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SUBSCRIPTION AGREEMENT
ARTICLE I
SUBSCRIPTION
THIS SUBSCRIPTION AGREEMENT is dated as of January __ 1999, between
Xxxx Xxx Xxxxx Xxxx (the "Subscriber") and Integrated Transportation Network
Group, Inc., a Delaware corporation (the "Company").
Section 1.01 Subscription. The Subscriber hereby subscribes to the
immediate acquisition of 5% Convertible Notes in the aggregate principal amount
of US$2,000,000, for a purchase price of US$2,000,000 which may be paid in
People's Republic of China Renminbi ("RMB") as set forth below at an exchange
rate of RMB8.25 to US$1.00, resulting in an aggregate purchase price in RMB of
RMB16,500,000. The Convertible Note(s) shall be in the form of Exhibit A hereto.
Such Convertible Notes (and the underlying shares of Common Stock, $.01 par
value, of the Company ("Common Stock")), are referred to herein as the
"Securities".
The Subscriber shall on the Company's behalf deliver RMB 16,500,000 to
Shenzhen Jinzhenghua Transport Industrial Development Co., Ltd, the Company's
92% owned subsidiary ("Jinzhenghua Transport") in satisfaction of the purchase
price hereunder. Promptly upon the execution hereof and receipt by Jinzhenghua
Transport of RMB 16,500,000 (US $2,000,000), the Company shall deliver the
Convertible Notes to the undersigned at the address indicated below.
ARTICLE II
PRESENTATIONS AND WARRANTIES
Section 2.01 In connection with the purchase of the Securities, the
Subscriber acknowledges, warrants and represents to the Company as follows:
(a) He is acquiring the Securities for investment for his own account
and without the intention of participating, directly or indirectly, in a
distribution of the Securities, and not with a view to resale or any
distribution of the Securities, or any portion thereof.
(b) He has knowledge and experience in financial and business matters
and has consulted with his own professional representatives as he has considered
appropriate to assist in evaluating the merits and risks of this investment. He
has reviewed the Company's Registration Statement on Form S-1 dated June 29,
1998 and the Company's Quarterly Reports on Form 10Q for the quarter ended June
30 and September 30, 1998, respectively. He has had access to and an opportunity
to question the officers of the Company, or persons acting on their behalf, with
respect to material information about
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the Company and, in connection with his evaluation of this investment, has, to
the best of his knowledge, received all information and data with respect to the
Company that he has requested. He is acquiring the Securities based solely upon
his independent examination and judgment as to the prospects of the Company.
(c) The Securities were not offered to the Subscriber by means of
publicly disseminated advertisements or sales literature.
(d) Subject to the provisions of Section 3.01, he acknowledges that an
investment in the Securities is speculative and he may have to continue to bear
the economic risk of the investment in the Securities for an indefinite period.
He acknowledges that the Securities are being sold to the undersigned without
registration under any state, or federal or PRC law requiring the registration
of securities for sale, and accordingly will constitute "restricted securities"
as defined in Rule 144 of the U.S. Securities and Exchange Commission. The
transferability of the Securities is therefore restricted by applicable United
States Federal and state securities laws and may be restricted under the laws of
other jurisdictions.
(e) The Subscriber is an "accredited investor" as such term is defined
in Appendix A.
(f) In consideration of the acceptance of this subscription, the
Subscriber agrees that the Securities will not be offered for sale, sold or
transferred by the undersigned other than pursuant to (i) an effective
registration under the Securities Act of 1933, as amended (the "Act"), an
exemption available under the Act or a transaction that is otherwise in
compliance with the Act; and (ii) an effective registration under the securities
law of any state or other jurisdiction applicable to the transaction, an
exemption available under such laws, or a transaction that is otherwise in
compliance with such laws.
(g) He understands that no U.S. federal or state agency has passed upon
the offering of the Securities or has made any finding or determination as to
the fairness of any investment in the Securities.
