SUBSCRIPTION AGREEMENT
Dear Subscriber:
You (the "Subscriber") hereby agree to purchase, and The Tirex
Corporation, a Delaware corporation (the "Company") hereby agrees to issue and
to sell to the Subscriber, 8% Convertible Notes (the "Notes") convertible in
accordance with the terms thereof into shares of the Company's $.001 par value
common stock (the "Company Shares") for the aggregate consideration as set forth
on the signature page hereof ("Purchase Price"). The form of Convertible Note is
annexed hereto as Exhibit A. (The Company Shares included in the Securities (as
hereinafter defined) are sometimes referred to herein as the "Shares" or "Common
Stock"). (The Notes, the Company Shares, Common Stock Purchase Warrants
("Warrants") issuable to the recipients identified on Schedule B hereto, the
Common Stock issuable upon exercise of the Warrants, and the Put Securities (as
herein defined) are collectively referred to herein as, the "Securities"). Upon
acceptance of this Agreement by the Subscriber, the Company shall issue and
deliver to the Subscriber the Note against payment, by federal funds (U.S.) wire
transfer of the Purchase Price.
The following terms and conditions shall apply to this subscription.
1. Subscriber's Representations and Warranties. The Subscriber
hereby represents and warrants to and agrees with the Company that:
(a) Information on Company. The Subscriber has been furnished
with the Company's Form 10-KSB for the year ended June 30, 2000 as filed with
the Securities and Exchange Commission (the "Commission") together with all
subsequently filed forms 10-QSB (hereinafter referred to as the "Reports"). In
addition, the Subscriber has received from the Company such other information
concerning its operations, financial condition and other matters as the
Subscriber has requested in writing, and considered all factors the Subscriber
deems material in deciding on the advisability of investing in the Securities
(such information in writing is collectively, the "Other Written Information").
(b) Information on Subscriber. The Subscriber is an "accredited
investor", as such term is defined in Regulation D promulgated by the Commission
under the Securities Act of 1933, as amended (the "1933 Act"), is experienced in
investments and business matters, has made investments of a speculative nature
and has purchased securities of United States publicly-owned companies in
private placements in the past and, with its representatives, has such knowledge
and experience in financial, tax and other business matters as to enable the
Subscriber to utilize the information made available by the Company to evaluate
the merits and risks of and to make an informed investment decision with respect
to the proposed purchase, which represents a speculative investment. The
Subscriber has the authority and is duly and legally qualified to purchase and
own the Securities. The Subscriber is able to bear the risk of such investment
for an indefinite period and to afford a complete loss thereof. The information
set forth on the signature page hereto regarding the Subscriber is accurate.
(c) Purchase of Note. On the Closing Date, the Subscriber will
purchase the Note for its own account and not with a view to any distribution
thereof.
(d) Compliance with Securities Act. The Subscriber understands
and agrees that the Securities have not been registered under the 1933 Act, by
reason of their issuance in a transaction that does not require registration
under the 1933 Act (based in part on the accuracy of the representations and
warranties of Subscriber contained herein), and that such Securities must be
held unless a subsequent disposition is registered under the 1933 Act or is
exempt from such registration.
(e) Company Shares Legend. The Company Shares, and the shares of
Common Stock issuable upon the exercise of the Warrants, shall bear the
following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE TIREX CORPORATION
THAT SUCH REGISTRATION IS NOT REQUIRED."
(f) Warrants Legend. The Warrants shall bear the following
legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
WARRANT UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO THE TIREX CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED."
(g) Note Legend. The Note shall bear the following legend:
"THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER
SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE TIREX
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED."
(h) Communication of Offer. The offer to sell the Securities was
directly communicated to the Subscriber. At no time was the Subscriber presented
with or solicited by any leaflet, newspaper or magazine article, radio or
television advertisement, or any other form of general advertising or solicited
or invited to attend a promotional meeting otherwise than in connection and
concurrently with such communicated offer.
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(i) Correctness of Representations. The Subscriber represents
that the foregoing representations and warranties are true and correct as of the
date hereof and, unless the Subscriber otherwise notifies the Company prior to
the Closing Date (as hereinafter defined), shall be true and correct as of the
Closing Date. The foregoing representations and warranties shall survive the
Closing Date.
2. Company Representations and Warranties. The Company represents
and warrants to and agrees with the Subscriber that:
(a) Due Incorporation. The Company and each of its subsidiaries
is a corporation duly organized, validly existing and in good standing under the
laws of the respective jurisdictions of their incorporation and have the
requisite corporate power to own their properties and to carry on their business
as now being conducted. The Company and each of its subsidiaries is duly
qualified as a foreign corporation to do business and is in good standing in
each jurisdiction where the nature of the business conducted or property owned
by it makes such qualification necessary, other than those jurisdictions in
which the failure to so qualify would not have a material adverse effect on the
business, operations or prospects or condition (financial or otherwise) of the
Company.
(b) Outstanding Stock. All issued and outstanding shares of
capital stock of the Company and each of its subsidiaries has been duly
authorized and validly issued and are fully paid and non-assessable.
(c) Authority; Enforceability. This Agreement has been duly
authorized, executed and delivered by the Company and is a valid and binding
agreement enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights generally and
to general principles of equity; and the Company has full corporate power and
authority necessary to enter into this Agreement and to perform its obligations
hereunder and all other agreements entered into by the Company relating hereto.
(d) Additional Issuances. There are no outstanding agreements or
preemptive or similar rights affecting the Company's common stock or equity and
no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, or agreements or understandings with
respect to the sale or issuance of any shares of common stock or equity of the
Company or other equity interest in any of the subsidiaries of the Company,
except as described in the Reports or Other Written Information.
(e) Consents. No consent, approval, authorization or order of any
court, governmental agency or body or arbitrator having jurisdiction over the
Company, or any of its affiliates, the NASD, NASDAQ or the Company's
Shareholders is required for execution of this Agreement, and all other
agreements entered into by the Company relating thereto, including, without
limitation issuance and sale of the Securities, and the performance of the
Company's obligations hereunder.
(f) No Violation or Conflict. Assuming the representations and
warranties of the Subscriber in Paragraph 1 are true and correct and the
Subscriber complies with its obligations under this Agreement, neither the
issuance and sale of the Securities nor the performance of its obligations under
this Agreement and all other agreements entered into by the Company relating
thereto by the Company will:
(i) violate, conflict with, result in a breach of, or
constitute a default (or an event which with the giving of notice or the lapse
of time or both would be reasonably likely to constitute a default) under (A)
the certificate of incorporation, charter or bylaws of the Company or any of its
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affiliates, (B) to the Company's knowledge, any decree, judgment, order, law,
treaty, rule, regulation or determination applicable to the Company or any of
its affiliates of any court, governmental agency or body, or arbitrator having
jurisdiction over the Company or any of its affiliates or over the properties or
assets of the Company or any of its affiliates, (C) the terms of any bond,
debenture, note or any other evidence of indebtedness, or any agreement, stock
option or other similar plan, indenture, lease, mortgage, deed of trust or other
instrument to which the Company or any of its affiliates is a party, by which
the Company or any of its affiliates is bound, or to which any of the properties
of the Company or any of its affiliates is subject, or (D) the terms of any
"lock-up" or similar provision of any underwriting or similar agreement to which
the Company, or any of its affiliates is a party; or
(ii) result in the creation or imposition of any lien,
charge or encumbrance upon the Securities or any of the assets of the Company,
or any of its affiliates.
(g) The Securities. The Securities upon issuance:
(i) are, or will be, free and clear of any security
interests, liens, claims or other encumbrances, subject to restrictions upon
transfer under the 1933 Act and State laws;
(ii) have been, or will be, duly and validly authorized and
on the date of issuance and on the Closing Date, as hereinafter defined, and the
date the Note is converted, and the Warrants are exercised, the Securities will
be duly and validly issued, fully paid and nonassessable (and if registered
pursuant to the 1933 Act, and resold pursuant to an effective registration
statement will be free trading and unrestricted, provided that the Subscriber
complies with the Prospectus delivery requirements);
(iii) will not have been issued or sold in violation of any
preemptive or other similar rights of the holders of any securities of the
Company; and
(iv) will not subject the holders thereof to personal
liability by reason of being such holders.
