EXHIBIT 10.5
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FORM OF STOCK PURCHASE AGREEMENT
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This STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of_________ , 2002 by and among 1st Step, Inc., (the "Company"), a
corporation organized under the laws of the State of Delaware, with its
principal offices at 00000 Xxxxxx Xxxxxx, Xxx Xxxx, Xxxxxxxxxx 00000, and the
purchaser whose name and address is set forth on the signature page attached
hereto (the "Purchaser"), with reference to the following:
RECITALS:
WHEREAS, the Company desires to issue and sell to the Purchaser, and
the Purchaser desires to purchase from the Company, unregistered shares of the
Company's common stock, par value $.001 per share (the "Common Stock");
WHEREAS, the Company has authorized the issuance and sale of an
aggregate of 4,000,000 shares of Common Stock at a purchase price of $.05,
subject to the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the conditions and promises herein
contained, the parties hereto agree as follows:
AGREEMENT:
1. SALE AND ISSUANCE OF COMMON STOCK.
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(a) The Purchaser agrees to purchase from the Company and the
Company agrees to sell and issue to the Purchaser the aggregate of the number of
shares of Common Stock listed below such Purchaser's name on the signature page
attached hereto at a price of $0.05 per share (the "Shares").
(b) The purchase and sale of the Common Stock (the "Closing")
shall take place at 10:00 a.m. on the date of this Agreement at the offices of
Xxxxxx & Xxxxxxxxxx, 00000 Xxxxxxxx Xxxx., Xxxxx 000, Xxx Xxxxxxx, Xxxxxxxxxx
00000 or at such other place as the Company and the Purchaser shall mutually
agree.
(c) At the Closing, the Company shall deliver to Purchaser a
certificate representing the Shares and Purchaser shall deliver to the Company
the aggregate purchase price listed below such Purchaser's name on the signature
page attached hereto (the "Purchase Price"). The Purchase Price shall be paid by
certified or bank check or wire transfer to such account as designated in, and
in accordance with, the payment instructions attached hereto as Exhibit A, or
such other form as the parties shall mutually agree.
2. REPRESENTATIONS AND WARRANTIES OF COMPANY
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The Company represents and warrants to the Purchaser as
follows:
(a) ORGANIZATION; GOOD STANDING; QUALIFICATION. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, has all requisite corporate power and authority
to own and operate its properties and assets and to carry on its business as now
conducted and as presently proposed to be conducted, to execute and deliver this
Agreement and to issue and sell the Common Stock.
(b) AUTHORIZATION. All corporate action on the part of the
Company necessary for the authorization, execution and delivery by the Company
of this Agreement, the performance of all obligations of the Company hereunder
including but not limited to the authorization, issuance (or reservation for
issuance), sale and delivery of the Common Stock has been taken, and this
Agreement constitutes valid and legally binding obligations of the Company,
enforceable in accordance with their respective terms except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors' rights generally, (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies, and (iii) to the extent that the
indemnification provisions contained in Section 4 herein may be limited by
applicable laws.
(c) VALID ISSUANCE OF COMMON STOCK. The Common Stock that is
being purchased hereunder, when issued, sold and delivered in accordance with
the terms of this Agreement for the consideration expressed herein, will be duly
and validly issued, fully paid and nonassessable, and will be free of
restrictions on transfer other than restrictions on transfer under applicable
state and federal securities laws.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
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The Purchaser represents and warrants to the Company as
follows:
(a) NO REPRESENTATIONS OR WARRANTIES. The Purchaser confirms
that neither the Company nor any of its authorized agents has made any
representation or warranty to the Purchaser about the Company or the Common
Stock other than those set forth in this Agreement, and that such Purchaser has
not relied upon any other representation or warranty, express or implied, in
purchasing the Common Stock.
(b) FINANCIAL SITUATION. The Purchaser is an "accredited
investor" as that term is defined in Securities and Exchange Commission Rule 501
of Regulation D of the Securities Act of 1933, as amended and presently in
effect. The Purchaser has adequate means of providing for such Purchaser's
current needs and possible personal contingencies, and has no need for liquidity
of such Purchaser's investment in the Company, such Purchaser can bear the
economic risk of losing such Purchaser's entire investment herein, such
Purchaser has such knowledge and experience in financial and business matters
that such Purchaser is capable of evaluating the relative risks and merits of
this investment, and such Purchaser's overall commitment to investments which
are not readily marketable is not disproportionate to such Purchaser's net worth
and the investment made hereby will not cause such overall commitment to become
excessive.
(c) COMMON STOCK NOT REGISTERED. The Purchaser understands
that the Common Stock has not been registered under the Securities Act or
qualified under any state securities laws in reliance on exemptions from
registration provided thereunder, and further understands that such Purchaser is
acquiring the Common Stock without being furnished any literature or prospectus.
