Exhibit 10.1
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Date: February 9, 1999
Chequemate International, Inc.
▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: Mr. J. ▇▇▇▇▇▇▇ ▇▇▇▇, CEO
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
eight thousand four hundred seventy-five (8,475) 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:
1. (a) The Subscriber hereby agrees to purchase from the Company, and
the Company agrees to sell to the Subscriber, not less than eight Units at a
purchase price of two million dollars ($2,000,000). Payment of the purchase
price shall be made by check payable to the order of "Esanu Katsky ▇▇▇▇▇▇ &
Siger, LLP, as escrow agent for Chequemate International, Inc." or by wire
transfer to the Esanu Katsky ▇▇▇▇▇▇ & Siger, LLP escrow account.
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(b) 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."
(c) Proceeds from the sale of the Debentures will be held
until checks have cleared, after which the proceeds will be disbursed.
(d) There is no placement agent in connection with the
offering of the Debentures. The Company has engaged ▇▇▇▇▇▇▇ Capital Partners,
Ltd. ("▇▇▇▇▇▇▇") as a consultant in connection with this Offering, to which the
Company will pay compensation pursuant to an agreement between the Company and
▇▇▇▇▇▇▇.
(e) The Company shall have the right, on written notice to the
Subscriber, to terminate the Subscriber's obligation to purchase Units,
provided, however, that such termination shall not affect the Company's
obligations pursuant to Paragraphs 6 and 7 of this Agreement, which shall
continue in full force and effect, except that the Company's obligations
pursuant to Paragraph 6(b) shall terminate at such time (prior to the date set
forth therein) as all of the Conversion Shares which have been issued or are
issuable upon conversion of outstanding Debentures shall have been sold.
2. The Company represents and warrants to the Subscriber as follows:
(a) Organization and Qualification. The Company is (i) a
corporation duly organized and existing in good standing under the laws of the
State of 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.
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, to issue and sell the Units pursuant to this Agreement and to
issue the Shares in accordance with the terms of the Debentures and Warrants, as
the case may be. The execution, delivery and performance of this Agreement, the
Debentures and the Warrants and the consummation by the Company of the
transactions contemplated by this Agreement, the Debentures and the Warrants
(including without limitation the issuance of the Debentures and Warrants and
the issuance and reservation for issuance of the Shares) have been duly
authorized by the Company's board of directors and no further consent or
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authorization of the Company, its board of directors, or its stockholders is
required. This Agreement has been duly executed and delivered by the Company and
constitutes the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms.
(c) Capitalization. The authorized capital stock of the
Company consists of 500,000,000 shares of Common Stock, of which 20,651,951
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 any Preemptive Rights.
(d) Issuance of Shares.
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(i) The Shares are duly authorized and reserved for
issuance, and upon conversion of the Debentures or upon exercise of the
Warrants, as the case may be, in accordance with the respective terms thereof,
will be validly issued, fully paid and non-assessable, will be free from all
taxes, liens, claims and encumbrances and will not be subject to Preemptive
Rights of stockholders of the Company and or subject the holder to personal
liability.
(ii) All of the outstanding shares of Common Stock
have been duly and validly authorized and issued, fully paid and nonassessable
and were not issued in violation of any Preemptive Rights, and were issued in
transaction that were either registered pursuant to the Securities Act or exempt
from the registration requirements of the Securities Act.
(e) No Conflicts. The execution, delivery and performance of
this Agreement by the Company, the performance by the Company of its obligations
under this Agreement and the Securities, and the consummation by the Company of
the transactions contemplated by this Agreement (including, without limitation,
the issuance of the Securities and the Shares) will not (i) result in a
violation of the Company's certificate of incorporation and by-laws, as
currently in effect (the "Organizational Documents") or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company 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
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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.
(f) Financial Statements. The Company's financial statements
for the years ended March 31, 1998 and 1997, which have been certified by ▇▇▇▇▇,
▇▇▇▇▇▇ & 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 generally accepted accounting principles,
consistently applied. ▇▇▇▇▇, ▇▇▇▇▇▇ & 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 provided in Schedule
2(f) or 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.
(g) SEC Documents. The Company is required to file with the
Securities and Exchange Commission annual, quarterly and periodic reports
pursuant to Section 15(d) of 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 amended 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.
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(h) Form S-3 Eligibility. The Company meets each of the
requirements listed in General Instructions 1.A to Form S-3, and the Company is
eligible to register the Shares on a Form S-3, or other appropriate registration
form.