Section 2.02 Representations and Warranties of the Company. As an
inducement to the Subscriber to enter into this Agreement and to consummate the
transactions contemplated herein, the Company hereby represents and warrants to
the Subscriber and agrees as follows:
(a) Organization: Authority. The Company is a corporation duly
organized, validly existing and in good standing under the laws of Delaware and
has full power and authority to enter into this Agreement and to perform its
obligations hereunder. This Agreement constitutes, and any other agreements and
instruments required to be delivered by the Company hereunder, when duly
executed and delivered by the Company, will constitute, valid and binding
obligations of the Company and will be enforceable in accordance with their
respective terms. The Company has previously
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provided to the Subscriber true copies of all resolutions of the Company's Board
of Directors necessary to authorize the transactions described herein, and all
such resolutions are in full force and effect and have not been revoked.
(b) Capitalization. As of January 26, 1999, the authorized share
capital of the Company consists of 50,000,000 common shares, par value US$.01
per share, of which 10,235,204 are fully issued and remain outstanding, and
5,000,000 preferred shares, par value US$.01 per share, none of which are issued
and outstanding. Except as set forth above and as set forth in Appendix B, no
other shares or equity securities of the Company have been issued and remain
outstanding, and there are no outstanding options, warrants or other rights to
purchase or acquire any share capital of the Company, whether granted by the
Company or otherwise, and there are no existing contracts by which the Company
is or may become bound to issue any additional shares. The Company has never
reduced, repaid, redeemed or purchased any of its share capital. The Securities
shall, upon issuance, shall be fully paid and non-assessable.
(c) No Consents. Neither the consummation of the transactions
contemplated hereby, nor compliance with nor fulfillment of the terms and
provisions hereof, will (i) require the consent of any governmental authority or
any person under any contract to which the Company is a party or to which the
Company is subject or (ii) give any party with rights under any material
contract to which the Company or any subsidiary of the Company is a party the
right to terminate, modify or otherwise change the material rights or
obligations of any party under such contract.
(d) Compliance with Laws. The Company is in compliance, and there
exists no alleged material noncompliance, with all applicable laws relating in
any material respect to the Company and the operation or conduct of its
business, except where the failure to so comply would not have a material
adverse effect on the Company, and, except as previously disclosed in the
Prospectus of the Company dated June 29, 1998 or the quarterly reports of the
Company filed with the SEC on Form 10-Q for the three-month periods ending June
30, 1998 and September 30, 1998, the Company has not received any notice of
alleged violation of any such applicable law.
ARTICLE III
MISCELLANEOUS
Section 3.01 Miscellaneous. The Company agrees that it shall file with
the United States Securities and Exchange Commission (the "SEC") a registration
statement under the U.S. Securities Act of 1933 (the "Securities Act") in
accordance with Rule 415 thereof (the "Shelf Registration") registering the
shares underlying the Convertible Notes for resale by the Subscriber, and shall
use its best efforts to cause such registration statement to become effective
within 180 days after the date hereof and to remain effective at all times for a
period of three years after the date hereof. In addition, if the Company at any
time files a Registration Statement under the Securities Act with respect to its
Common Stock after the date hereof, the Company shall so notify the undersigned
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and shall include such of the Securities as the Subscriber may request on such
Registration Statement.
Section 3.02 Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
Section 3.03 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, applicable to
contracts executed in and to be performed entirely within that state. All
actions and proceedings arising out of or relating to this Agreement shall be
heard and determined in any New York state or federal court sitting in the City
of New York and, to the extent permitted by Law, the parties hereto expressly
consent to the jurisdiction of such courts, agree to venue in such courts and
hereby waive any defense or claim of forum non conveniens they may have with
respect to any such action or proceeding.
[INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Subscriber and the Company have executed this
Agreement or caused this Agreement to be executed as of the date first written
above.
COMPANY SUBSCRIBER
Integrated Transportation
Network Group Inc. --------------------------------------
Name: Xxxx Xxx Xxxxx Xxxx
Address: 1/F Shell Industrial Building
By: 00 Xxx Xxxxx Xxxxxx, Xxxx Xxx
---------------------------- Hong Kong, PRC
Xxxxxx Xxx, President
000 Xxxx 00xx Xxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
U.S.A.
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APPENDIX A
An "accredited Investor" within the meaning of Regulation D under the
Securities Act of 1933 includes the following:
Organizations
(1) A bank as defined in section 3(a)(2) of the Act, or any savings and
loan association or other institution as defined in section 3(a)(5)(A) of the
Act, whether acting in its individual or fiduciary capacity; a broker or dealer
registered pursuant to section 15 of the Securities Exchange Act of 1934;
insurance company as defined in section 2(13) of the Act; 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; 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; 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.
