (the "Control Person") the Subscriber or any such
holder against any losses, claims, damages or
liabilities, joint or several, to which the
Subscriber, any such other holder of Shares, any such
Agent, or any such Control Person may become subject,
under the Securities Act, the Exchange Act or any
other Federal or state law, including common law,
insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out
of or are based upon (i) any untrue statement or
alleged untrue statement of a material fact contained
in (A) a registration statement, including (I) any
pre- or post-effective amendments or supplements
thereof and (ll) any preliminary prospectus or final
prospectus contained therein or any pre- or
post-effective amendments or supplements thereto,
filed for any registration under this Agreement, (B)
in any Blue Sky Law application or other document
executed by the Company specifically for such
registration or (C) based upon information furnished
by the Company filed in any state or other
jurisdiction in order to qualify any or all of the
Shares under the securities laws thereof (any such
application, document or information in (B) and (C)
above being hereinafter referred to as a "Blue Sky
Application"); (ii) the omission or alleged omission
to state in such registration statement or Blue Sky
Application a material fact required to be stated
therein or necessary to make the statements therein
not misleading; or (iii) any untrue statement or
alleged untrue statement of a material fact contained
in such registration statement or Blue Sky
Application or the omission or alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein,
in the light of the circumstances under which they
were made, not misleading, and will reimburse such
parties for any reasonable attorneys' fees or other
expenses reasonably incurred by them or any of them
in connection with investigating or defending against
any such loss, claim, damage, liability or action;
provided, however, that the Company will not be
liable or responsible for reimbursement of expenses
in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement
or omission or alleged omission made in reliance upon
and in conformity with written information furnished
to the Company by or on behalf of such indemnified
party specifically for use with reference to or in
the preparation of a registration statement, any such
pre- or post-effective amendment or supplement
thereof, or any Blue Sky Application. This indemnity
agreement is in addition to any liability which the
Company may otherwise have. The indemnity agreement
of the Company contained in this Paragraph 7(f) shall
remain operative and in full force and effect
regardless of any investigation made by or on behalf
of any of the Subscriber, any other holder of Shares,
any Agent or any Control Person and shall survive the
registration and sale of any Shares by the Subscriber
or any such holder.
vi. The Subscriber and each other holder of
Shares, by including such holder's Shares in the
Registration Statement, agrees, severally, to
indemnify and hold harmless the Company, its Agents
and the Control Persons thereof to the same extent as
the indemnity from the Company to the Subscriber,
such other holders, their respective Agents and
Control Persons but only with respect to any untrue
statement or alleged untrue statement or omission or
alleged omission made in reliance upon or in
conformity with written information relating to such
person by such person expressly for use in connection
with any registration statement, pre- or
post-effective amendment or supplement thereto or in
any Blue Sky Application filed pursuant to this
Agreement. The liability of any Holder under this
Paragraph 7(g) shall be limited to the amount of net
proceeds to such Holder from the Shares sold pursuant
to the registration statement which gives rise to
such liability. This indemnity agreement will be in
addition to any liability that the Subscriber or any
such other holder may otherwise have. The indemnity
agreement of the Subscriber and such other holders
contained in this Paragraph 7(g) shall remain
operative and in full force and effect regardless of
any investigation made by or on behalf of the Company
or any of its Control Persons and shall survive the
registration and sale of any Shares and the
expiration or termination of this Agreement.
vii. If any action or claim shall be brought or
Page 48 of 81
asserted by a party entitled to indemnification under
Paragraph 7(f) or 7(g) (as the case may be) of this
Agreement (each an "Indemnified Party") in respect of
which indemnity may be sought from the responsible
party identified in said Paragraph 7(f) or 7(g) (as
the case may be) (the "Indemnifying Party"), the
Indemnified Party shall promptly notify the
Indemnifying Party in writing, and the Indemnifying
Party shall assume the defense thereof, including the
employment of counsel satisfactory to each
Indemnified Party and the payment of all reasonable
legal and other expenses. The failure of any
Indemnified Party to notify the Indemnifying Party
will not relieve the Indemnifying Party of any
liability for indemnification which it may have to
any Indemnified Party under this Paragraph 7 unless
the Indemnifying Party has been substantially
prejudiced by such failure and in no event will such
failure relieve the Indemnifying Party from any
liability it may have to any Indemnified Party
otherwise than under this Paragraph 7. Each
Indemnified Party shall have the right to employ
separate counsel in any such action and to
participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of
such Indemnified Party unless (i) the employment
thereof has been specifically authorized by the
Indemnifying Party in writing, or (ii) the
Indemnifying Party has failed to assume the defense
and employ counsel or (iii) the named parties to any
such action (including any impleaded parties) include
both (A) any Indemnified Party and (B) the
Indemnifying Party, and, in the judgment of counsel
to any Indemnified Party, it is advisable for such
Indemnified Party to be represented by separate
counsel (in which case the Indemnifying Party shall
not have the right to assume the defense of such
action on behalf of such Indemnified Party; provided,
however, it being understood that the Indemnifying
Party shall, in connection with any one such action
or separate but substantially similar or related
actions in the same jurisdiction arising out of the
same general allegations or circumstances, be liable
for the reasonable fees and expenses of only one
separate firm of attorneys at any time for each
Indemnified Party pursuant to this Agreement in each
jurisdiction, and each such firm shall be designated
in writing by such Indemnified Party holding a
majority of the Shares being registered for all
Indemnified Parties). The Indemnifying Party shall
not be liable for any settlement of any such action
effected by an Indemnified Party without the written
consent of the Indemnifying Party (which shall not be
withheld unreasonably in light of all factors of
importance to such Indemnified Party), but if settled
with such written consent, or if there be a final
judgment or decree for the plaintiff in any such
action by a court of competent jurisdiction and the
time to appeal shall have expired or the last appeal
shall have been denied, the Indemnifying Party agrees
to indemnify and hold harmless each Indemnified Party
from and against any loss or liability by reason of
such settlement or judgment.