(h) Litigation. There is no pending or, to the best knowledge of
the Company, threatened action, suit, proceeding or investigation before any
court, governmental agency or body, or arbitrator having jurisdiction over the
Company, or any of its affiliates that would affect the execution by the Company
or the performance by the Company of its obligations under this Agreement, and
all other agreements entered into by the Company relating hereto. Except as
disclosed in the Reports or Other Written Information, there is no pending or,
to the best knowledge of the Company, threatened action, suit, proceeding or
investigation before any court, governmental agency or body, or arbitrator
having jurisdiction over the Company, or any of its affiliates.
(i) Reporting Company. The Company is a publicly-held company
subject to reporting obligations pursuant to Sections 15(d) and 13 of the
Securities Exchange Act of 1934, as amended (the "1934 Act"). The Company's
common stock is trading on the NASD OTC Bulletin Board ("Bulletin Board").
Pursuant to the provisions of the 1934 Act, the Company has timely filed all
reports and other materials required to be filed thereunder with the Securities
and Exchange Commission during the preceding twelve months except as set forth
on Schedule 2 hereto.
(j) No Market Manipulation. The Company has not taken, and will
not take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or manipulation of
the price of the common stock of the Company to facilitate the sale or resale of
the Securities or affect the price at which the Securities may be issued.
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(k) Information Concerning Company. The Reports and Other Written
Information contain all material information relating to the Company and its
operations and financial condition as of their respective dates which
information is required to be disclosed therein. Since the date of the financial
statements included in the Reports, and except as modified in the Other Written
Information, there has been no material adverse change in the Company's
business, financial condition or affairs not disclosed in the Reports. The
Reports and Other Written Information do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(l) Dilution. The number of Shares issuable upon conversion of
the Note may increase substantially in certain circumstances, including, but not
necessarily limited to, the circumstance wherein the trading price of the Common
Stock declines prior to conversion of the Note. The Company's executive officers
and directors have studied and fully understand the nature of the Securities
being sold hereby and recognize that they have a potential dilutive effect. The
board of directors of the Company has concluded, in its good faith business
judgment, that such issuance is in the best interests of the Company. The
Company specifically acknowledges that its obligation to issue the Shares upon
conversion of the Note and exercise of the Warrants is binding upon the Company
and enforceable, except as otherwise described in this Subscription Agreement or
the Note, regardless of the dilution such issuance may have on the ownership
interests of other shareholders of the Company.
(m) Stop Transfer. The Securities are restricted securities as of
the date of this Agreement. The Company will not issue any stop transfer order
or other order impeding the sale and delivery of the Securities, except as may
be required by federal securities laws.
(n) Defaults. Neither the Company nor any of its subsidiaries is
in violation of its Certificate of Incorporation or ByLaws. Neither the Company
nor any of its subsidiaries is (i) in default under or in violation of any other
material agreement or instrument to which it is a party or by which it or any of
its properties are bound or affected, which default or violation would have a
material adverse effect on the Company, (ii) in default with respect to any
order of any court, arbitrator or governmental body or subject to or party to
any order of any court or governmental authority arising out of any action, suit
or proceeding under any statute or other law respecting antitrust, monopoly,
restraint of trade, unfair competition or similar matters, or (iii) to its
knowledge in violation of any statute, rule or regulation of any governmental
authority which violation would have a material adverse effect on the Company.
(o) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
the Bulletin Board, as applicable, nor will the Company or any of its affiliates
or subsidiaries take any action or steps that would cause the offering of the
Securities to be integrated with other offerings.
(p) No General Solicitation. Neither the Company, nor any of its
affiliates, nor to its knowledge, any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Act) in connection with the offer or sale of
the Securities.
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(q) Listing. The Company's Common Stock is listed for trading on
the Bulletin Board and satisfies all requirements for the continuation of such
listing. The Company has not received any notice that its common stock will be
delisted from the Bulletin Board or that the Common Stock does not meet all
requirements for the continuation of such listing.
(r) No Undisclosed Liabilities. The Company has no liabilities or
obligations which are material, individually or in the aggregate, which are not
disclosed in the Reports and Other Written Information, other than those
incurred in the ordinary course of the Company's businesses since September 30,
2000 and which, individually or in the aggregate, would not reasonably be
expected to have a material adverse effect on the Company's financial condition.
(s) No Undisclosed Events or Circumstances. Since September 30,
2000, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed in the Reports.
(t) Disability. The Company has no knowledge of any impediment
which would or could prevent the Company from becoming a fully reporting company
with a class of common stock registered pursuant to Section 12(g) of the 1934
Act.
(u) Correctness of Representations. The Company represents that
the foregoing representations and warranties are true and correct as of the date
hereof in all material respects, will be true and correct as of the Closing
Date, and, unless the Company otherwise notifies the Subscriber prior to the
Closing Date, shall be true and correct in all material respects as of the
Closing Date. The foregoing representations and warranties shall survive the
Closing Date.
3. Regulation D Offering. This Offering is being made pursuant to
the exemption from the registration provisions of the Securities Act of 1933, as
amended, afforded by Rule 506 of Regulation D promulgated thereunder. On the
Closing Date, the Company will provide an opinion acceptable to Subscriber from
the Company's legal counsel opining on the availability of the Regulation D
exemption as it relates to the offer and issuance of the Securities. A form of
the legal opinion is annexed hereto as Exhibit C. The Company will provide, at
the Company's expense, such other legal opinions in the future as are reasonably
necessary for the conversion of the Note and exercise of the Warrants.
4. Reissuance of Securities. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Sections 1(e) and 1(f) above at such time as (a) the holder thereof is permitted
to and disposes of such Securities pursuant to Rule 144(d) and/or Rule 144(k)
under the 1933 Act in the opinion of counsel reasonably satisfactory to the
Company, or (b) upon resale subject to an effective registration statement after
the Securities are registered under the 0000 Xxx. The Company agrees to
cooperate with the Subscriber in connection with all resales pursuant to Rule
144(d) and Rule 144(k) and provide legal opinions necessary to allow such
resales provided the Company and its counsel receive all reasonably requested
written representations from the Subscriber and selling broker, if any. If the
Company fails to remove any legend as required by this Section 4 (a "Legend
Removal Failure"), then beginning on the tenth (10th) day following the date
that the Subscriber has requested the removal of the legend and delivered all
items reasonably required to be delivered by the Subscriber, the Company
continues to fail to remove such legend, the Company shall pay to each
Subscriber or assignee holding shares subject to a Legend Removal Failure an
amount equal to one percent (1%) of the Purchase Price of the shares subject to
a Legend Removal Failure per day that such failure continues. If during any
twelve (12) month period, the Company fails to remove any legend as required by
this Section 4 for an aggregate of thirty (30) days, each Subscriber or assignee
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holding Securities subject to a Legend Removal Failure may, at its option,
require the Company to purchase all or any portion of the Securities subject to
a Legend Removal Failure held by such Subscriber or assignee at a price per
share equal to 120% of the applicable Purchase Price.
5. Redemption. The Company may not redeem the Securities without the
consent of the holder of the Securities except as otherwise described herein.
6. Fees/Warrants.
(a) The Company shall pay to counsel to the Subscriber its fees,
up to a maximum of $21,500 (of which $7,500 has been paid) for services rendered
to Subscribers in connection with this Agreement and the other Subscription
Agreements for aggregate subscription amounts of up to $750,000 (the "Initial
Offering") and aggregate Put Amounts (as defined herein) of up to $4,250,000.
The Company will pay the escrow agent for the Initial Offering a fee of $500.
The Company will pay to the Finders identified on Schedule B hereto a cash fee
in the amount of: ten percent (10%) of the Purchase Price and aggregate Put
Purchase Price (defined in Section 11.1(a) hereto), and set forth on the
signature page hereto ("Finder's Fee") and of the actual cash proceeds received
by the Company in connection with the exercise of the Warrants issued in
connection with the Initial Offering ("Initial Warrants"), and Warrants issuable
in connection with the Put ("Put Warrants") ("Warrant Exercise Compensation").