(i) 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.
(j) 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.
(k) Absence of Litigation. Except as disclosed in the
Financial Statements or the Disclosure Documents, there is no action, suit,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company, 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.
(l) Intellectual Property. Except as provided in Schedule 2(l)
or elsewhere in the Disclosure Documents, 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 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.
(m) Management. The document entitled "Management" in the
Disclosure Documents sets forth information concerning (i) each officer and
director, (ii) compensation information consistent with such information
required to be included in the Summary Compensation Table pursuant to Item 402
of Regulation S-B, (iii) a summary of all outstanding options and a description
of all outstanding stock option or other equity-based incentive plans, and (iv)
the information to be provided by Items 403 and 404 of Regulation S-B. Such
document shall update information included in the Company's Form 10-KSB for the
fiscal year ended March 31,1998.
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(n) 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.
(o) 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 ▇▇▇▇▇▇ & Siger, LLP referenced
herein.
(p) 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.
(q) No Integrated Offering. Neither the Company nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any securities or solicited any offerers
to buy any security under circumstances that would require registration of the
Units being offered hereby under the Securities Act.
(r) Supplementation of Prior Disclosure. The representations,
warranties and Disclosure Documents of this Agreement, supplement and supercede
the representations, warranties and Disclosure Documents of the December 21,
1998 Subscription Agreement entered into between the parties to this Agreement.
3. The Subscriber understands and agrees that, after the Company's
receipt of this Agreement, the Company will review the Subscriber's eligibility
and will determine whether to accept or reject this subscription in whole or in
part. The Company may determine to reject this subscription in whole or in part
in its sole and absolute discretion. If this subscription is accepted in whole,
then the Company will issue the Debentures subscribed for to the Subscriber. If
this subscription is rejected in whole, this Agreement and any other
subscription materials will be promptly returned to the Subscriber and the
Subscriber's subscription payment will be refunded to the Subscriber without
interest. In that event, the Subscriber and the Company will have no further
rights or claims against each other by virtue of this Agreement. If this
subscription is accepted in part and rejected in part, the Company is authorized
to amend this Agreement to reflect the number of Units for which this
subscription is accepted, and the Company will issue the Debentures and Warrants
comprising the Units as to which this subscription is accepted at the same time
as if this subscription had been accepted in whole.
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4. The Subscriber hereby represents and warrants to, and covenants and
agrees with, the Company as follows:
(a) The Subscriber understands that the offer and sale of the
Units is being made only by means of this Agreement. In deciding to subscribe
for Units, the Subscriber has not considered any information other than that
contained in this Agreement and in the documents listed in Exhibit A to this
Agreement (the "Disclosure Documents"), a copy of each of which has been
provided to the Subscriber and reviewed by the Subscriber to the extent that the
Subscriber deemed necessary or advisable. In particular, the Subscriber
understands that the Company has not authorized the use of, and the Subscriber
confirms that he or she is not relying upon, any other information, written or
oral, other than material contained in this Agreement and the Disclosure
Documents. The Subscriber is aware that the purchase of the Units involves a
high degree of risk and that the Subscriber may sustain, and has the financial
ability to sustain, the loss of his or her entire investment. The Subscriber
understands that the Company is a development stage corporation, has incurred
significant losses and no assurance can be given that the Company will be
profitable in the future, that the failure of the Company to raise funds, in
addition to the proceeds from the sale of the Units, may have a material adverse
effect upon its business and, if sufficient additional funds are not raised, the
Company may not be able to pay the Debentures when due, and that there is no
assurance that there will be a market for the Company's Common Stock or other
securities. Furthermore, in subscribing for the Units, the Subscriber
acknowledges that the Company has not made, and the Subscriber is not relying in
any manner upon, any projections or forecasts of future operations. The
Subscriber has had the opportunity to ask questions of, and receive answers
from, the Company's management regarding the Company.
(b) The Subscriber represents to the Company that he or she
(i) is an accredited investor within the meaning of Rule 501 under the
Securities Act, (ii) understands that in order to be treated as an accredited
investor, the Subscriber must meet one of the tests for an accredited investor
set forth on Exhibit B to this Agreement, and (iii) has read Exhibit B and is an
accredited investor as set forth on the signature page of this Agreement. The
Subscriber further represents that he or she has such knowledge and experience
in financial and business matters as to enable him or her to understand the
nature and extent of the risks involved in purchasing the Units. The Subscriber
is fully aware that such investments can and sometimes do result in the loss of
the entire investment. The Subscriber can afford to sustain the loss of his or
her entire investment, and the Subscriber's purchase of the Units is being made
from funds which the Subscriber has allocated to high risk, illiquid investments
and such funds are not required by the Subscriber to meet his or her normal
expenses. The Subscriber has engaged his or her own counsel and accountants to
the extent that he deems it necessary.