viii. If the indemnification provided for in this
Agreement is held by a court of competent
jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim,
damage or expense referred to therein, then the
Indemnifying Party, in lieu of indemnifying such
Indemnified Party thereunder, shall contribute to the
amount paid or payable by such Indemnified Party as a
result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to
reflect the relative fault of the Indemnifying Party
on the one hand and of the Indemnified Party on the
other hand in connection with the statements or
omissions which resulted in such loss, liability,
claim, damage or expense as well as any other
relevant equitable considerations. The relevant fault
of the Indemnifying Party and the Indemnified Party
shall be determined by reference to, among other
things, whether the untrue or alleged untrue
statement of a material fact or the omission to state
a material fact relates to information supplied by
the Indemnifying Party or by the Indemnified Party
and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent
such statement or omission. Notwithstanding the
foregoing, the amount any Holder is obligated to
contribute pursuant to this Agreement shall be
limited to the net proceeds to such Holder from the
Shares sold pursuant to the Registration Statement
which gives rise to such obligation to contribute
(less the aggregate amount of any damages which the
Subscriber or such other holder has otherwise been
Page 49 of 81
required to pay in respect of such loss, claim,
damage, liability or action or any substantially
similar loss, claim, damage, liability or action
arising from the sale of such Shares). The foregoing
contribution agreement shall in no way affect the
contribution liabilities of any persons having
liability under Section 11 of the Securities Act
other than the Company, the Subscriber and such other
holders. No contribution shall be requested with
regard to the settlement of any matter from any party
who did not consent to the settlement, provided,
however, that such consent shall not be unreasonably
withheld in light of all factors of importance to
such party. Notwithstanding any provisions of this
Paragraph 7, no person guilty of a fraudulent
misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of
such fraudulent misrepresentation.
h. All notices provided for in this Agreement shall be
in writing signed by the party giving such notice, and
delivered personally or sent by overnight courier or messenger
against receipt thereof or sent by registered or certified
mail (air mail if overseas), return receipt requested or by
telecopier if receipt of transmission is confirmed or if
transmission is confirmed by mail as provided in this
Paragraph 8. Notices shall be deemed to have been received on
the date of personal delivery or telecopy or, if sent by
certified or registered mail, return receipt requested, shall
be deemed to be delivered on the fifth (5th) business day
after the date of mailing. Notices shall be sent to the
Company at 00 Xxxx 000 Xxxxx, Xxxxx 000, Xxxx Xxxx Xxxx, Xxxx
00000, Attention: Xx. Xxxxxxx Xxxx, CEO, telecopier (801)
322-1165, and to the Subscriber at his or her address and
telecopier number set forth on the signature page or to such
other address as any party shall designate in the manner
provided in this Paragraph 8.
i. This Agreement constitutes the entire agreement
between the parties relating to the subject matter hereof,
superseding any and all prior or contemporaneous oral and
prior written agreements, understandings and letters of
intent. This Agreement may not be modified or amended nor may
any right be waived except by a writing which expressly refers
to this Agreement, states that it is a modification, amendment
or waiver and is signed by all parties with respect to a
modification or amendment or the party granting the waiver
with respect to a waiver. No course of conduct or dealing and
no trade custom or usage shall modify any provisions of this
Agreement.
i. This Agreement shall be governed by and
construed in accordance with the laws of the State of
New York applicable to agreements executed and to be
performed wholly within such state, without regard
for principles of conflicts of law. The Company
hereby (i) consents to the exclusive jurisdiction of
the United States District Court for the Southern
District of New York and Supreme Court of the State
of New York in the County of New York in any action
relating to or arising out of this Debenture, (ii)
agrees that any process in any such action may be
served upon it, in addition to any other method of
service permitted by law, by certified or registered
mail, return receipt requested, or by an overnight
courier service which obtains evidence of delivery,
with the same full force and effect as if personally
served upon him in New York City, and (iii) waives
any claim that the jurisdiction of any such tribunal
is not a convenient forum for any such action and any
defense of lack of in personam jurisdiction with
respect thereto.
ii. Any termination of this Agreement shall not
affect in any manner the parties' obligations
pursuant to Paragraphs 6, 7, 8 and 9 of this
Agreement, which shall survive such termination.
iii. This Agreement shall be binding upon and
inure to the benefit of the parties hereto, and their
respective successors and permitted assigns.
iv. In the event that any provision of this
Agreement becomes or is declared by a court of
competent jurisdiction to be illegal, unenforceable
or void, this Agreement shall continue in full force
and effect without said provision.