(2) A private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940.
(3) A trust (i) with total assets in excess of $5,000,000, (ii) not
formed for the specific purpose of acquiring the Securities, (iii) whose
purchase is directed by a person who, either alone or with his Subscriber
representative, has such knowledge and experience in financial and business
matters that he is capable of evaluating the merits and risks of the proposed
investment.
(4) A corporation, business trust, partnership, or an organization
described in section 501(c)(3) of the Internal Revenue Code, which was not
formed for the specific purpose of acquiring the Securities, and which has total
assets in excess of $5,000,000.
Individuals
(5) Individuals with income from all sources for each of the last two
full calendar years whose reasonably expected income for this calendar year
exceeds either of:
(i) $200,000 individual income; or
(ii) $300,000 joint income with spouse.
NOTE: Your "income" for a particular year may be calculated by adding to your
adjusted gross income as calculated for Federal income tax purposes any
deduction for
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long term capital gains, any deduction for depletion allowance, any exclusion
for tax exempt interest and any losses of a partnership allocated to you as a
partner.
(6) Individuals with net worth as of the date hereof (individually or
jointly with your spouse), including the value of home, furnishings, and
automobiles, in excess of $1,000,000.
(7) Directors, executive officers or general partners of the Issuer.
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APPENDIX B
Options and Warrants
Employee Options The Company has issued and outstanding
options to purchase 2,210,000 shares of
Common Stock at a price per share of US
$2.00.
Consultant's Option/Shares The Company has agreed to issue a
financial consultant an option to purchase
30,000 shares of Common Stock at a purchase
price of US$3.00 per share. The Company has
also agreed to issue a financial consultant
3,000 shares of Common Stock for services.
Warrants Purchase rights to 1,394,286 shares of
Common Stock, at US $2.00 per share.
Financier Option Option to purchase 1,992,000 shares of
Common Stock at US $2.00 per share, subject
to issuance.
Reserved Shares The Company has reserved for
issuance 119,821 shares of Common Stock in
connection with the surrender of remaining
outstanding shares of Common Stock of
Xxxxxx Science Corporation, the Company's
former parent.
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EXHIBIT A
THE NOTE EVIDENCED HEREBY HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW
TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR
DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR PURSUANT TO AN
EXEMPTION UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS.
5% CONVERTIBLE NOTE
US $2,000,000 Integrated Transportation
Network Group, Inc.
February __, 1999
FOR VALUE RECEIVED, the undersigned, Integrated Transportation Network Group,
Inc., a Delaware Corporation, with its principal executive offices at 000 Xxxx
00xx Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000 ("Maker"), hereby promises to
pay to the order of Xxxx Xxx Xxxxx Xxxx, whose address is 0/X Xxxxx Xxxxxxxxxx
Xxxxxxxx, 12 Xxx Xxxxx St., Chai Wan, Hong Kong, PRC ("Holder"), the sum of Two
Million U.S. Dollars (US $2,000,000), together with interest on the unpaid
principal amount from time to time outstanding at a rate per annum equal to five
(5)% percent, as provided herein. The entire balance of unconverted principal,
accrued but unpaid interest, and any other fees and charges shall be due and
payable on February __, 2001 (the "Maturity Date") and shall, at the option of
the Holder, be paid in U.S. Dollars, lawful currency of the People's Republic of
China ("Reminbi" or "RMB"), or shares of Common Stock of the Maker, $.01 par
value ("Common Stock"), at the conversion price of US $2.00. In the event the
Holder elects to be repaid RMB, the Company shall repay the Holder based on the
then prevailing US$/RMB exchange rate, as announced by the People's Bank of
China on the business day in China immediately preceding the date of such
repayment.
This Note is being issued pursuant to, and is entitled to the benefits
of, that certain Subscription Agreement (the "Subscription Agreement") between
the Maker and the Holder of even date.
1. Interest. Interest and fees shall be calculated on the basis of a
360-day year times the actual number of days elapsed. In no event shall interest
payable hereunder exceed the highest rate permitted by applicable law. To the
extent any interest received by Holder exceeds the maximum amount permitted,
such payment shall be credited to principal, and any excess remaining after full
payment of principal shall be refunded to Maker. Accrued but unpaid interest
shall be paid at the time of conversion of this Note, whether in whole or in
part, as provided
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herein, in shares of Common Stock, at the conversion price of US $2.00 per
share. To the extent there is accrued and unpaid interest at the Maturity Date,
such interest shall be paid in cash or in shares of Common Stock, at the
conversion price of US $2.00 per share, at the option of the Holder.