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(d) PURCHASE FOR OWN ACCOUNT. The Purchaser is purchasing the
Common Stock for such Purchaser's own account, for long-term investment, and not
with a view to, or for sale in connection with, the distribution thereof. The
Purchaser has no present intention of selling, granting any participation in, or
otherwise distributing the Common Stock within the meaning of Section 2(11) of
the Securities Act. The Common Stock will not be resold without registration
under the Securities Act and qualification under the securities laws of all
applicable states, unless such sale would be exempt therefrom.
(e) OPPORTUNITY TO ASK QUESTIONS AND TO REVIEW DOCUMENTS,
BOOKS AND RECORDS. During the course of the transaction contemplated by this
Agreement, and before purchasing the Common Stock, the Purchaser has had the
opportunity (i) to be provided with financial and other written information
about the Company, (ii) to ask questions and receive answers concerning the
terms and conditions of this Agreement, an investment in the Company, and the
business of the Company and its finances, (iii) to review all documents, books
and records of the Company and (iv) to review all documents, registration
statements and prospectuses publicly filed by the Company. The Purchaser has, to
the extent such Purchaser has availed himself of this opportunity, received
satisfactory information and answers.
(f) PRE-EXISTING RELATIONSHIP AND/OR SOPHISTICATION. The
Purchaser represents that such Purchaser either has a pre-existing business
relationship with the Company or any of its officers, directors or controlling
persons, or that by reason of such Purchaser's business or financial experience
or the business or financial experience of such Purchaser's professional
advisors who are unaffiliated with and who are not compensated by the Company or
any affiliate or selling agent of the Company, directly or indirectly, such
Purchaser has the capacity to protect such Purchaser's own interests in
connection with the transactions contemplated by this Agreement.
(g) RISKS ASSOCIATED WITH INVESTMENT. The Purchaser
acknowledges and is aware that:
(i) The Company has limited financial or operating
history and that the Common Stock
is a speculative investment which involves a high degree of risk of loss by the
Purchaser of such Purchaser's entire investment in the Company;
(ii) No federal or state agency has made any finding
or determination as to the fairness of the offering of the Common Stock for
investment or any recommendation or endorsement of the offering; and
(iii) It never has been represented, guaranteed or
warranted to such Purchaser by the Company, its agents, or employees or any
other person, expressly or by implication, any of the following: (1) the
approximate or exact length of time that such Purchaser will be required to
remain as owner of the Common Stock; (2) the profit or return, if any, to be
realized as a result of the Company's venture; and (3) that the past performance
or experience on the part of the Company or any affiliate, its agents, or
employees or of any other person, will in any way indicate the predictable
results of the ownership of the Common Stock or the overall Company venture.
(h) INVESTMENT RISKS. The Purchaser has been informed and
understands and agrees as follows: (i) an investment in the Company is a
speculative investment with a high degree of risk of loss and such Purchaser
must, therefore, be able to presently afford a complete loss of this investment;
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(ii) such Purchaser must be able to hold the Common Stock indefinitely due to
substantial restrictions on the transferability of the Common Stock and the fact
that there is no public market for resale of the Common Stock; and (iii) it may
not be possible to liquidate the Common Stock in the case of emergency and/or
other need and such Purchaser must, therefore, have adequate means of providing
for such Purchaser's current and future needs and personal contingencies and
have no need for liquidity in this investment. Such Purchaser has evaluated such
Purchaser's financial resources and investment position in view of the
foregoing, and is able to bear the economic risk of this investment.
(i) NO ADVERTISING. To the best of the Purchaser's knowledge
and belief the offer and sale of the Common Stock was not accomplished by the
publication of any advertisement, article, notice or other communication
published in any newspaper, magazine, or similar media or broadcast over
television, radio or the Internet; nor was the offer and sale of the Common
Stock accomplished through any seminar or meeting to which such Purchaser was
invited by any such publication or advertisement.
(j) AUTHORIZATION. The Purchaser represents that such
Purchaser is at least twenty-one (21) years of age, has full right, power,
authority and capacity to enter into this Agreement and to consummate the
transactions contemplated hereby and has taken all necessary action to authorize
the execution, delivery and performance of this Agreement. The Purchaser further
agrees that upon the execution and delivery of this Agreement, this Agreement
shall constitute a valid and binding obligation of the Purchaser enforceable in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' and contracting parties' rights generally and except as
enforceability may be subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law)
and except as the indemnification agreements of the Purchaser in Section 4
hereof may be legally unenforceable.
(k) NO MATERIAL CHANGES. The Purchaser has no reason to
anticipate any change in such Purchaser's personal circumstances, financial or
otherwise, which may cause or require any sale or distribution by such Purchaser
of all or any part of the Common Stock purchased pursuant hereto.