Page 50 of 81
v. Each party shall, without payment of any
additional consideration by any other party, at any
time on or after the sale of the Units take such
further action and execute such other and further
documents and instruments as the other party may
request in order to provide the other party with the
benefits of this Agreement.
vi. All references to any gender shall be deemed
to include the masculine, feminine or neuter gender,
the singular shall include the plural, and the plural
shall include the singular.
vii. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an
original but all of which together shall constitute
one and the same document.
viii. The various representations, warranties, and
covenants set forth in this Agreement or in any other
writing delivered in connection therewith shall
survive the issuance of the Units.
Please confirm your agreement with the foregoing by signing this
Agreement where indicated.
Very truly yours,
Number of Units
Subscribed for:
three
--------------------------------
Name of Subscriber
Total
Purchase Price: By:
------------------------------
$750,000. (Signature)
Title, if applicable
-------------
Address:
--------------------
----------------------------
Telecopier Number:
----------
Social Security No. or Tax I.D. No.:
------------
The Subscriber is an accredited investor based on the following paragraphs of
Exhibit B to this Agreement:
-----------------------------
Accepted this day of
December, 1998
CHEQUEMATE INTERNATIONAL, INC.
By:
-------------------------------
Xxxxxxx Xxxx, President
Page 51 of 81
Exhibit A
Disclosure Documents
a. Risk Factors
b. Form 10-KSB for the fiscal year ended March 31, 1998
c. Amended Form 10-QSB for the quarter ended September 30, 1998
d. Capital Stock
e. Management
f. Form of Debenture.
g. Form of Warrant
Schedule 2(i)
Schedule 2(l)
Schedule 2(q)
Page 52 of 81
RISK FACTORS
------------
THE FOLLOWING REPRESENTS MANAGEMENT'S VIEW OF THE MORE SIGNIFICANT RISK
FACTORS WHICH SHOULD BE CONSIDERED BY EACH INVESTOR, BUT DOES NOT PURPORT TO BE
A LISTING OF ALL POTENTIAL RISK FACTORS. CONSEQUENTLY, EACH INVESTOR SHOULD
REVIEW CAREFULLY ALL PARTS OF THE OFFERING MEMORANDUM IN ADDITION TO REVIEWING
THE FOLLOWING:
A. General Business Risks.
-----------------------
1. Development Stage. The Company was organized as a Texas corporation
on April 21, 1989 and changed its jurisdiction of incorporation on January 26,
1995 by becoming a Utah corporation. Since it has not sustained profitable
operations in any of its market sectors during the periods reflected in the
attached SEC reports, the Company must be considered a development stage
enterprise with limited prior operating history. Each investor should be advised
that, historically and statistically, development stage entities constitute a
greater risk of loss of investment than investment in a seasoned company.
2. Success of Product and Services. There is no assurance or warranty
that the contemplated products and services will be commercially successful or
that the Company's proprietary interest in the products can be commercially
protected through copyrights, patents or other similar types of applications.
The Company is engaged in the development and marketing of what must be
considered as novel and experimental new products and innovations. Each investor
must consider, as a potential risk factor, the possibility that the investor
could invest in this Offering and not receive any return of investment, or lose
his entire investment if the product is not successfully marketed or otherwise
not commercially successful.
3. Competition. There is substantial competition, both locally and
internationally, in the electronics industry in which the Company engages. No
assurance can be made, despite the best efforts of management, that other
companies may not produce competitive programs, services, or devices at a
competitive advantage which could cause the Company to be commercially
unprofitable.
4. Government Regulation. Various aspects of the industry in which the
Company has historically engaged have been subject to government regulation such
as regulation by the Federal Communications Commission (FCC), the Federal Trade
Commission (FTC), as well as local governmental agencies. Various changes by
regulatory agencies, or in the tax treatment of the Company or its applications,
could have significant impacts upon the Company and its profitability.
5. Year 2000 Compliance. The Company is concerned that the entire
electronics and media industries may be substantially and adversely impacted by
various failures of computer systems and programs to properly adjust to, or
account for the change to the year 2000 relevant to their computer based
operations. It is not possible to project the potential scope of adverse
impacts, if any, but it is believed that such adverse impacts, if they occur,
may be most significant in the broadcast industries which could directly bear
upon the Company's future operations. The Company does not believe it internally
has any computer program systems or configurations which are not presently
conformed to the year 2000 (Y2-K) standards, but adverse impacts could easily
result from various media companies with whom or through which the Company
intends to engage in business. Since this risk cannot realistically be measured,
each prospective investor should consider this as an unknown and undetermined
risk factor.