2. Prepayment. The principal balance of this Note may only be prepaid
with the consent of the Holder.
3. Events of Default. The entire balance of unpaid principal and
interest shall, at the option of the Holder, become immediately due and payable
if any of the following events shall occur and be continuing:
(i) The Maker shall fail to make any payment herein provided when
due and such failure shall have continued uncured for a period
of (twenty) 20 days; or
(ii) The Maker shall fail to issue the shares of common stock
issuable to the Holder in accordance with this Note upon
submission of the Note for conversion in accordance with the
terms hereof; or
(iii) There shall occur a default under any mortgage, indenture,
loan agreement or other instrument evidencing indebtedness
exceeding US$500,000 binding on the Maker or any of its
subsidiaries which shall have resulted in the indebtedness
evidenced thereby becoming or being declared due and payable
prior to the date on which it would otherwise have been due
and payable, without such indebtedness having been discharged
or such acceleration having been rescinded or annulled; or
(iv) The Maker or any of its subsidiaries shall admit in writing
its inability to pay its debts generally, or shall make a
general assignment for the benefit of creditors; or any
proceeding shall be instituted by or against the Maker or any
of its subsidiaries seeking to adjudicate it a bankrupt or
insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of
it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking
the entry of an order for relief or the appointment of a
receiver, trustee, custodian or similar official for it or for
any substantial part of its property and, in the case of any
such proceeding instituted against it (but not instituted by
it), either such proceeding shall remain undismissed or
unstayed for a period of forty-five (45) days, or any of the
actions sought in such proceeding (including, without
limitation, the entry of an order for relief against, or the
appointment of a receiver, trustee, custodian or other similar
official for, it or for any substantial part of its property)
shall occur; or the Maker or any of its subsidiaries shall
take any corporate action to authorize any of the actions set
forth above in this subsection (iv);
then, and in any such event, the Holder may, by notice to the Maker, declare the
Note and all interest thereon to be forthwith due and payable, whereupon the
Note and all such interest shall become and be forthwith due and payable,
without presentment, demand, protest or further notice
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of any kind, all of which are hereby expressly waived by the Maker; provided,
however, that in the event of any actual or deemed entry of an order for relief
with respect to the Maker under the U.S. Federal Bankruptcy Code, the Note and
all such interest shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by the Maker.
All payments due hereunder shall be made at the address of the Holder as
set forth in the Subscription Agreement, or at such other place as the Holder
may designate from time to time in writing.
4. Convertibility of Note. At any time prior to the repayment in full of
all amounts due hereunder, the unpaid principal amount of this Note shall at the
option of the Holder be convertible in whole or in part into shares of Common
Stock at a conversion price of US $2.00 per share ("Conversion Price"), subject
to adjustment as provided below. At the time of conversion, the Maker shall pay
the Holder in shares of Common Stock, at a price equal to the Conversion Price,
all accrued but unpaid interest on the Note. The Company shall reserve out of
its authorized but unissued Common Stock or its Common Stock held in treasury a
number of shares of its common stock equal at all times to the number of shares
into which the Note may then be converted. All shares of Common Stock which are
issued upon conversion of the Note shall be fully paid and non-assessable, and
shall be issued free and clear of all liens, charges and encumbrances of any
kind whatsoever, except for any restrictions under applicable securities laws.
5. Conversion of Note. Subject to Section 4, the conversion rights
represented by this Note may be exercised in whole, or in part, by the surrender
of this Note and the duly executed Notice of Conversion (the form of which is
attached as Schedule 1 hereto) at the principal office of the Maker as set forth
in the Subscription Agreement or as notified by the Maker to the Holder from
time to time. Promptly upon conversion, the Holder shall be entitled to receive
a certificate, issued in the Holder's name or in such name or names as the
Holder may direct, which shall evidence the shares of Common Stock issuable upon
conversion. The shares of Common Stock so acquired shall be deemed to be issued
as of the close of business on the date on which the Notice of Conversion is
delivered by the Holder. In the event the Note is converted in part, a
replacement Note with identical terms and of like tenor evidencing the remaining
principal amount owed after the conversion shall be issued to the Holder,
provided, however, that any failure on the part of the Maker to deliver such
replacement Note shall not in any way affect the validity of the Holder's claims
with respect to the remaining principal amount owed after the conversion.