Collectively, the Initial Warrants and Put Warrants are referred to herein as
Warrants. The Finder's Fee must be paid each Closing Date and Put Closing Date
with respect to the Notes issued on such date. The Warrant Exercise Compensation
must be paid to the Finders identified on Schedule B hereto, within ten (10)
days of receipt of the Warrant exercise Purchase Price (as defined in the
Warrant). The Finder's Fee and legal fees will be payable out of funds held
pursuant to a Funds Escrow Agreement to be entered into by the Company,
Subscriber and an Escrow Agent. On the Closing Date, the Company will pay the
entity identified on Schedule B hereto, the sum of $2,500 as an expense
allowance ("Expense Allowance").
(b) The Company will also issue and deliver to the Warrant
Recipients identified on Schedule B hereto, Warrants in the amounts designated
on Schedule B hereto in connection with the Initial Offering and exercise of the
Put. A form of Warrant is annexed hereto as Exhibit D. The per share "Purchase
Price" of Common Stock as defined in the Warrant shall be equal to one hundred
and ten percent (110%) of the lowest closing bid price of the Common Stock for
the ten (10) trading days preceding but not including the Closing Date or Put
Closing Date, as the case may be, as reported on the NASD OTC Bulletin Board,
NASDAQ SmallCap Market, NASDAQ National Market System, American Stock Exchange,
or New York Stock Exchange (whichever of the foregoing is at the time the
principal trading exchange or market for the Common Stock, the "Principal
Market"), or such other principal market or exchange where the Common Stock is
listed or traded. The Warrants designated on Schedule B hereto must be delivered
to the Warrant Recipients on the Closing Date and Put Closing Date, as the case
may be. Failure to timely deliver the Warrant Exercise Compensation, the
Warrants or Finder's Fee shall be deemed an Event of Default as defined in
Article III of the Note and Put Note.
(c) The Finder's Fee, legal fees and escrow agent's fee will be
paid to the Finders and attorneys only when, as, and if a corresponding
subscription amount is released from escrow to the Company and out of the escrow
proceeds. All the representations, covenants, warranties, undertakings,
remedies, liquidated damages, and indemnification, other rights including but
not limited to registration rights, and rights in Section 9 hereof, made or
granted to or for the benefit of the Subscriber are hereby also made and granted
to the Warrant Recipients in respect of the Warrants and Company Shares issuable
upon exercise of the Warrants.
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(d) The Company on the one hand, and the Subscriber on the other
hand, agree to indemnify the other against and hold the other harmless from any
and all liabilities to any other persons claiming brokerage commissions or
finder's fees except as identified on Schedule B hereto on account of services
purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby and
arising out of such party's actions.
7. Covenants of the Company. The Company covenants and agrees with
the Subscriber as follows:
(a) The Company will advise the Subscriber, promptly after it
receives notice of issuance by the Securities and Exchange Commission, any state
securities commission or any other regulatory authority of any stop order or of
any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the Common Stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
(b) The Company shall promptly secure the listing of the Company
Shares, and Common Stock issuable upon the exercise of the Warrants upon each
national securities exchange, or automated quotation system, if any, upon which
shares of Common Stock are then listed (subject to official notice of issuance)
and shall maintain such listing so long as any other shares of Common Stock
shall be so listed. The Company will maintain the listing of its Common Stock on
a Principal Market, and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
National Association of Securities Dealers ("NASD") and such exchanges, as
applicable. The Company will provide the Subscriber copies of all notices it
receives notifying the Company of the threatened and actual delisting of the
Common Stock from any Principal Market.
(c) The Company shall notify the SEC, NASD and applicable state
authorities, in accordance with their requirements, if any, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to the Subscriber
and promptly provide copies thereof to Subscriber.
(d) Until at least two (2) years after the effectiveness of the
Registration Statement on Form SB-2 or such other Registration Statement
described in Section 10.1(iv) hereof, the Company will (i) cause its Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, (ii) comply in all respects with its reporting and filing obligations under
the Exchange Act, (iii) comply with all reporting requirements that is
applicable to an issuer with a class of Shares registered pursuant to Section
12(g) of the Exchange Act, and (iv) comply with all requirements related to any
registration statement filed pursuant to this Agreement. The Company will not
take any action or file any document (whether or not permitted by the Act or the
Exchange Act or the rules thereunder) to terminate or suspend such registration
or to terminate or suspend its reporting and filing obligations under said Acts
until the later of (y) two (2) years after the actual effective date of the
Registration Statement on Form SB-2 or such other Registration Statement
described in Section 10.1(iv) hereof, or (z) the sale by the Subscribers and
Warrant Recipients of all the Company Shares, Securities and Put Securities
issuable by the Company pursuant to this Agreement. Until at least two (2) years
after the Warrants have been exercised, the Company will use its commercial best
efforts to continue the listing of the Common Stock on the Bulletin Board,
NASDAQ SmallCap Market, New York Stock Exchange, American Stock Exchange, or
NASDAQ National Market System and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the NASD
and NASDAQ.
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(e) The Company undertakes to use the proceeds of the
Subscriber's funds for the purposes set forth on Schedule 7(e) hereto. Except
for up to 15% of Note Purchase Price and Put Note Purchase Price, Note Purchase
Price and Put Note Purchase Price may not and will not be used to pay debt or
non-trade obligations outstanding on or after the Closing Date or Put Closing
Date.
(f) The Company undertakes to use its best efforts to acquire,
within three months of the Closing Date, at a commercially reasonable cost, a
standard officers and directors errors and omissions liability insurance policy
covering the transactions contemplated in this Agreement.
(g) The Company undertakes to reserve pro rata on behalf of each
holder of a Note, Put Note or Warrant, from its authorized but unissued Common
Stock, at all times that Notes, Put Notes or Warrants remain outstanding, a
number of Common Shares equal to not less than 200% of the amount of Common
Shares necessary to allow each such holder to be able to convert all such
outstanding Notes and Put Notes, at the then applicable Conversion Price and one
Common Share for each Common Share issuable upon exercise of the Warrants.
(h) The Company undertakes to become a fully reporting company
with a class of Shares registered pursuant to Section 12(g) of the 1934 Act no
later than 150 days after the Closing Date.
8. Covenants of the Company and Subscriber Regarding Idemnification.
(a) The Company agrees to indemnify, hold harmless, reimburse and
defend Subscriber, Subscriber's officers, directors, agents, affiliates, control
persons, and principal shareholders, against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of any
nature, incurred by or imposed upon Subscriber or any such person which results,
arises out of or is based upon (i) any misrepresentation by Company or breach of
any warranty by Company in this Agreement or in any Exhibits or Schedules
attached hereto, or other agreement delivered pursuant hereto; or (ii) after any
applicable notice and/or cure periods, any breach or default in performance by
the Company of any covenant or undertaking to be performed by the Company
hereunder, or any other agreement entered into by the Company and Subscribers
relating hereto.
(b) Subscriber agrees to indemnify, hold harmless, reimburse and
defend the Company and each of the Company's officers and directors at all times
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Company or any such person which results, arises out of or is based upon (i) any
misrepresentation by Subscriber in this Agreement or in any Exhibits or
Schedules attached hereto, or other agreement delivered pursuant hereto; or (ii)
after any applicable notice and/or cure periods, any breach or default in
performance by Subscriber of any covenant or undertaking to be performed by
Subscriber hereunder, or any other agreement entered into by the Company and
Subscribers relating hereto.
(c) The procedures set forth in Section 10.6 shall apply to the
indemnifications set forth in Sections 8(a) and 8(b) above.
9.1. Conversion of Note.
(a) Upon the conversion of the Note or part thereof, the Company
shall, at its own cost and expense, take all necessary action (including the
issuance of an opinion of counsel) to assure that the Company's transfer agent
shall issue stock certificates in the name of Subscriber (or its nominee) or
such other persons as designated by Subscriber and in such denominations to be
specified at conversion representing the number of shares of common stock
issuable upon such conversion. The Company warrants that no instructions other
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than these instructions have been or will be given to the transfer agent of the
Company's Common Stock and that the Shares will be unlegended, free-trading, and
freely transferable, and will not contain a legend restricting the resale or
transferability of the Company Shares provided the Shares are being sold
pursuant to an effective registration statement covering the Shares to be sold
or are otherwise exempt from registration when sold.