B. Particular Risk of this Offering.
---------------------------------
1. Operating Losses. As you will note from the attached and
incorporated consolidated financial statements for the Company, the Company, to
date, has a net operating loss from limited sales. While start up companies
frequently have operating losses, each investor should consider the absence of
profits as a risk factor.
2. Arbitrary Offering Price. The Offering price of the Company's stock
has been arbitrarily determined and does not purport to represent any intrinsic
value or net worth of the Company.
3. New Products and Concepts. The new products applications and
services attempted to be funded and marketed pursuant to this Offering does not
have an established market share. Neither do such products or applications have
a proven market share. As a consequence, there can be no assurance or warranty
that the Company will be commercially successful in its attempts to produce and
market the new products or services. Moreover, even if fully protected, there is
no absolute assurance that the Company will be successful in its marketing
Page 53 of 81
efforts for the new products and services, that a market demand will be created
for such new products or services, or that it may not have inherent defects or
problems making it unsuitable for the purposes intended. All of these must be
considered as risk factors in any Offering attempting to develop and market new
products and services.
4. Substantial Dilution. Investments in this Offering will incur an
immediate and substantial dilution to the value of their shares. In the event
the Company is required to raise subsequent capital for its products or
operations, it is probable that shares will be sold on terms different than
offered herein and investors may incur subsequent dilution, both as to the value
of their shares and voting control. See "Dilution" section.
5. Termination of the Offering. There is a risk that the minimum number
of shares offered may not be promptly sold and investors would have their
investment funds held in escrow without earnings until the Offering Termination
Date. See "Terms of the Offering."
6. Lack of Adequate Capitalization. The funds being raised in this
Offering may not adequately fund the intended business purposes and products and
subsequent funding may not be available. The company currently has limited
assets or net worth. See Attached Financial statements.
7. Continuing Services of Management. While the CEO and other officers
intends to serve the Company on a full-time basis, there is no assurance or
warranty that the present management may not retire, resign, or otherwise
disengage at some future date resulting in the risk factors inherent in a change
of management to a start-up Company.
Further, the Company may need to acquire other full-time officers or employees.
8. Compensation of Management. At present management is being paid
substantial compensation from capital. As a result, a significant portion of
offering proceeds may be used to pay salaries before there are sufficient
revenues to fully cover salaries and other compensation.
9. Outstanding Litigation. The Company is presently in the process of
settling an outstanding litigation claim with Ignite Advertising for a claim in
the amount of approximately $400,000.00. The Company has agreed to issue 376,600
shares to Ignite Advertising with registration rights. Each prospective investor
in the Company should understand that this settlement and the issuance of shares
pursuant thereto will constitute a dilution factor to investors and existing
shareholders and may reduce the ability of the Company to raise future capital.
These matter and other litigation risks are more fully discussed under the
"Litigation Section."
C. Securities Risk Factors.
------------------------
1. Limited Market. Each prospective investor in this offering should
understand that the Company has very limited trading markets and no assurance
can be given that the price of the stock may not be at risk or effected by the
completion of this private placement offering, or that the price will be the
same as currently quoted. Further, because the markets are very thinly traded,
any additional shares issued by the Company may have significant impacts upon
those markets.
2. Present SEC Review Standards. The Company has been informed through
its counsel that the SEC is currently critically reviewing various private
placement offering types and subsequent registration rights such as the present
offering. In various popular financial literature the offering similar to the
present private offering with preferred registration rights based upon various
formulas have been described as "toxic convertible" offerings. While not
strictly prohibited by the SEC, each investor should clearly understand that the
SEC will most likely critically review any type of offering of this nature and
such review and comments may cause unanticipated and unusual delays in the
clearance of any subsequent registration rights or any subsequent offerings by
the Company. Moreover, this type of offering may be subject to a higher level of
administrative review and potential administrative actions or investigations by
the Securities and Exchange Commission.
3. Limited Transferability. Securities issued pursuant to this Offering
have not been registered and are subject to very strict limitations on
subsequent transfers, resales, or assignments. These matters are more
particularly described under "Restricted Nature of Securities -
Transferability." In short, each individual investor should understand that
there may not develop any public markets through which reliance upon federal
rules for resale of restricted securities are often founded. Further, each
investor must understand that there may be substantial holding periods before
the securities can be resold, even if a public market is developed. In all
Page 54 of 81
events, transferability will be very limited and the shares should be purchased
only by those seeking long-term capital growth.