6. Adjustments of Conversion Price. As set forth in Schedule 2 hereto,
which shall be for all purposes an integral part of this Note, the Conversion
Price shall be adjusted from time to time upon the occurrence of certain events.
7. No Rights as Stockholders. This Note does not entitle the Holder to
any voting rights or other rights as a stockholder of the Maker prior to
conversion and surrender of this Note. Notwithstanding the foregoing, the Maker
agrees, upon the request of the Holder, to transmit to the Holder such
information, documents and reports as are generally distributed to
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holders of the Common Stock. Upon valid conversion in accordance with the terms
hereof, the Holder or the Holder's designee, as the case may be, shall be deemed
a stockholder of the Maker.
8. Sale or Transfer of the Note and the Underlying Shares of Common
Stock; Legend. The Note and the underlying shares of Common Stock shall not be
sold or transferred unless either (i) they first shall have been registered
under the Securities Act of 1933, as amended (the "Act") and applicable state
securities laws, or (ii) such sale or transfer is exempt from the registration
requirements of the Act and applicable state securities laws. Each certificate,
if any, representing the shares of Common Stock issued upon conversion of this
Note shall bear a legend substantially in the following form, as appropriate:
THE SHARES OF COMMON STOCK EVIDENCED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR
PURSUANT TO AN EXEMPTION UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS.
Prior to recognizing any transfer, the Company will be entitled to receive a
written legal opinion of experienced securities counsel reasonably acceptable to
the Company concerning compliance with federal and state securities laws. Such
shares of Common Stock may be subject to additional restrictions on transfer
imposed under applicable securities laws. At any time that any of the shares
issued upon conversion of this Note may, under the Act, be freely traded without
restriction, the Company shall, upon request of any holder of such shares and
upon receipt by the Company of a written legal opinion of experienced securities
counsel reasonably acceptable to the Company concerning compliance with federal
and state securities laws, issue to such holder replacement certificates
evidencing the shares of Common Stock held by such holder from which the legend
set forth above has been removed. The expense of any legal opinions required
pursuant to this Section 8 shall be paid by the transferor or holder (as the
case may be) of the relevant shares.
9. Modifications and Waivers. This Note may not be changed, waived,
discharged or terminated except by an instrument in writing signed by the Maker
and the Holder.
10. Notices. Any notice, request or other document required or
permitted to be given or delivered to the Holder or the Maker shall be
delivered, or shall be sent by certified or registered mail, postage prepaid, or
by courier service to the Holder at its address indicated herein or as notified
by the Holder to the Maker from time to time or in the case of the Maker, at the
address indicated in the Subscription Agreement, or, if different, at the
principal office of the Maker as notified by the Maker to the Holder.
11. Loss, Theft, Destruction or Mutilation of Note or Certificate
Representing Shares of Common Stock. The Maker covenants with the Holder that
upon its receipt of
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evidence reasonably satisfactory to the Maker of the loss, theft, destruction or
mutilation of this Note or any certificate evidencing any shares of Common Stock
and, in the case of mutilation, upon surrender and cancellation of this Note or
the relevant certificate evidencing shares of Common Stock, the Maker will make
and deliver a new Note or stock certificate, with identical terms and of like
tenor, in lieu of the lost, stolen, destroyed or mutilated Note or stock
certificate.
12. Binding Effect on Successors. This Note may not be assigned by the
Maker without the consent of the Holder and shall be binding upon any business
association succeeding the Maker by merger, consolidation or acquisition of all
or substantially all of the Maker's assets, and all of the obligations of the
Maker relating to the shares of Common Stock issuable upon conversion of this
Note shall survive the conversion and termination of this Note and all of the
covenants and agreements of the Maker shall inure to the benefit of the
successors and assigns of the Holder.
13. Governing Law. This Note shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of New York, without regard to the choice of law principles thereof.
IN WITNESS WHEREOF, INTEGRATED TRANSPORTATION NETWORK GROUP INC. has
caused this Note to be executed by a representative thereunto duly authorized.