(b) Subscriber will give notice of its decision to exercise its
right to convert the Note or part thereof by telecopying an executed and
completed Notice of Conversion (as defined in the Note) to the Company via
confirmed telecopier transmission. The Subscriber will not be required to
surrender the Note until the Note has been fully converted or satisfied. Each
date on which a Notice of Conversion is telecopied to the Company in accordance
with the provisions hereof shall be deemed a Conversion Date. The Company will
or cause the transfer agent to transmit the Company's Common Stock certificates
representing the Shares issuable upon conversion of the Note to the Subscriber
via express courier for receipt by such Subscriber within three (3) business
days after receipt by the Company of the Notice of Conversion (the "Delivery
Date"). A Note representing the balance of the Note not so converted will be
provided to the Subscriber, if requested by Subscriber. To the extent that a
Subscriber elects not to surrender a Note for reissuance upon partial payment or
conversion, the Subscriber hereby indemnifies the Company against any and all
loss or damage attributable to a third-party claim in an amount in excess of the
actual amount then due under the Note.
(c) The Company understands that a delay in the delivery of the
Shares in the form required pursuant to Section 9 hereof, or the Mandatory
Redemption Amount described in Section 9.2 hereof, beyond the Delivery Date or
Mandatory Redemption Payment Date (as hereinafter defined) could result in
economic loss to the Subscriber. As compensation to the Subscriber for such
loss, the Company agrees to pay late payments to the Subscriber for late
issuance of Shares in the form required pursuant to Section 9 hereof upon
Conversion of the Note or late payment of the Mandatory Redemption Amount, in
the amount of $100 per business day after the Delivery Date or Mandatory
Redemption Payment Date, as the case may be, for each $10,000 of Note principal
amount being converted or redeemed. The Company shall pay any payments incurred
under this Section in immediately available funds upon demand. Furthermore, in
addition to any other remedies which may be available to the Subscriber, in the
event that the Company fails for any reason to effect delivery of the Shares by
the Delivery Date or make payment by the Mandatory Redemption Payment Date, the
Subscriber will be entitled to revoke all or part of the relevant Notice of
Conversion or rescind all or part of the notice of Mandatory Redemption by
delivery of a notice to such effect to the Company whereupon the Company and the
Subscriber shall each be restored to their respective positions immediately
prior to the delivery of such notice, except that late payment charges described
above shall be payable through the date notice of revocation or rescission is
given to the Company.
(d) Nothing contained herein or in any document referred to
herein or delivered in connection herewith shall be deemed to establish or
require the payment of a rate of interest or other charges in excess of the
maximum permitted by applicable law. In the event that the rate of interest or
dividends required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Company to the Subscriber and thus refunded to the
Company.
9.2. Mandatory Redemption. In the event the Company is prohibited from
issuing Shares, or fails to timely deliver Shares on a Delivery Date, or for any
reason other than pursuant to the limitations set forth in Section 9.3 hereof,
then at the Subscriber's election, the Company must pay to the Subscriber ten
(10) business days after request by the Subscriber or on the Delivery Date (if
requested by the Subscriber) a sum of money determined by multiplying up to the
outstanding principal amount of the Note designated by the Subscriber by 130%,
together with accrued but unpaid interest thereon ("Mandatory Redemption
10
Payment"). The Mandatory Redemption Payment must be received by the Subscriber
on the same date as the Company Shares otherwise deliverable or within ten (10)
business days after request, whichever is sooner ("Mandatory Redemption Payment
Date"). Upon receipt of the Mandatory Redemption Payment, the corresponding Note
principal and interest will be deemed paid and no longer outstanding.
9.3. Maximum Conversion. The Subscriber shall not be entitled to
convert on a Conversion Date that amount of the Note and Put Note in connection
with that number of shares of Common Stock which would be in excess of the sum
of (i) the number of shares of Common Stock beneficially owned by the Subscriber
and its affiliates on a Conversion Date, and (ii) the number of shares of Common
Stock issuable upon the conversion of the Note and Put Note with respect to
which the determination of this provison is being made on a Conversion Date,
which would result in beneficial ownership by the Subscriber and its affiliates
of more than 4.99% of the outstanding shares of Common Stock of the Company on
such Conversion Date. For the purposes of the provison to the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13d-3 thereunder. Subject to the foregoing, the Subscriber shall not be limited
to aggregate conversions of only 4.99%. The Subscriber may void the conversion
limitation described in this Section 9.3 upon 75 days prior written notice to
the Company. The Subscriber may allocate which of the equity of the Company
deemed beneficially owned by the Subscriber shall be included in the 4.99%
amount described above and which shall be allocated to the excess above 4.99%.
9.4. Injunction - Posting of Bond. In the event a Subscriber shall
elect to convert a Note or part thereof, the Company may not refuse conversion
based on any claim that such Subscriber or any one associated or affiliated with
such Subscriber has been engaged in any violation of law, or for any other
reason, unless, an injunction from a court, on notice, restraining and or
enjoining conversion of all or part of said Note shall have been sought and
obtained and the Company posts a surety bond for the benefit of such Subscriber
in the amount of 130% of the amount of the Note, which is subject to the
injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Subscriber to the extent Subscriber obtains judgment.
9.5. Buy-In. In addition to any other rights available to the
Subscriber, if the Company fails to deliver to the Subscriber such shares
issuable upon conversion of a Note by the Delivery Date and if ten (10) days
after the Delivery Date the Subscriber purchases (in an open market transaction
or otherwise) shares of Common Stock to deliver in satisfaction of a sale by
such Subscriber of the Common Stock which the Subscriber anticipated receiving
upon such conversion (a "Buy-In"), then the Company shall pay in cash to the
Subscriber (in addition to any remedies available to or elected by the
Subscriber) the amount by which (A) the Subscriber's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (B) the aggregate principal and/or interest amount of the Note
for which such conversion was not timely honored, together with interest thereon
at a rate of 15% per annum, accruing until such amount and any accrued interest
thereon is paid in full (which amount shall be paid as liquidated damages and
not as a penalty). For example, if the Subscriber purchases shares of Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted conversion of $10,000 of note principal and/or interest, the
Company shall be required to pay the Subscriber $1,000, plus interest. The
Subscriber shall provide the Company written notice indicating the amounts
payable to the Subscriber in respect of the Buy-In.
10.1. Registration Rights. The Company hereby grants the following
registration rights to holders of the Securities.
(i) On one occasion, for a period commencing 91 days after
the Closing Date, but not later than three years after the Closing Date
("Request Date"), the Company, upon a written request therefor from any record
11
holder or holders of more than 50% of the aggregate of the Company's Shares
issued and issuable upon Conversion of the Note and the Put Notes which are
actually issued (the Common Stock issued or issuable upon conversion or exercise
of the Securities, Put Securities and securities issued or issuable by virtue of
ownership of the Securities and Put Securities, being, the "Registrable
Securities"), shall prepare and file with the SEC a registration statement under
the Act covering the Registrable Securities which are the subject of such
request, unless such Registrable Securities are the subject of an effective
registration statement. In addition, upon the receipt of such request, the
Company shall promptly give written notice to all other record holders of the
Registrable Securities that such registration statement is to be filed and shall
include in such registration statement Registrable Securities for which it has
received written requests within 10 days after the Company gives such written
notice. Such other requesting record holders shall be deemed to have exercised
their demand registration right under this Section 10.1(i). As a condition
precedent to the inclusion of Registrable Securities, the holder thereof shall
provide the Company with such information as the Company reasonably requests.
The obligation of the Company under this Section 10.1(i) shall be limited to one
registration statement.