4. Lack of Registration Review. Because this is not a registered
offering, no formal guidelines or requirements for review are or have been
imposed by most jurisdictions allowing the claim of exemption, or by the federal
government through the Securities and Exchange Commission (SEC). By contrast, in
a registered offering, the Offering would most likely be thoroughly review by an
independent agency, such as the SEC, or a state securities agency. Moreover,
various states impose requirements, known as "Merit Requirements" on various
aspects of offerings pursuant to registration in that jurisdiction such as
limitations on dilutions. Because this is a private placement, such review or
merit requirements are usually not imposed. Each prospective investor should
further consider, as a potential risk factor, the fact that all Company offering
terms were determined upon the sole judgment of management of the Company and
were not formulated or arrived upon from any particular disclosure perspective
or merit review requirements.
5. Potential Securities Actions. Management believes, though it can not
substantiate empirically, that offerings of this type may be more subject to
litigation by securities holders or government administrative actions, because
of the lack of registration, that would be the case in a registered offering.
Should a securities action or administrative proceeding be instituted, either by
a governmental agency or an individual investor, proceeds of this Offering may
be expended to defend any such securities action, whether or not the Company is
successful. Any such action may, as a result, substantially reduce funds
available for business activities of the Company and lead to a potentially
insolvency or bankruptcy of the Company.
Page 55 of 81
CAPITAL STOCK
The Company has authorized 500,000,000 shares of common stock at a par
value of $0.0001. As of December 1, 1998, there are issued and outstanding
(including shares subscribed for), 19,360,252 shares. The Company has no
preferred class of stock.
Page 56 of 81
MANAGEMENT
Directors and Executive Officers
The following table contains certain information concerning the
nominees for the Board of Directors of the Company.
-----------------------------------------------------------------------------------------------------------------
Name and Age First Became a Shares of Common Percentage of
Principle Director Stock Beneficially Common Stock
Occupation or Owned Outstanding
Employment
-----------------------------------------------------------------------------------------------------------------
Xxxxxx Xxxxxx, 60 1994 2,377,000 14%
Chairman
-----------------------------------------------------------------------------------------------------------------
Xxxxxx X. Xxxxx 56 1995 528,962 3%
Partner in the real
estate company of
Xxxxx Xxxxxxxx &
Xxxxx
-----------------------------------------------------------------------------------------------------------------
Xxxxxx X. Xxxxxxxx 58 1995 1,000,000 6%
Partner in real estate
company of Xxxxx
Xxxxxxxx & Xxxxx
-----------------------------------------------------------------------------------------------------------------
Xxxxx Xxxxxxxx 54 1996 11,754 .1%
Chairman and CEO
of the Game of
Work, Inc. a
management
consulting firm
-----------------------------------------------------------------------------------------------------------------
Xxxxx Xxxxxxxx 46 1998 119,586 1%
VP of Marketing
and Chief
Marketing Officer of
Cogito Incorporated
-----------------------------------------------------------------------------------------------------------------
Xxxx Xxxxxxxxxxx 40 1998 68,729 .4%
General Manager of
The Kaizen Group
-----------------------------------------------------------------------------------------------------------------
Business Experience
Xxxxxx Xxxxxx. Chairman, Director. Xx. Xxxxxx is an alumnus of Idaho State
University, where he majored in Business and Marketing. Xx. Xxxxxx has extensive
experience in real estate with his primary focus being commercial and
residential project development. From 1986 to 1991, he served as Chief Executive
Officer and Chairman of the Board of Directors of Help-U-Sell, Inc. and was
involved with Help-U-Sell as a partner of Conquest Management, a Utah
partnership, which managed and owned a 49% interest in Help-U-Sell. During his
administration, Help-U-Sell grew from 118 franchises to 650 plus franchises and
was listed as the fastest growing real estate franchising organization in the
country. In 1991, the Help-U-Sell, Mutual Benefit Life, was taken over by the
New Jersey State Insurance Regulators and its subsidiaries were liquidated,
including Help-U-Sell, Inc. In 1991, Xx. Xxxxxx formulated and began development
of Chequemate International, Inc.
Xxxxxx X. Xxxxx. Director. Xx. Xxxxx received his BS degree in accounting from
the University of Maryland in 1965 and became a Certified Public Accountant the
following year. Xx. Xxxxx successfully built and managed a family owned retail
business prior to joining Xx. Xxxxxx Xxxxxxxx as a partner in the real estate
Company of Xxxxx, Warbled and Glico. Additionally, since 1988, Mr. Glico has
been a regional owner of Help-U-Sell Real Estate in Virginia, Maryland,
Washington D. C. and Delaware. Mr. Glico served as President of the Greater
Ocean City, Maryland, Board of Realtors in 1988, is a member of the Advisory
Board of Nations Bank and serves on the Maryland Governor's Economic Development
Committee.