ORIGINAL ISSUANCE DATE: As of February __, 1999
WITNESS: INTEGRATED TRANSPORTATION
NETWORK GROUP INC.
--------------------------------- By:
Name: -----------------------------
---------------------------- Xxxxxx Xxx, President
Address: duly authorized
-------------------------
-------------------------
-------------------------
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Schedule 1
NOTICE OF CONVERSION
To: INTEGRATED TRANSPORTATION NETWORK GROUP INC.
1. The undersigned hereby elects to convert the attached Note into
_______ shares of Common Stock of Integrated Transportation Network Group Inc.
pursuant to the terms of the attached Note, and tenders herewith the Note for
cancellation.
2. Please issue a certificate representing said shares of Common Stock
in the name of the undersigned or in such other name or names as are specified
below.
3. In the event that there remains unpaid principal after the
conversion requested hereby, please issue a replacement Note on the same terms
and of like tenor for the remaining unpaid principal amount.
4. The undersigned represents that the aforesaid shares of Common Stock
are being acquired for the account of the undersigned for investment and not
with a view to, or for resale in connection with, the distribution thereof and
that the undersigned has no present intention of distributing or reselling such
shares of Common Stock. The undersigned further represents that such shares of
Common Stock shall not be sold or transferred unless either (i) such sale is
effected pursuant to registration under applicable federal and state securities
laws or (ii) or an exemption from such registration requirements is available.
[The undersigned requests that the aforesaid shares of Common Stock be
registered for resale pursuant to the Company's registration statement in
accordance with Rule 415 of the U.S. Securities Act of 1933, all in accordance
with Section 3.01 of the Subscription Agreement.]*
---------------------------------
(Name)
---------------------------------
(Address)
---------------------------------
(Signature)
---------------------------------
(Date)
--------
* Delete as appropriate
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Schedule 2
Adjustments to Conversion Price
1. Adjustment for change in capital stock. If the Company:
(1) pays a dividend or makes a distribution on its Common
Stock in shares of its Common Stock;
(2) subdivides its outstanding shares of Common Stock into a
greater number of shares;
(3) combines its outstanding shares of Common Stock into a
smaller number of shares; or
(4) issues by reclassification of its Common Stock any shares
of its capital stock;
then the Conversion Price in effect immediately prior to such action shall be
adjusted so that upon any subsequent conversion of the Note, the Holder shall
receive the number of shares of capital stock of the Company which he would have
owned immediately following such action if he had made the conversion
immediately prior to such action.
The adjustment shall become effective immediately after the record date
in the case of a dividend or distribution and immediately after the effective
date in the case of a subdivision, combination or reclassification.
If after an adjustment the Holder upon conversion of the Note may
receive shares of two or more classes of capital stock of the Company, the
Company shall determine the allocation of the adjusted Conversion Price between
the classes of capital stock. After such allocation, the Conversion Price with
respect to each class of capital stock shall thereafter be subject to adjustment
on terms comparable to those applicable to Shares in this Schedule 2.
2. Adjustment for sales to insiders. If the Company issues shares of
Common Stock for cash or securities convertible into or exchangeable for Common
Stock to any shareholder of the Company or any affiliate of a shareholder of the
Company which, immediately prior to such issuance, either individually or
together with its affiliates (as defined in Rule 405 of the Securities Act),
owns 10% or more of the issued and outstanding common stock of the Company, at a
price per share (or having a conversion or exchange price per share) less than
US$2.00 per share, the Conversion Price shall be adjusted in accordance with the
formula:
N x P
C' = C x O + US$2.00
O + N
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where:
C' = the adjusted Conversion Price.
C = the current Conversion Price.
O = the number of shares of Common Stock outstanding on the
record date of issuance date, as applicable.
N = the number of additional shares of Common Stock offered or
issuable upon conversion or exchange.
P = the offering, conversion or exchange price per share of
the additional shares.
The adjustment shall be made whenever any such securities are issued
and shall become effective on the date of such issuance.