(c) The Subscriber acknowledges that the Company is relying on
the Subscriber's representations contained in this Agreement in executing this
Agreement and issuing the Units and its counsel is relying on such statements
and representations in rendering its opinion pursuant to Paragraph 5(a)(v) of
this Agreement, and the Subscriber agrees to indemnify and hold harmless the
Company, and its officers, directors, controlling persons and counsel from and
against all manner of loss, liability, damage or expense which they or any of
35
them may incur as a result of any material misstatement of fact or omission of a
material fact by the Subscriber in this Agreement.
(d) The Subscriber is acquiring the Units pursuant to this
Agreement for investment and not with a view to the sale or distribution
thereof, for his or her own account and not on behalf of others; has not granted
any other person any interest or participation in or right or option to purchase
all or any portion of the Units; is aware that the Units are restricted
securities within the meaning of Rule 144 of the Commission under the Securities
Act, and may not be sold or otherwise transferred other than pursuant to an
effective registration statement or an exemption from registration; and
understands and agrees that the Units may bear the Company's standard investment
legend. The Subscriber understands the meaning of these restrictions.
(e) The Subscriber will not transfer the Securities except in
compliance with all applicable Federal and state securities laws and
regulations. The Subscriber understands and agrees that the Company is not
obligated to recognize any transfer of any Securities unless it is satisfied in
its reasonable discretion that there has been compliance with such securities
laws and regulations, and, in such connection, the Company may request an
opinion of counsel acceptable to the Company as to the availability of any
exemption.
(f) The Subscriber has been informed by the Company that the
issuance of the Units pursuant to this Agreement will be exempt under Section
4(2) or 4(6) of the Securities Act and/or Regulation D, and in particular, Rule
506, of the Commission under the Securities Act and applicable exemption under
state securities laws, and the Subscriber understands that such exemption is
dependent upon the accuracy of the information contained in the Subscriber's
representations set forth in this Agreement.
(g) The Subscriber represents and warrants that 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).
(h) To the extent that the Subscriber has deemed it necessary,
the Subscriber has consulted his or her own legal, accounting, tax, investment
and other advisors.
(i) If the Subscriber is a corporation, all corporate action
necessary for the execution, delivery and performance by the Subscriber has been
taken and the person executing this Agreement on behalf of the Subscriber is an
authorized officer of the Subscriber. If the Subscriber is a limited partnership
or limited liability company, the person executing this Agreement is a general
partner or managing member of the Subscriber. If the Subscriber is a trust,
estate or other fiduciary, the person executing this Agreement is the trustee,
executor, administrator or other fiduciary.
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(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.
5. (a) It shall be a condition precedent to the Subscriber's obligation
to pay for the Units that the following conditions shall have been met:
(i) The Company shall have delivered to the
Subscriber or his or her representative:
(A) A copy of the certificate of
incorporation of the Company, 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.
(ii) 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.
(iii) No Material Adverse Change in the business or
financial condition of the Company shall have occurred or be threatened since
the date of this Agreement, and no proceedings shall be threatened or pending
before any governmental entity or authority which is likely to result in a
restraint, prohibition or the obtaining of damages or other relief in connection
with this Agreement or the consummation of the transactions contemplated by this
Agreement.
(iv) The Company shall have delivered to the
Subscriber the certificate of its chief executive and financial officers dated
the Closing Date as to the matters set forth in Paragraphs 5(a)(ii) and (iii) of
this Agreement.
(v) The Subscriber shall have received the opinion of
▇▇▇▇▇ ▇. ▇▇▇▇, 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.
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(B) All corporate action necessary for the
execution, delivery and performance by the Company of this Agreement, the
Debentures and the Warrants has been taken, and this Agreement, the Debentures
and Warrants constitute, the valid and binding obligations of the Company,
enforceable in accordance with their respective terms, except as enforceability
may be affected by customary principles governing equitable relief generally and
to any applicable bankruptcy, moratorium, equitable subordination, insolvency,
fraudulent conveyance, usury or other laws affecting creditors' rights and their
enforcement generally, and except that no opinion is given as to the
enforceability of any indemnification provisions.