Page 57 of 81
Xxxxxx Xxxxxxxx. Director. Xx. Xxxxxxxx has a BS Degree in Economics from
Western Maryland College. He has an extensive background in real estate and
regional sales management with the Weyerhauser Corporation. Xx. Xxxxxxxx first
became licensed in real estate in 1962, and in 1975 started Xxxxxxxx Real
Estate. He has been in the real estate and business development business in
Ocean City, Maryland since 1971. For the past 18 years Xx. Xxxxxxxx has been
President of Xxxxx, Xxxxxxxx and Xxxxx, Inc., with real estate sales over $100
million and rentals of $12 million. Additionally, since 1988, Xx. Xxxxxxxx has
been a regional owner of Help-U-Sell Real Estate in Virginia, Maryland,
Washington D.C. and Delaware. Xx. Xxxxxxxx currently serves on the Board of
Directors of Atlantic General Hospital and Ocean City Golf and Yacht Club. He
has also served as a director of Second National Service Corp., and Salisbury
School.
Xxxxx Xxxxxxxx. Director. Xx. Xxxxxxxx is Chairman of the Board and CEO of The
Game of Work, a Utah-based corporation engaged in providing management and
personnel training for its corporate clients in the fields of goal- setting and
profit improvement. Clients of the firm include Quaker Oats, Wendy's, The
Chicago Tribune, First Interstate bank, Dow Chemical and Pepsi-Cola.
Xxxxx Xxxxxxxx. Director. Xx. Xxxxxxxx is an alumnus of Xxxxxxx Xxxxx
University, where he majored in Business Management. He is currently the Vice
President of Marketing and Chief Marketing Officer for Cogito Incorporated, a
software technology development company. He was the VP of Marketing and a
Partner of The Kaizen Group, a marketing and development group for start-up
software companies from 1996 to present. He served as the President of Enhanced
Simulation Marketing from 1994 through 1996, marketing a newly patented motion
simulator for the entertainment industry. He was the VP of Marketing for
WordPerfect Corporation and Novell Corporation from 1983 to 1994. Xx. Xxxxxxxx
was responsible for all aspects of sales and marketing for WordPerfect, taking
sales from one million in 1983, to over seven hundred million in 1994. Prior to
working for WordPerfect, Xx. Xxxxxxxx was a member of the White House Staff for
four years.
Xxxx X. Xxxxxxxxxxx. Director. Xx. Xxxxxxxxxxx has a BS degree in Computer
Science from Xxxxxxx Young University. He has extensive experience in the
application of technology in computers and complex systems. He has been involved
in the management of technology sales and marketing for more than a decade with
such companies as WordPerfect and Novell. He was the General Manager of The
Kaizen Group, a consulting organization for technology companies with such
customers as Microsoft, NetVision, PowerQuest, LogicalNet and Cogito, a
Knowledge based software solutions provider.
Executive Officers
The following table outlines the executive officers of the Company.
This table does not include those officers that serve as Directors.
---------------------------------------------------------------------------------------------------------------------
Name Age Position Held Current Term of Office
or Directorship and
period of Service
---------------------------------------------------------------------------------------------------------------------
J. Xxxxxxx Xxxx 44 CEO Current Term September
1998 to current. Service
since September 1998
---------------------------------------------------------------------------------------------------------------------
Xxx Xxxxxxxxx 60 President Current Term September
1998 to current. Service
since September 1998
---------------------------------------------------------------------------------------------------------------------
Xxxxxx X. Xxxxxxxx 29 CFO Current Term September
1998 to current. Service
since July 1995.
---------------------------------------------------------------------------------------------------------------------
Business Experience
J. Xxxxxxx Xxxx. Xx. Xxxx has over 17 years in the satellite and television
business. Xx. Xxxx was formerly president of Skylink America, Inc. and Satellite
Cinema, successfully launching five digital video pay-per-view networks.
Page 58 of 81
During his tenure he grew the business to $20 million in annual revenue and over
150,000 subscribers. He was the Director of Operations for Comsat Video
Enterprises, and Chairman & CEO of Television Entertainment Network, Inc., a
Canadian hotel pay-per-view company. Xxx Xxxxxxxxx. Xx. Xxxxxxxxx has spent over
34 years with IBM working as Senior Engineer, product manager and vice president
of data processing (DP) manufacturing IBM World Trade Corp. He successfully
managed all of IBM's DP plants and technology plants outside of the U.S. He
later became a private consultant for such companies as Toyota MFG., Mutual
Benefit Life and Help-U-Sell, Inc.
Xxxxxx X. Xxxxxxxx. CFO/Secretary/Treasurer. Xx. Xxxxxxxx has a Masters of
Business Administration degree from the University of Utah. Xx. Xxxxxxxx also
received his BA Degree in Accounting from the University of Utah. Xx. Xxxxxxxx
has been with the Company since 1995 when he joined the Corporation as the
Assistant Controller. Xx. Xxxxxxxx first distinguished himself through his
ability to provide projections and models that help with business decisions.
Since then his role with the Company has continually increased. Xx. Xxxxxxxx
currently works on SEC reporting, financial statements, shareholder and investor
relations among other corporate responsibilities.