The provisions of this paragraph 2 shall not apply to (i) the exercise
of options or warrants to purchase Common Stock existing on the date of
execution of this Agreement, (ii) Common Stock issued to employees of the
Company or any of its subsidiaries under bona fide employee benefit plans
adopted by the Board of Directors and approved by the holders of Common Stock
when required by law; (iii) Common Stock or convertible securities issued in a
bona fide public offering pursuant to a firm commitment underwriting, or sales
at the market pursuant to a continuous stock offering program; (iv) Common Stock
issued upon the exercise of warrants, rights or options which are issued with an
Conversion Price at least equal to US$2.00; or (v) any issuance of securities
described on Appendix B of the Subscription Agreement.
3. Adjustment for other distributions. If the Company distributes to
all holders of its Common Stock any shares of capital stock of the Company
(other than Common Stock), any of its assets or debt securities or any rights or
warrants to purchase assets or securities of the Company, the Conversion Price
shall be adjusted in accordance with the formula:
C' = C x M - F
M
where:
C' = the adjusted Conversion Price.
C = the current Conversion Price.
M = the current market price (as defined in paragraph 4) per
share of Common Stock on the record date mentioned below.
F = the fair market value on the record date of the assets,
securities, rights or warrants applicable to one share of
Common Stock. The Company shall determine
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the fair market value.
The adjustment shall become effective immediately after the record date
for the determination of stockholders entitled to receive the distribution.
This paragraph does not apply to regular or quarterly cash dividends or
cash distributions paid out of consolidated current or retained earnings as
shown on the books of the Company. Also, this paragraph does not apply to rights
or warrants referred to in paragraph 2.
4. Current market price. In paragraph 3 the current market price per
share of Common Stock on any date is the average of the last reported sales
prices of the Common Stock on the OTC Bulletin Board, or other quotation system
or exchange on which the Common Stock is then quoted or listed, for the thirty
consecutive trading days commencing forty-five trading days before the date in
question. In the absence of one or more such quotations, the Company shall
determine the current market price on the basis of such quotations as it
considers appropriate.
5. Consideration received. For purposes of computing compensation
received for the purposes of the calculations set forth in paragraph 2, the
following shall apply:
(1) in the case of issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash, provided that in no
case shall any deduction be made for commissions, discounts or other expenses
incurred by the Company for any underwriting of the issue or otherwise in
connection therewith;
(2) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair market thereof as determined in good faith
by the Board of Directors (irrespective of the accounting treatment thereof),
whose determination shall be conclusive absent manifest error, and shall be
described in a Board resolution, a copy of which shall be delivered to the
Holder; and
(3) in the case of the issuance of securities convertible into or
exchangeable or exercisable for shares, the aggregate consideration received
therefor shall be deemed to be the consideration received by the Company for the
issuance of such securities plus the additional minimum consideration, if any,
to be received by the Company upon the conversion or exchange thereof (the
consideration in each case to be determined in the same manner as provided in
clauses (1) and (2) of this paragraph 5.
6. Notice of adjustment. Whenever the Conversion Price is adjusted, the
Company shall promptly mail to the Holder a notice of the adjustment, and shall
include therein a certificate from the Company's independent public accountants
briefly stating the facts requiring the adjustment and the manner of computing
it.
7. Notice of certain transactions. If the Company takes any action that
would require an adjustment in the conversion rate pursuant to paragraphs 1, 2
or 3, the Company shall mail to the Holder a notice stating the proposed record
date for a dividend or distribution or the proposed effective date of a
subdivision, combination, reclassification, consolidation, merger, transfer,
liquidation or dissolution. The Company shall mail the notice at least fifteen
days before such
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date and also send a copy by facsimile.
8. Reorganization of Company. For so long as the Note shall remain
outstanding, the Company shall not enter into any reorganization or merger in
which an entity other than the Company would be the surviving entity, or which
would reclassify or change the Company's outstanding Common Stock, or any sale,
transfer or conveyance of all or substantially all of the assets of the Company
unless such surviving entity, the Company or the transferee, respectively,
enters into an amendment of this Agreement or a supplemental agreement with the
Holder that provides that the Holder may convert the Note at the Conversion
Price in effect immediately before the consummation of such transaction to
purchase the kind and amount of securities, cash and other assets which it would
have owned immediately after the consolidation, merger or transfer if it had
converted the Note immediately before the effective date of the transaction. The
amendment or supplemental agreement shall provide for adjustments which shall be
as nearly equivalent as may be practical to the adjustments provided for in this
Schedule 2.
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