(C) The Shares have been reserved for
issuance and, when issued upon conversion of the Debentures or exercise of the
Warrants, will be duly and validly authorized and issued, fully paid and
nonassessable and free from Preemptive Rights.
(D) In reliance upon the accuracy of the
representations and warranties of the Subscriber contained in this Agreement and
assuming that the Company files in a timely manner a Form D pursuant to
Regulation D of the Commission pursuant to the Securities Act, the sale of the
Units is exempt from the registration requirements of the Securities Act.
(vi) A Form D shall have been prepared for filing
with the Commission.
(vii) The Company shall have paid to ▇▇▇▇▇▇▇ the
compensation due to ▇▇▇▇▇▇▇.
(viii) The Company shall have paid to Esanu Katsky
▇▇▇▇▇▇ & Siger, LLP, its legal fees of ten thousand dollars ($10,000) plus
disbursements.
6. The Company hereby covenants and agrees with the Subscriber that:
(a) The Company will, promptly, but in no event later than
three (3) business days after each closing, file (i) the Form D with the
Commission and (ii) all documents and instruments required by the state
securities laws of any state in which any purchaser of Units lives.
(b) 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
38
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.
(c) As long as the Subscriber or any transferee (other than a
transferee pursuant to the Registration Statement) shall own any Securities, (i)
the Company shall file all annual, quarterly and periodic reports with the
Commission not later than the last day on which such filings may be made
pursuant to the Exchange Act, and (ii) the Company shall continue to be eligible
to use a Form S-3 or a Form SB-2 registration statement for the sale of the
Shares.
(d) As long as the Subscriber shall own any Securities, the
Company will provide the Subscriber with a copy of each Form 10-K or Form 10-KSB
Annual Report, Form 10- Q or Form 10-QSB Quarterly Report, each current report
on Form 8-K and any definitive proxy material, at the times such filings are
made with the Commission and will in addition provide the Subscriber with all
materials that are mailed to stockholders at such time as the materials are
mailed to the stockholders.
(e) The Company will comply with its obligations pursuant to
the Debentures and the Warrants.
(f) 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.
7. (a) The Company shall (i) file or cause to be filed with the
Commission, not later than fourteen (14) 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
also provide for the sale by the Subscriber of the shares available to the
Subscriber under the debentures issued to the Subscriber pursuant to the
December 21, 1998 subscription agreement (the "December Agreement") of the
parties to this Agreement. The Company and the Subscriber agree that the time of
the filing and effective date of the registration statement, as provided in the
December Agreement, are extended to the dates provided for in this Agreement.
39
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 provided for in this Agreement and in the December Agreement 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.
(b) The Company shall pay all expenses incident to the
Company's performance of or compliance with its obligations under this Paragraph
7, including, without limitation, all registration, filing, listing, stock
exchange, Nasdaq and NASD fees, all fees and expenses of complying with state
securities or blue sky laws all word processing, duplicating and printing
expenses, messenger and delivery expenses, the fees, disbursements and other
charges of counsel for the Company and of its independent public accountants,
but excluding commissions and applicable transfer taxes, if any, which
commissions and transfer taxes shall be borne by the seller or sellers of Shares
in all cases.
(c) In complying with its obligations pursuant to Paragraph
7(a) of this Agreement, the Company shall, as expeditiously as possible:
(i) Prepare and file with the Commission the
Registration Statement to effect such registration and thereafter use its best
efforts to cause such registration statement to become effective as promptly as
possible.
(ii) Notify the Subscriber at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, upon discovery that, or upon the happening of any event as a result of
which, the prospectus included in the Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances under which they were made, and
promptly, but not later than ten (10) business days after the happening of such
event, prepare and file with the Commission such amendments and supplements to
the Registration Statement and the prospectus used in connection therewith as
may be necessary to keep the Registration Statement effective and to comply with
40
the provisions of the Securities Act and the Exchange Act with respect to the
disposition of all Shares until such time as all of the Shares have been
disposed of in accordance with the method of disposition set forth in such
registration statement.
(iii) Before filing the Registration Statement or
prospectus or any amendments or supplements thereto, furnish to and afford the
Subscriber a reasonable opportunity (unless waived in writing by the Subscriber)
to review copies of all such documents (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.