Executive Compensation
The following table sets forth the current salary information for
executive officers.
--------------------------------------------------------------------------------
Name and Principal Position Current Yearly Salary
--------------------------------------------------------------------------------
Xxxxxx Xxxxxx, Chairman $120,000
--------------------------------------------------------------------------------
J. Xxxxxxx Xxxx, CEO $120,000
--------------------------------------------------------------------------------
Xxx Xxxxxxxxx, President $120,000
--------------------------------------------------------------------------------
Xxxxxx X. Xxxxxxxx, CFO $ 55,000
--------------------------------------------------------------------------------
The following chart shows the stock options granted to the current
executive officers of the Company.
--------------------------------------------------------------------------------
Name and Principal Position Total Options Granted Total Options Vested
--------------------------------------------------------------------------------
Xxxxxx Xxxxxx, Chairman 70,000 42,000
--------------------------------------------------------------------------------
Xxxxxx X. Xxxxxxxx, CFO 30,000 9,000
--------------------------------------------------------------------------------
The following chart shows stock options granted to those other than
executive officers.
--------------------------------------------------------------------------------
Name Total Options Granted
--------------------------------------------------------------------------------
Xxxxx Xxxxxxx 59,910
--------------------------------------------------------------------------------
Xxxx Xxxxxxxxxxx 64,285
--------------------------------------------------------------------------------
Xxxx Xxxxx 192,855
--------------------------------------------------------------------------------
Xxxxxx Xxxxxx 200,000
--------------------------------------------------------------------------------
Xxxxx Xxxxxxxx 64,285
--------------------------------------------------------------------------------
Xxxxx Xxxxxxxx 58,571
--------------------------------------------------------------------------------
Trilogy Design 16,667
--------------------------------------------------------------------------------
Page 59 of 81
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of September 30,
1998 with respect to each person who owns of record, or is known to the Company
to beneficially own, more than 5% of the outstanding shares of voting common
stock, and the beneficial ownership of such securities by each officer and
director who owns any stock, and by all officers and directors as a group.
----------------------------------------------------------------------------------------------------------------
Name and Address of Beneficial Amount and Nature of Ownership Percent of currently issued and
Owner of Voting Stock Subscribed Stock
----------------------------------------------------------------------------------------------------------------
Xxxxxx Xxxxxx 2,377,0002 14%
00 Xxxx 000 Xxxxx Xxxxx 000 Direct Ownership
Xxxx Xxxx Xxxx, Xxxx 00000
----------------------------------------------------------------------------------------------------------------
Xxxxxx Xxxxxxxx 1,000,000 6%
00000 Xxxx Xxxxxx Xxxx Direct Ownership
Xxxxx Xxxx, XX 00000
----------------------------------------------------------------------------------------------------------------
Xxxxxx X. Xxxxx 528,962 3%
00000 Xxxxx Xxxxxx Xxxxx Xxxxxx Xxxxxxxxx
Xxxxxxxxxxx, XX 00000
----------------------------------------------------------------------------------------------------------------
Xxxxx Xxxxxxxx 11,754 .1%
0000 X. Xxxxxxxxxx Xxxx Xxxxxx Xxxxxxxxx
Xxxx Xxxx, Xxxx 00000
----------------------------------------------------------------------------------------------------------------
Xxxxx Xxxxxxxx 119,5862 1%
000 Xxxx 000 Xxxxx Direct Ownership
Xxxx, Xxxx 00000
----------------------------------------------------------------------------------------------------------------
Xxxx Xxxxxxxxxxx 68,7592 .4%
000 Xxxx 000 Xxxxx Direct Ownership
Xxxx, Xxxx 00000
----------------------------------------------------------------------------------------------------------------
Xxxxxx X. Xxxxxxxx 9,0002 .1%
00 Xxxx 000 Xxxxx Xxxxx 000 Direct Ownership
Xxxx Xxxx Xxxx, Xxxx 00000
----------------------------------------------------------------------------------------------------------------
CEDE & Co. 3,920,120 23%
XX Xxx 000
Xxxxxxx Xxxxx Xxxxxxx
Xxx Xxxx, XX 00000
----------------------------------------------------------------------------------------------------------------
Navada Holdings Ltd. 1,000,000 6%
C/0 Suite 1402 PDCP Bank Centre
0000 Xxxxx xx Xxxxx
Xxxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx
----------------------------------------------------------------------------------------------------------------
Officers and Directors as a group 4,115,061 24%
----------------------------------------------------------------------------------------------------------------
----------------------
2 Includes shares which these individuals have the right to acquire within sixty
days pursuant to options granted through September 30, 1998 in the following
amounts; Xxxxxx 42,000, Xxxxxxxx 58,571, Xxxxxxxxxxx 64,285, Xxxxxxxx 9,000
Page 60 of 81
SCHEDULE 2(i)
List of Possible Breaches of Contracts and List of Legal Proceedings
1. BH PRODUCTIONS, INC., an Illinois Corp., d/b/a IGNITE ADVERTISING v.
CHEQUEMATE INTERNATIONAL, proposed settlement of monthly payments in settlement
of all claims.