(ii) If the Company at any time proposes to register any of
its securities under the Act for sale to the public, whether for its own account
or for the account of other security holders or both, except with respect to
registration statements on Forms X-0, X-0 or another form not available for
registering the Registrable Securities for sale to the public, provided the
Registrable Securities are not otherwise registered for resale by the Subscriber
or Holder pursuant to an effective registration statement, each such time it
will give at least 30 days' prior written notice to the record holder of the
Registrable Securities of its intention so to do. Upon the written request of
the holder, received by the Company within 20 days after the giving of any such
notice by the Company, to register any of the Registrable Securities, the
Company will cause such Registrable Securities as to which registration shall
have been so requested to be included with the securities to be covered by the
registration statement proposed to be filed by the Company, all to the extent
required to permit the sale or other disposition of the Registrable Securities
so registered by the holder of such Registrable Securities (the "Seller"). In
the event that any registration pursuant to this Section 10.1(ii) shall be, in
whole or in part, an underwritten public offering of common stock of the
Company, the number of shares of Registrable Securities to be included in such
an underwriting may be reduced by the managing underwriter if and to the extent
that the Company and the underwriter shall reasonably be of the opinion that
such inclusion would adversely affect the marketing of the securities to be sold
by the Company therein; provided, however, that the Company shall notify the
Seller in writing of any such reduction. Notwithstanding the foregoing
provisions, or Section 10.4 hereof, the Company may withdraw or delay or suffer
a delay of any registration statement referred to in this Section 10.1(ii)
without thereby incurring any liability to the Seller.
(iii) If, at the time any written request for registration
is received by the Company pursuant to Section 10.1(i), the Company has
determined to proceed with the actual preparation and filing of a registration
statement under the 1933 Act in connection with the proposed offer and sale for
cash of any of its securities for the Company's own account, such written
request shall be deemed to have been given pursuant to Section 10.1(ii) rather
than Section 10.1(i), and the rights of the holders of Registrable Securities
covered by such written request shall be governed by Section 10.1(ii).
(iv) The Company shall file with the Commission within 60
days of the Closing Date (the "Filing Date"), and use its reasonable commercial
efforts to cause to be declared effective a Form SB-2 registration statement (or
such other form that it is eligible to use) in order to register the Registrable
Securities for resale and distribution under the Act. The registration statement
described in this paragraph must be declared effective by the Commission within
120 days of the Closing Date (as defined herein) ("Effective Date"). The Company
will register not less than a number of shares of Common Stock in the
aforedescribed registration statement that is equal to 200% of the Company
Shares issuable at the Conversion Price that would be in effect on the Closing
Date or the date of filing of such registration statement (employing the
12
Conversion Price which would result in the greater number of Shares), assuming
the conversion of 100% of the Notes and Put Notes which are issuable, and one
share of common stock for each common share issuable upon exercise of the
Warrants which are issuable in connection with the aforedescribed Notes and Put
Notes, employing the Conversion Price that would result in the greater number of
Shares. The Registrable Securities shall be reserved and set aside exclusively
for the benefit of the Subscriber and Warrant Recipients, as the case may be,
and not issued, employed or reserved for anyone other than the Subscriber and
Warrant Recipients. Such registration statement will be promptly amended or
additional registration statements will be promptly filed by the Company as
necessary to register additional Company Shares to allow the public resale of
all Common Stock included in and issuable by virtue of the Registrable
Securities. No securities of the Company other than the Registrable Securities
will be included in the registration statement described in this Section
10.1(iv).
10.2. Registration Procedures. If and whenever the Company is required
by the provisions hereof to effect the registration of any shares of Registrable
Securities under the Act, the Company will, as expeditiously as possible:
(a) prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as herein provided), and promptly
provide to the holders of Registrable Securities ("Sellers") copies of all
filings and Commission letters of comment;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
until the latest of: (i) six months after the latest exercise period of the
Warrants; (ii) twelve months after the Maturity Date of the Note or Put Note; or
(iii) two years after the Closing Date, or Put Closing Date and comply with the
provisions of the Act with respect to the disposition of all of the Registrable
Securities covered by such registration statement in accordance with the
Seller's intended method of disposition set forth in such registration statement
for such period;
(c) furnish to the Seller, and to each underwriter if any, such
number of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons reasonably may
request in order to facilitate the public sale or their disposition of the
securities covered by such registration statement;
(d) use its best efforts to register or qualify the Seller's
Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Seller and in the
case of an underwritten public offering, the managing underwriter shall
reasonably request, provided, however, that the Company shall not for any such
purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction;
(e) list the Registrable Securities covered by such registration
statement with any securities exchange on which the Common Stock of the Company
is then listed;
(f) immediately notify the Seller and each underwriter under such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act, of the happening of any event of which
the Company has knowledge as a result of which the prospectus contained in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing;
13
(g) make available for inspection by the Seller, any underwriter
participating in any distribution pursuant to such registration statement, and
any attorney, accountant or other agent retained by the Seller or underwriter,
all publicly available, non-confidential financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all publicly available,
non-confidential information reasonably requested by the seller, underwriter,
attorney, accountant or agent in connection with such registration statement.
10.3. Provision of Documents.
(a) At the request of the Seller, provided a demand for
registration has been made pursuant to Section 10.1(i) or a request for
registration has been made pursuant to Section 10.1(ii), the Registrable
Securities will be included in a registration statement filed pursuant to this
Section 10.
(b) In connection with each registration hereunder, the Seller
will furnish to the Company in writing such information and representation
letters with respect to itself and the proposed distribution by it as reasonably
shall be necessary in order to assure compliance with federal and applicable
state securities laws. In connection with each registration pursuant to Section
10.1(i) or 10.1(ii) covering an underwritten public offering, the Company and
the Seller agree to enter into a written agreement with the managing underwriter
in such form and containing such provisions as are customary in the securities
business for such an arrangement between such underwriter and companies of the
Company's size and investment stature.
10.4. Non-Registration Events. The Company and the Subscriber agree
that the Seller will suffer damages if any registration statement required under
Section 10.1(i) or 10.1(ii) above is not filed within 60 days after written
request by the Holder and not declared effective by the Commission within 150
days after such request [or the Filing Date and Effective Date, respectively, in
reference to the Registration Statement on Form SB-2 or such other form
described in Section 10.1(iv)], and maintained in the manner and within the time
periods contemplated by Section 10 hereof, and it would not be feasible to
ascertain the extent of such damages with precision. Accordingly, if (i) the
Registration Statement described in Sections 10.1(i) or 10.1(ii) is not filed
within 60 days of such written request, or is not declared effective by the
Commission on or prior to the date that is 150 days after such request, or (ii)
the registration statement on Form SB-2 or such other form described in Section
10.1(iv) is not filed on or before the Filing Date or not declared effective on
or before the sooner of the Effective Date, or within five business days of
receipt by the Company of a written or oral communication from the Commission
that the registration statement described in Section 10.1(iv) will not be
reviewed, or (iii) any registration statement described in Sections 10.1(i),
10.1(ii) or 10.1(iv) is filed and declared effective but shall thereafter cease
to be effective (without being succeeded immediately by an additional
registration statement filed and declared effective) for a period of time which
shall exceed 30 days in the aggregate per year but not more than 20 consecutive
calendar days (defined as a period of 365 days commencing on the date the
Registration Statement is declared effective) (each such event referred to in
clauses (i), (ii) and (iii) of this Section 10.4 is referred to herein as a
"Non-Registration Event"), then, for so long as such Non-Registration Event
shall continue, the Company shall pay, at the Subscriber's option, in cash or
stock at the applicable Conversion Price, as Liquidated Damages to each holder
of any Registrable Securities an amount equal to two (2%) percent per month or
part thereof during the pendency of such Non-Registration Event, of (i) the
principal of the Notes issued in connection with the Initial Offering, whether
or not converted; (ii) the principal amount of Put Notes actually issued,
whether or not converted, then owned of record by such holder or issuable as of
or subsequent to the occurrence of such Non-Registration Event. Payments to be
made pursuant to this Section 10.4 shall be due and payable within five (5)
business days after demand in immediately available funds. In the event a
Mandatory Redemption Payment is demanded from the Company by the Holder pursuant
to Section 9.2 of this Subscription Agreement, then the Liquidated Damages
described in this Section 10.4 shall no longer accrue on the portion of the
Purchase Price underlying the Mandatory Redemption Payment, from and after the
14
date the Holder receives the Mandatory Redemption Payment. It shall also be
deemed a Non-Registration Event to the extent that an amount equal to 120% of
all the Common Stock underlying the Registrable Securities is not included in an
effective registration statement as of and after 45 days after the Effective
Date at the Conversion Prices in effect from and after the Effective Date.