(iv) Use its best efforts to obtain the prompt
withdrawal of any order suspending the effectiveness of a registration
statement, and in any event shall, within thirty (30) days of such cessation of
effectiveness, use its best efforts to amend the Registration Statement in a
manner reasonably expected to obtain the withdrawal of the order suspending the
effectiveness thereof, or file an additional registration statement pursuant to
Rule 415 covering all of the Shares and use its best efforts to cause the
Registration Statement to be declared effective as soon as practicable after
such filing and to remain effective as provided in this Paragraph 7.
(v) In the event of any transfer of Shares or
Securities which requires a supplement or post-effective amendment to the
Registration Statement or prospectus, promptly file such supplement or
post-effective amendment and use its best efforts to have such filing declared
effective by the Commission as promptly as possible after the filing thereof.
(vi) Furnish to the Subscriber such number of copies
of such drafts and final conformed versions of such Registration Statement and
of each such amendment and supplement thereto (in each case including all
exhibits and any documents incorporated by reference), such number of copies of
such drafts and final versions of the prospectus contained in such Registration
Statement (including each preliminary prospectus and any summary prospectus) and
any other prospectus filed under Rule 424 under the Securities Act, in
conformity with the requirements of the Securities Act, and such other
documents, as such seller may reasonably request in writing.
(vii) Use its best efforts (i) to register or qualify
all Shares under such other securities or blue sky laws of 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,
41
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.
(viii) Use its best efforts to cause all Shares to be
registered with or approved by such other federal or state governmental agencies
or authorities as may be necessary in the opinion of counsel to the Company and
counsel to the Subscriber to enable the seller or sellers thereof to consummate
the disposition of such Shares in the manner set forth in the Registration
Statement.
(ix) Otherwise comply with all applicable rules and
regulations of the Commission and any other governmental agency or authority
having jurisdiction over the offering, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering the
period of at least twelve months, but not more than eighteen months, beginning
with the first full calendar month after the effective date of such Registration
Statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act and Rule 158 promulgated thereunder, and furnish to
each seller of Shares at least ten days prior to the filing thereof a copy of
any amendment or supplement to such Registration Statement or prospectus.
(d) The Registration Statement, when declared effective by the
Commission or when subsequently amended (by an amendment which is declared
effective by the Commission) or any prospectus in the form included in the
registration statement as declared effective by the Commission or when
subsequently supplemented will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
(e) The Company may require the Subscriber to furnish the
Company such information regarding such seller and the distribution of the
securities covered by the Registration Statement as the Company may from time to
time reasonably request in writing and as is required by applicable laws and
regulations.
(f) The Company hereby agrees to indemnify and hold harmless
the Subscriber, including any other holder of Shares, and their respective
directors, officers, agents and advisers (collectively, the "Agents") and each
person, if any, who controls within the meaning of Section 15 of the Securities
Act (the "Control Person") the Subscriber or any such holder against any losses,
claims, damages or liabilities, joint or several, to which the Subscriber, any
such other holder of Shares, any such Agent, or any such Control Person may
become subject, under the Securities Act, the Exchange Act or any other Federal
or state law, including common law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of a material fact contained in
(A) 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
42
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.
(g) The Subscriber and each other holder of Shares, by
including such holder's Shares in the Registration Statement, agrees, severally,
to indemnify and hold harmless the Company, its Agents and the Control Persons
thereof to the same extent as the indemnity from the Company to the Subscriber,
such other holders, their respective Agents and Control Persons but only with
respect to any untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon or in conformity with written information
relating to such person by such person expressly for use in connection with any
registration statement, pre- or post-effective amendment or supplement thereto
or in any Blue Sky Application filed pursuant to this Agreement. The liability
of any Holder under this Paragraph 7(g) shall be limited to the amount of net
proceeds to such Holder from the Shares sold pursuant to the registration
statement which gives rise to such liability. This indemnity agreement will be
in addition to any liability that the Subscriber or any such other holder may
otherwise have. The indemnity agreement of the Subscriber and such other holders
contained in this Paragraph 7(g) shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of the Company or
any of its Control Persons and shall survive the registration and sale of any
Shares and the expiration or termination of this Agreement.
(h) If any action or claim shall be brought or asserted by a
party entitled to indemnification 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
43
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.