2. NEWPAPER AGENCY CORP., v. CHEQUEMATE ELECTRONICS, INC. a Utah
Corporation, formerly CHEQUEMATE THIRD DIMENSION, INC. Civil No. 980907238,
Xxxxx Xxxx Attorney for Plaintiff. Total of $13,132.56 plus interest and legal
fees. Payments of $2,569.11 on 09/29/98, $2,500.00 on 10/30/98, and $2,500 on
12/02/98 have been made against claim.
3. MARKO FOAM PRODUCTS, INC. v. CHEQUEMATE INTERNATIONAL, INC. Civil No.
980908766, Xxxxx Xxxx Attorney for Plaintiff. Total of $20,590.89 plus interest
and legal fees. Payments of $3,000 on 09/29/98, $3,000 on 10/30/98, $2,990.97 on
12/02/98 have been made against claim.
4. GOLDEN PACIFIC ELECTRONICS, INC. v. CHEQUEMATE ELECTRONICS, INC.; Civil
No. 980407246CV. Xxxxxxx Xxxxxxxx Attorney for Plaintiff. Total of $9,070 plus
interest and legal costs. Payments of $2,500 on 08/07/98, $2,500 on 09/29/98,
$2,500 on 10/30/98, $1,570 on 12/02/98 have been made.
5. CENTRAL MEADOW PARK, L.P. v. Chequemate Tele-Services, Inc., Xxxx
Xxxxxxxx, and Xxxxxx Xxxxxx. A retainer was paid to Xxxxxxx & Branch to
represent Chequemate Tele-Services and Xxxxxx in this lawsuit over a lease that
was entered into in Texas. Xxxxxxx X. Xxxxxxxx is the attorney handling the
claim for Chequemate Tele-Services and Xxxxxx. His phone number is (214)
953-7214. No action has been taken by plaintiff in 1998.
Page 61 of 81
SCHEDULE 2(l)
The Company is in the process of filing a trademark application for the
use of the name "C-3D Digital," and presently is doing business as C-3D Digital,
Inc. in the State of Utah.
Page 62 of 81
SCHEDULE 2(q)
The presently proposed settlement of the Ignite litigation contemplates
the payment of cash on a monthly basis to settle all claims.
Page 63 of 81
Exhibit B
A Subscriber who meets any one of the following tests is an accredited
investor:
(a) The Subscriber is an individual who has a net worth, or joint net
worth with the Subscriber's spouse, of at least $1,000,000.
(b) The Subscriber is an individual who had individual income of more
than $200,000 (or $300,000 jointly with the Subscriber's spouse) for the past
two years, and the Subscriber has a reasonable expectation of having income of
at least $200,000 (or $300,000 jointly with the Subscriber's spouse) for the
current year.
(c) The Subscriber is an officer or director of the Company.
(d) The Subscriber is a bank as defined in Section 3(a)(2) of the
Securities Act or any savings and loan association or other institution as
defined in Section 3(a)(5)(A) of the Securities Act whether acting in its
individual or fiduciary capacity.
(e) The Subscriber is a broker or dealer registered pursuant to Section
15 of the Securities Exchange Act of 1934.
(f) The Subscriber is an insurance company as defined in Section 2(13)
of the Securities Act.
(g) The Subscriber is an investment company registered under the
Investment Company Act of 1940 or a business development company as defined in
Section 2(a)(48) of that Act.
(h) The Subscriber is a small Business Investment Company licensed by
the U.S. Small Business Administration under Section 301(c) or (d) of the Small
Business Investment Act of 1958.
(i) The Subscriber is an employee benefit plan within the meaning of
Title I of the Employee Retirement Income Security Act of 1974, if the
investment decision is made by a plan fiduciary, as defined in Section 3(21) of
such Act, which is either a bank, savings and loan association, insurance
company, or registered investment adviser, or if the employee benefit plan has
total assets in excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are accredited investors.
(j) The Subscriber is a private business development company as defined
in Section 202(a)(22) of the Investment Advisers Act of 1940.
(k) The Subscriber is an organization described in Section 501(c)(3) of
the Internal Revenue Code, corporation, Massachusetts or similar business trust,
or partnership, not formed for the specific purpose of acquiring the securities
offered, with total assets in excess of $5,000,000.
(l) The Subscriber is a trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring the securities
offered, whose purchase is directed by a sophisticated person as described in
Rule 506(b)(2)(ii) of the Commission under the Securities Act.
(m) The Subscriber is an entity in which all of the equity owners are
accredited investors (i.e., all of the equity owners meet one of the tests for
an accredited investor).
If an individual investor qualifies as an accredited investor, such
individual may purchase the Units in the name of his individual retirement
account ("XXX").
Page 64 of 81