10.5. Expenses. All expenses incurred by the Company in complying with
Section 10, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including reasonable counsel
fees) incurred in connection with complying with state securities or "blue sky"
laws, fees of the National Association of Securities Dealers, Inc., transfer
taxes, fees of transfer agents and registrars, and costs of insurance are called
"Registration Expenses". All underwriting discounts and selling commissions
applicable to the sale of Registrable Securities, including any fees and
disbursements of any special counsel to the Seller, are called "Selling
Expenses". The Seller shall pay the fees of its own additional counsel, if any.
The Company will pay all Registration Expenses in connection with the
registration statement under Section 10. All Selling Expenses in connection with
each registration statement under Section 10 shall be borne by the Seller and
may be apportioned among the Sellers in proportion to the number of shares sold
by the Seller relative to the number of shares sold under such registration
statement or as all Sellers thereunder may agree.
10.6. Indemnification and Contribution.
(a) In the event of a registration of any Registrable Securities
under the Act pursuant to Section 10, the Company will indemnify and hold
harmless the Seller, each officer of the Seller, each director of the Seller,
each underwriter of such Registrable Securities thereunder and each other
person, if any, who controls such Seller or underwriter within the meaning of
the 1933 Act, against any losses, claims, damages or liabilities, joint or
several, to which the Seller, or such underwriter or controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such Registrable Securities
was registered under the Act pursuant to Section 10, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Seller, each such
underwriter and each such controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company shall not be liable to the Seller to the extent that any such damages
arise out of or are based upon an untrue statement or omission made in any
preliminary prospectus if (i) the Seller failed to send or deliver a copy of the
final prospectus delivered by the Company to the Seller with or prior to the
delivery of written confirmation of the sale by the Seller to the person
asserting the claim from which such damages arise, (ii) the final prospectus
would have corrected such untrue statement or alleged untrue statement or such
omission or alleged omission, or (iii) to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in conformity
with information furnished by any such Seller, or any such controlling person in
writing specifically for use in such registration statement or prospectus.
(b) In the event of a registration of any of the Registrable
Securities under the Act pursuant to Section 10, the Seller will indemnify and
hold harmless the Company, and each person, if any, who controls the Company
within the meaning of the Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and each
person who controls any underwriter within the meaning of the Act, against all
losses, claims, damages or liabilities, joint or several, to which the Company
or such officer, director, underwriter or controlling person may become subject
15
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement under which such Registrable Securities were
registered under the Act pursuant to Section 10, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereof, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each such
officer, director, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
that the Seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information pertaining to
such Seller, as such, furnished in writing to the Company by such Seller
specifically for use in such registration statement or prospectus, and provided,
further, however, that the liability of the Seller hereunder shall be limited to
the gross proceeds received by the Seller from the sale of Registrable
Securities covered by such registration statement.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 10.6(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 10.6(c), except and only if and to the extent the indemnifying
party is prejudiced by such omission. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent it shall wish, to assume and undertake the defense thereof
with counsel satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 10.6(c) for any legal expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected, provided, however, that, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified parties shall have the right to select one separate
counsel and to assume such legal defenses and otherwise to participate in the
defense of such action, with the reasonable expenses and fees of such separate
counsel and other expenses related to such participation to be reimbursed by the
indemnifying party as incurred.
(d) In order to provide for just and equitable contribution in
the event of joint liability under the Act in any case in which either (i) the
Seller, or any controlling person of the Seller, makes a claim for
indemnification pursuant to this Section 10.6 but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding the
fact that this Section 10.6 provides for indemnification in such case, or (ii)
contribution under the Act may be required on the part of the Seller or
controlling person of the Seller in circumstances for which indemnification is
provided under this Section 10.6; then, and in each such case, the Company and
the Seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (y) the Seller will not be required to contribute any amount in
16
excess of the public offering price of all such securities offered by it
pursuant to such registration statement; and (z) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 10(f) of the Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
10.7. Underwriter Liability. Nothing contained in this Agreement or any
document delivered herewith shall require or imply that the Subscriber is or be
an Underwriter as defined in the 1933 Act of 1934 Act, nor a "statutory
underwriter." The Subscriber shall not be required to take any action or assume
any liability or obligation which would or could impose Underwriter or
"statutory underwriter" status or liability on the Subscriber.
11.1. Obligation To Purchase.
(a) The Subscriber agrees to purchase from the Company
convertible notes ("Put Notes") in up to the principal amount set forth on the
signature page hereto for up to the aggregate amount of Put Note principal ("Put
Purchase Price") designated on the signature page hereto (the "Put").
Collectively the Put Notes, Warrants issuable in connection with the Put, and
Common Stock issuable upon conversion of the Put Notes and exercise of the
Warrants are referred to as the "Put Securities".) The Warrants issuable in
connection with the Put Notes are referred to herein as Warrants or Put
Warrants. Except as described in Section 11.1(c) hereof, each Put Note will be
identical to the Note except that the Maturity Date will be two years from each
Put Closing Date (as hereinafter defined). The Holders of the Put Securities are
granted all the rights, undertakings, remedies, liquidated damages and
indemnification granted to the Subscriber in connection with the Note, including
but not limited to, the rights and procedures set forth in Section 9 hereof and
the registration rights described in Section 10 hereof.
(b) The agreement to purchase the Put Notes is contingent on the
following any, some or all of which may be waived by the Subscriber:
(i) As of a Put Date and Put Closing Date an amount equal
to 200% of the Common Shares issuable upon conversion of a Put Note and one
Share of Common Stock issuable upon exercise of Put Warrants issuable in
connection with the amount of Put Purchase Price set forth in the relevant Put
Notice (as hereinafter defined) must be included in an effective registration
statement described in Section 10 hereof.
(ii) As of a Put Date and Put Closing Date, the Company
will be a reporting company with the class of Shares registered pursuant to
Section 12(g) of the Securities Exchange Act of 1934.
(iii) No material adverse change in the Company's business
or business prospects shall have occurred after the date of the most recent
financial statements included in the Reports. Material adverse change is defined
as any effect on the business, operations, properties, prospects, trading price
of the Common Stock or financial condition of the Company that is material and
adverse to the Company and its subsidiaries and affiliates, taken as a whole,
and/or any condition, circumstance, or situation that would prohibit or
otherwise interfere with the ability of the Company to enter into and perform
any of its obligations under this Agreement, or any other agreement entered into
or to be entered into in connection herewith, in any material respect. There
shall not have been a material negative restatement of the Company's financial
statements included in the Reports or filed after the Closing Date.
17
(iv) An Event of Default as described in Article III of the
Note shall not have occurred.
(v) The execution and delivery to the Subscriber of a
certificate signed by its chief executive officer representing the truth and
accuracy of all the Company's representations and warranties contained in this
Subscription Agreement as of the Put Date, and Put Closing Date and confirming
the undertakings contained herein, and representing the satisfaction of all
contingencies and conditions required for the exercise of the Put.
(vi) The Company's listing on, and compliance with the
listing requirements of the Bulletin Board and Principal Market.
(vii) The Company's not having received notice from the
Bulletin Board, or any Principal Market that the Company is not in compliance
with the requirements for continued listing.
(viii) The execution by the Company and delivery to the
Subscriber of all required documents in relation to the Put set forth in Section
11.2 below and such other documents which may be reasonably requested by the
Subscriber.
(ix) No issuance of an SEC or Principal Market stop trade
order.
(x) The Company shall have no knowledge that any of the
foregoing conditions shall not be true and accurate as of a date fifteen days
after a Put Closing Date.
(xi) The daily weighted average price of the Common Stock
on the Principal Market as reported by Bloomberg Financial using the AQR
function for the twenty-two (22) trading days prior to the Put Date multiplied
by the reported daily trading volume of the Common Stock for each such day is
not less than $2,000,000 in the aggregate.
(c) Subject to the adjustments set forth in the Note, the
Conversion Price of the Put Note shall be the lesser of (i) the Maximum Base
Price as defined in Section 2.1(b)(i) of the Note issued in connection with the
Closing of the Initial Offering, or (ii) 80% of the average of the three lowest
closing bid prices of the Common Stock on the Principal Market for the sixty
(60) trading days prior to the Conversion Date, as defined in the Note.