(i) If the indemnification provided for in this Agreement is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage or expense referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party thereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other
hand in connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relevant fault of the Indemnifying Party and the Indemnified
Party shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the Indemnifying Party or by
the Indemnified Party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
Notwithstanding the foregoing, the amount any Holder is obligated to contribute
pursuant to this Agreement shall be limited to the net proceeds to such Holder
from the Shares sold pursuant to the Registration Statement which gives rise to
such obligation to contribute (less the aggregate amount of any damages which
44
the Subscriber or such other holder has otherwise been required to pay in
respect of such loss, claim, damage, liability or action or any substantially
similar loss, claim, damage, liability or action arising from the sale of such
Shares). The foregoing contribution agreement shall in no way affect the
contribution liabilities of any persons having liability under Section 11 of the
Securities Act other than the Company, the Subscriber and such other holders. No
contribution shall be requested with regard to the settlement of any matter from
any party who did not consent to the settlement, provided, however, that such
consent shall not be unreasonably withheld in light of all factors of importance
to such party. Notwithstanding any provisions of this Paragraph 7, no person
guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
8. All notices provided for in this Agreement shall be in writing
signed by the party giving such notice, and delivered personally or sent by
overnight courier or messenger against receipt thereof or sent by registered or
certified mail (air mail if overseas), return receipt requested or by telecopier
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 ▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇,
Attention: ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇, CEO, telecopier (▇▇▇) ▇▇▇-▇▇▇▇, and to the
Subscriber at his or her address and telecopier number set forth on the
signature page or to such other address as any party shall designate in the
manner provided in this Paragraph 8.
9. (a) This Agreement constitutes the entire agreement between
the parties relating to the subject matter hereof, superseding any and all prior
or contemporaneous oral and prior written agreements, understandings and letters
of intent. This Agreement may not be modified or amended nor may any right be
waived except by a writing which expressly refers to this Agreement, states that
it is a modification, amendment or waiver and is signed by all parties with
respect to a modification or amendment or the party granting the waiver with
respect to a waiver. No course of conduct or dealing and no trade custom or
usage shall modify any provisions of this Agreement.
(b) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements
executed and to be performed wholly within such state, without regard for
principles of conflicts of law. The Company hereby (i) consents to the exclusive
jurisdiction of the United States District Court for the Southern District of
New York and Supreme Court of the State of New York in the County of New York in
any action relating to or arising out of this Debenture, (ii) agrees that any
process in any such action may be served upon it, in addition to any other
method of service permitted by law, by certified or registered mail, return
receipt requested, or by an overnight courier service which obtains evidence of
delivery, with the same full force and effect as if personally served upon him
in New York City, and (iii) waives any claim that the jurisdiction of any such
tribunal is not a convenient forum for any such action and any defense of lack
of in personam jurisdiction with respect thereto.
45
(c) 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.
(d) This Agreement shall be binding upon and inure to the
benefit of the parties hereto, and their respective successors and permitted
assigns.
(e) In the event that any provision of this Agreement becomes
or is declared by a court of competent jurisdiction to be illegal, unenforceable
or void, this Agreement shall continue in full force and effect without said
provision.
(f) Each party shall, without payment of any additional
consideration by any other party, at any time on or after the sale of the Units
take such further action and execute such other and further documents and
instruments as the other party may request in order to provide the other party
with the benefits of this Agreement.
(g) All references to any gender shall be deemed to include
the masculine, feminine or neuter gender, the singular shall include the plural,
and the plural shall include the singular.
(h) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same document.
(i) The various representations, warranties, and covenants set
forth in this Agreement or in any other writing delivered in connection
therewith shall survive the issuance of the Units.
46
Please confirm your agreement with the foregoing by signing this
Agreement where indicated.
Very truly yours,
Number of Units
Subscribed for: eight -------------------------------------------------
Name of Subscriber
Total
Purchase Price: By: /s/
----------------------------------------------
$2,000,000 (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 9th day of
February, 1999
CHEQUEMATE INTERNATIONAL, INC.
By: /s/ J. ▇▇▇▇▇▇▇ ▇▇▇▇
-----------------------
J. ▇▇▇▇▇▇▇ ▇▇▇▇, CEO
47
Exhibit A
Disclosure Documents
1. Risk Factors
2. Form 10-KSB for the fiscal year ended March 31, 1998
3. Form 10-QSB for the quarter ended September 30, 1998
4. Capital Stock
5. Management
6. Form of Debenture.
7. Form of Warrant
Schedule 2(f)
Schedule 2(i)
Schedule 2(l)
48