11.2. Exercise of Put.
(a) Subject to the satisfaction of all conditions to exercise the
Put, the Company may exercise the Put as to the following amounts during the
following time periods ("Put Exercise Period"):
(i) between 90 and 120 days after the effective date of
the registration statement described in Section 10.1(iv) hereof as to 23.53% of
the Put Note Purchase Price set forth on the signature page hereto;
18
(ii) between 210 and 240 days after the effective date of
the registration statement described in Section 10.1(iv) hereof as to 41.18% of
the Put Note Purchase Price set forth on the signature page hereto; and
(iii) between 330 and 360 days after the effective date of
the registration statement described in Section 10.1(iv) hereof as to 35.29% of
the Put Note Purchase Price set forth on the signature page hereto;
(b) The Put may be exercised by the Company by giving the
Subscriber written notice of exercise ("Put Notice") not more often than one
time each calendar month on the first trading day of such month during the Put
Exercise Period in relation to up to the maximum principal amount of Put Note
that the Subscriber has agreed to purchase subject to the limits described in
this Agreement. The date a Put Notice is given is a Put Date. Each Put Notice
must be accompanied by (i) the officer's certificate described in Section
11.1(b)(v) above; (ii) a legal opinion relating to the Put Securities in form
reasonably acceptable to Subscriber substantially similar to the opinion annexed
hereto as Exhibit C, which opinion must also state that the Put Securities are
registered for unrestricted resale in an effective and current registration
statement; (iii) proof of effectiveness of the registration statement described
in Section 10 above; (iv) five copies of the prospectus portion thereof; (v) a
statement as to the number of shares remaining registered in the registration
statement on behalf of each Subscriber; and (vi) such other documents and
certificates reasonably requested by the Subscriber.
(c) Unless otherwise agreed to by the Subscribers, Put Notices
must be given to all Subscribers in proportion to the amounts agreed to be
purchased by all Subscribers undertaking to purchase Put Notes in the Initial
Offering.
(d) Payment by the Subscriber in relation to a Put Notice
relating to a Put must be made within ten (10) business days after receipt of a
Put Notice and the items set forth in Section 11.2(b) above. Payment will be
made against delivery to the Subscriber or an escrow agent to be agreed upon by
the Company and Subscriber, of the Put Securities, and delivery to the Finders
of the Put Commissions relating to the Put being exercised which the Company may
elect to be paid out of funds deposited with the escrow agent.
(e) The Company may exercise the Put subject to the following
limitations:
(i) The Company may not give any Subscriber a Put Notice
in connection with that amount of Put Note which could be converted as of the
Put Date into a number of shares of Common Stock which would be in excess of the
sum of (y) the number of shares of Common Stock beneficially owned by the
Subscriber and its affiliates on such Put Date, and (z) the number of shares of
Common Stock issuable upon the conversion of the Put Note with respect to which
the determination of this proviso is being made on a Put Date, which would
result in beneficial ownership by the Subscriber and its affiliates of more than
4.99% of the outstanding shares of Common Stock of the Company on such Put Date.
For the purposes of the proviso to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.
Subject to the foregoing, the Subscriber shall not be limited to aggregate
conversions of only 4.99%. The Subscriber may revoke the restriction described
in this paragraph upon 75 days prior notice to the Company. The Subscriber shall
have the right to determine which of the equity of the Company deemed
beneficially owned by the Subscriber shall be included in the 4.99% described
above and which shall be allocated to the excess above 4.99%.
19
(ii) The aggregate amount of all Put Notices to all
Subscribers of the Initial Offering and their permitted assignees may not exceed
$4,250,000. The aggregate maximum principal amount of Put Notes for which Put
Notices may be given during any thirty (30) day Put Exercise Period to all
Subscribers in the Initial Offering may not exceed ten (10%) of the daily
weighted average price of the Common Stock on the Principal Market as reported
by Bloomberg Financial using the AQR function for the thirty calendar days prior
to but not including the Put Date, multiplied by the reported daily trading
volume of the Common Stock for each such day ("Trading Volume Limitation").
(iii) Anything to the contrary herein notwithstanding, the
Company may not exercise the Put for aggregate Put amounts from Investors to the
Initial Offering in excess of $1,000,000 during any calendar month.
11.3. Put Finders Fees. The Finders identified on Schedule B hereto
shall receive on each Put Closing Date aggregate Finder's Fees as described in
Section 6 hereof in connection with the closing of each Put as set forth on
Schedule B hereto. Put Finder's Fees shall be payable only in connection with
the Put Purchase Price actually paid by a Subscriber. The Put Finder's Fees and
reasonable legal fees for counsel to the Subscriber and a reasonable escrow
agent fee shall be paid by the Company at each Put Closing. The legal fee to be
paid by the Company to one counsel for the Subscribers to the Initial Offering
shall be not less than $1,000 nor more than $2,000 per Put Closing.
11.4. Warrants.
(a) The Company shall issue Put Warrants to the Warrant
Recipients in the amounts designated on Schedule B hereto and as described in
Section 6 of this Subscription Agreement. The Put Warrants will be in the form
of Exhibit D hereto. The Put Warrants will be exercisable immediately upon
issuance and for three years thereafter.
(b) Failure to timely pay Finder's Fees, legal fees or deliver
any Warrants issuable in connection with the Initial Offering and Put shall be
deemed an Event of Default under the Note and Put Note and a material breach of
the Company's obligations hereunder, for which ten (10) business days notice to
cure is required.
11.5. Assignment of Put. Anything to the contrary herein
notwithstanding, the Subscriber may assign to another party either before or
after exercise of the Put by the Company, the Subscriber's obligations and right
to pay all or some of the Put Purchase Price and receive the corresponding Put
Securities. Such assignment must be in writing and the assignee will be subject
to the Company's approval (except for an assignment by one Subscriber to another
Subscriber to the Initial Offering), which consent will not be unreasonably
withheld. The assignment will be effective only if the assignee consents in
writing to be bound by all of the Subscriber's obligations to the Company in
connection with such assignment. Upon an effective assignment, the assignee will
succeed to all of the Subscriber's rights under this Subscription Agreement, and
all other agreements relating to the assigned portion of the Put.
11.6. Adjustments. The Conversion Price and amount of Shares
issuable upon conversion of the Notes and Put Notes shall be adjusted consistent
with customary anti-dilution adjustments.
20
12. (a) Right of First Refusal. Until the later of 210 days after the
actual effective date of the Registration Statement described in Section
10.1(iv) hereof, or one year after the Closing Date, the Subscriber shall be
given not less than ten (10) business days prior written notice ("Notice of
Sale") of any proposed sale by the Company of its Common Stock or other
securities or debt obligations except as disclosed in the Reports or Other
Written Information or stock or stock options granted to employees or directors
of the Company (these exceptions hereinafter referred to as the "Excepted
Issuances"). The Subscriber shall have the right during the ten (10) business
days following the notice to agree to purchase an amount of Company Shares in
the same proportion as being purchased in the Initial Offering of those
securities proposed to be issued and sold, in accordance with the terms and
conditions set forth in the Notice of Sale. In the event such terms and
conditions are modified during the notice period, the Subscriber shall be given
prompt notice of such modification and shall have the right during the original
notice period or for a period of ten (10) business days following the notice of
modification, whichever is longer, to exercise such right. In the event the
right of first refusal described in this Section is exercised by the Subscriber
and the Company thereby receives net proceeds from such exercise, then
commissions and fees will be paid by the Company to the Finders in the same
amounts as would be payable in connection with the offering described in the
Notice of Sale.
(b) Offering Restrictions. Except with respect to securities
otherwise disclosed in the Reports or Other Written Information or Excepted
Issuances, the Company will not issue any equity, convertible debt or other
securities prior to the expiration of 180 days after the actual effective date
of the registration statement described in Section 10.1(iv) above.
13. Security Interest. As a condition of Closing, the Company
will deliver to a Collateral Agent Common Shares of the Company owned by certain
shareholders of the Company, together with signature guaranteed stock powers.
Collectively, the foregoing stock is referred to as "Security Shares." The
Security Shares will be held by the Collateral Agent on behalf of the
Subscribers pursuant to a Collateral Agent Agreement and Security Agreement. A
Collateral Agent on behalf of the Subscriber will be granted a security interest
in the Security Shares to be memorialized in a Security Agreement. The Company
will execute Forms UCC-1 to be filed at the Company's expense with such states
and counties designated by the Subscribers. The Company will also execute all
such documents reasonably necessary to memorialize and further protect the
security interest described above. The Company agrees to pay or reimburse the
party who files the Forms UCC-1.
14. Miscellaneous.
(a) Notices. All notices or other communications given or made
hereunder shall be in writing and shall be personally delivered or deemed
delivered the first business day after being telecopied (provided that a copy is
delivered by first class mail) to the party to receive the same at its address
set forth below or to such other address as either party shall hereafter give to
the other by notice duly made under this Section: (i) if to the Company, to The
Tirex Corporation, 0000 xxx Xx. Xxxxxxx, Xxxxxxxx, Xxxxxx, X0X 0X0, telecopier
number: (000) 000-0000, with a copy by telecopier only to: Xxxxxxxx, Xxxxx &
Xxxxxxxxxx, LLC, 000 Xxxxx Xxxx Xxxxxx, Xxxxxxxx, XX 00000, Attn: Xxxxx X.
Xxxxxxxxxx, Esq., telecopier number: (000) 000-0000, and (ii) if to the
Subscriber, to the name, address and telecopy number set forth on the signature
page hereto, with a copy by telecopier only to Xxxxxxx X. Xxxxxxx, Esq., 000
Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000, telecopier number: (212)
697-3575.
(b) Closing. The consummation of the transactions contemplated
herein shall take place at the offices of Xxxxx Xxxxxxxxx, Esq., 00 Xxxx Xxxxx,
Xxxxx 000, Xxx Xxxx, XX 00000, upon the satisfaction of all conditions to
Closing set forth in this Agreement. The closing date shall be the date that
21
subscriber funds representing the net amount due the Company from the Purchase
Price are transmitted by wire transfer to the Company (the "Closing Date"). The
closing date for the Put shall be the date on which Subscriber funds
representing the net amount due the Company from the Put Purchase Price is
transmitted to or on behalf of the Company ("Put Closing Date").
(c) Entire Agreement; Assignment. This Agreement represents the
entire agreement between the parties hereto with respect to the subject matter
hereof and may be amended only by a writing executed by both parties. No right
or obligation of either party shall be assigned by that party without prior
notice to and the written consent of the other party.
(d) Execution. This Agreement may be executed by facsimile
transmission, and in counterparts, each of which will be deemed an original.
(e) Law Governing this Agreement. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
without regard to principles of conflicts of laws. Any action brought by either
party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. Both parties and the
individuals executing this Agreement and other agreements on behalf of the
Company agree to submit to the jurisdiction of such courts and waive trial by
jury. The prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In the event that any provision of this
Agreement or any other agreement delivered in connection herewith is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any agreement.
(f) Specific Enforcement, Consent to Jurisdiction. The Company
and Subscriber acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof or thereof, this being
in addition to any other remedy to which any of them may be entitled by law or
equity. Subject to Section 14(e) hereof, each of the Company and Subscriber
hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Nothing in this Section
shall affect or limit any right to serve process in any other manner permitted
by law.
(g) Confidentiality. The Company agrees that it will not disclose
publicly or privately the identity of the Subscriber unless expressly agreed to
in writing by the Subscriber or only to the extent required by law.
(h) Automatic Termination. This Agreement shall automatically
terminate without any further action of either party hereto if the Closing shall
not have occurred by the tenth (10th) business day following the date this
Agreement is accepted by the Subscriber.
22
[THIS SPACE INTENTIONALLY LEFT BLANK]
23
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
THE TIREX CORPORATION
A Delaware Corporation
By:_________________________________
Dated: February _____, 2001
ATTEST:
By:___________________________________
--------------------------------------------------------------------------------
Purchase Price: $455,000.00
PUT
Put Note Purchase Price: 5.66 times the amount of the Purchase Price set forth
above
ACCEPTED: Dated as of February ____, 2001
LAURUS MASTER FUND, LTD. - Subscriber
A Cayman Island corporation
X/x Xxxxxxx Xxxxxxxxx Xxxxxxxx Xxx.
X.X. Xxx 0000 G.T.
Xxxxxxxxxx Xxxxx, Xxxxx Xxxxxx Xxxxxx
Xxxxx Xxxxxx, Xxxxxx Xxxxxxx
Fax: 000-000-0000
By:___________________________________
24
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
THE TIREX CORPORATION
A Delaware Corporation
By:_________________________________
Dated: February _____, 2001
ATTEST:
By:___________________________________
--------------------------------------------------------------------------------
Purchase Price: $175,000.00
PUT
Put Note Purchase Price: 5.66 times the amount of the Purchase Price set forth
above
ACCEPTED: Dated as of February ____, 2001
THE KESHET FUND, L.P. - Subscriber
000 Xxxx 00xx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Fax: 000-000-0000
By:___________________________________
25
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
THE TIREX CORPORATION
A Delaware Corporation
By:_________________________________
Dated: February _____, 2001
ATTEST:
By:___________________________________
--------------------------------------------------------------------------------
Purchase Price: $120,000.00
PUT
Put Note Purchase Price: 5.66 times the amount of the Purchase Price set forth
above
ACCEPTED: Dated as of February ____, 2001
KESHET L.P. - Subscriber
Ragnall House, 00 Xxxx Xxxx
Xxxxxxx, Xxxx xx Xxx
0X0 0X0, Xxxxxx Xxxxxxx
Fax: 000-00-0000-000000
By:___________________________________
26
SCHEDULE B TO SUBSCRIPTION AGREEMENT
------------------------------------
--------------------------------------------------------------------------------
FINDERS INITIAL OFFERING - CASH FINDER'S FEES
--------------------------------------------------------------------------------
ALON ENTERPRISES LTD. 10% Finder's Fees and Warrant Exercise
Xxxxxxx Xxxxx, 00 Xxxx Xxxx Compensation payable in connection with
Douglas, Isle of Man investment and warrant exercise by Xxx
0X0 0X0, Xxxxxx Xxxxxxx Keshet Fund L.P. and Keshet L.P.
Fax: 000-00-0000-000000
--------------------------------------------------------------------------------
LAURUS CAPITAL MANAGEMENT, L.L.C. 10% Finder's Fees and Warrant Exercise
000 Xxxx 00xx Xxxxxx, Xxxxx 0000 Compensation payable in connection with
Xxx Xxxx, Xxx Xxxx 00000 investment and warrant exercise by Laurus
Fax: 000-000-0000 Master Fund Ltd.
--------------------------------------------------------------------------------
PROPORTIONATE SHARE OF AGGREGATE WARRANTS ISSUABLE
--------------------------------------------------
--------------------------------------------------------------------------------
WARRANT RECIPIENTS PUT WARRANTS IN CONNECTION WITH INITIAL
$750,000 OFFERING AND UP TO $4,250,000 OF
PUT FUNDS *
--------------------------------------------------------------------------------
TALBIYA B. INVESTMENTS LTD. Warrants issuable in connection with
Xxxxxxx Xxxxx, 00 Xxxx Xxxx investment by The Keshet Fund L.P. and
Douglas, Isle of Man Xxxxxx X.X.
0X0 0X0, Xxxxxx Xxxxxxx
Fax: 000-00-0000-000000
--------------------------------------------------------------------------------
LAURUS MASTER FUND LTD. Warrants issuable in connection with
A Cayman Island corporation investment by Laurus Master Fund Ltd.
X/x Xxxxxxx Xxxxxxxxx Xxxxxxxx Xxx.
X.X. Xxx 0000 G.T.
Queensgate House, South Church Street
Grand Cayman, Cayman Islands
Fax: 000-000-0000
--------------------------------------------------------------------------------
TOTAL Up to 4,000,000 Warrants
--------------------------------------------------------------------------------
* The Company will issue up to 4,000,000 Common Stock Purchase Warrants at the
rate of one Warrant for each $1.25 of Purchase Price and Put Purchase Price.
Recipient of $2,500 Expense Allowance described in Section 6(a): Laurus Capital
Management, L.L.C.
27