(l) LEGEND. The Purchaser understands and agrees that the
certificate representing the Common Stock shall bear a legend similar to the
following:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION
(THE "COMMISSION") UNDER XXXXXXX 0 XX XXX XXXXXX XXXXXX SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), IN RELIANCE UPON ONE OR
MORE EXEMPTIONS FROM REGISTRATION OR QUALIFICATION AFFORDED BY THE
SECURITIES ACT AND/OR RULES PROMULGATED BY THE COMMISSION PURSUANT
THERETO. THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE ALSO NOT
BEEN REGISTERED OR QUALIFIED (AS THE CASE MAY BE) UNDER THE SECURITIES
LAWS OF ANY XXXXX XX XXXXXXXXX XX XXX XXXXXX XXXXXX (THE "BLUE SKY
LAWS"), IN RELIANCE UPON ONE OR MORE EXEMPTIONS FROM REGISTRATION OR
QUALIFICATION (AS THE CASE MAY BE) AFFORDED UNDER SUCH SECURITIES LAWS.
NEITHER THE COMMISSION NOR ANY SECURITIES REGULATORY AGENCY OF ANY
STATE OR TERRITORY OF THE UNITED STATES HAS REVIEWED OR PASSED UPON OR
ENDORSED THE MERITS OF THE OFFERING CONTEMPLATED BY THIS CERTIFICATE,
AND ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THESE
SECURITIES HAVE BEEN ACQUIRED FOR THE HOLDER'S OWN ACCOUNT FOR
INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW FOR RESALE OR
DISTRIBUTION.
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The Purchaser understands that the foregoing representations and
warranties are to be relied upon by the Company as a basis for exemption of the
sale of the Common Stock under the Securities Act and under the securities laws
of all applicable states and for other purposes. The Purchaser warrants that the
information provided to the Company by such Purchaser is true and correct as of
the date hereof, and the Purchaser agrees to advise the Company, prior to the
execution of this Agreement, of any material change in any such information.
4. INDEMNIFICATION.
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The Purchaser acknowledges that such Purchaser understands the
meaning and legal consequences of the representations, warranties and agreements
contained in this Agreement, that the Company and Escrow Agent are relying on
the accuracy of the representations, warranties and agreements by him as
contained herein, and that such Purchaser would not be permitted to purchase the
Common Stock if any representation or warranty were known to be materially
false. Accordingly, the Purchaser hereby agrees to indemnify and hold harmless
the Company and its Escrow Agent from and against any and all loss, damage,
liability, cost or expense, including attorneys' fees, due to or arising from a
breach of any representation, warranty or agreement contained in or pertaining
to this Agreement.
The Company acknowledges and agrees that the Escrow Agent is
relying entirely on the accuracy of the statements of the Company, as
represented by the Company, both directly to the Escrow Agent and indirectly
through this Agreement and accordingly hereby agrees to indemnify and hold
harmless the Escrow Agent from and against any and all loss, damage, liability,
cost or expense, including attorneys' fees, due to or arising from a breach of
any representation, warranty or agreement contained in or pertaining to this
Agreement.
5. MARKET STAND-OFF OBLIGATIONS
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(a) GENERAL. To the extent requested by the Company or any
underwriter of securities of the Company in connection with a firm commitment
underwriting, the Purchaser shall not transfer any Common Stock not included in
such underwriting, or not previously registered pursuant to a registration
statement filed under the Securities Act, during the period requested by the
Company and the underwriter following the effective date of the registration
statement filed with the Commission.
(b) LEGEND. To facilitate compliance with the terms of this
section, the Company shall have the right to place a legend, reasonably
determined appropriate by the Company, on the share certificate or certificates
for the Common Stock.
6. MISCELLANEOUS.
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(a) INTERPRETATION.
(i) SURVIVAL. All representations and warranties made
by any party in connection with any transaction contemplated by this Agreement
shall survive the execution and delivery of this Agreement, the performance or
consummation of any transaction described in this Agreement, and the termination
of this Agreement.
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(ii) ENTIRE AGREEMENT/NO COLLATERAL REPRESENTATIONS.
Each party expressly acknowledges and agrees that this Agreement (1) is the
final, complete and exclusive statement of the agreement of the parties with
respect to the subject matter of it; (2) supersedes any prior or contemporaneous
agreements, understandings, or course of dealing; and (3) may not be varied,
supplemented or contradicted by evidence of prior agreements, or by evidence of
subsequent oral agreements.
(iii) AMENDMENT; WAIVER; FORBEARANCE. Except as
expressly otherwise provided herein, neither this Agreement nor any of the
terms, provisions, obligations or rights contained herein may be amended,
modified, supplemented, augmented, rescinded, discharged or terminated (other
than by performance), except by a written instrument or instruments signed by
all of the parties to this Agreement. No waiver of any breach of any term,
provision or agreement herein contained, or of the performance of same, shall be
effective and binding unless such waiver shall be in a written instrument or
instruments signed by each party claimed to have given or consented to such
waiver and each party affected by such waiver.
(iv) REMEDIES CUMULATIVE. The remedies of each party
under this Agreement are cumulative and shall not exclude any other remedies to
which such party may be lawfully entitled.
(v) SEVERABILITY. If any term or provision of this
Agreement or the application thereof to any person or circumstance shall, to any
extent, be determined to be invalid, illegal or unenforceable under present or
future laws effective during the term of this Agreement, then and, in that
event: (1) the performance of the offending term or provision (but only to the
extent its application is invalid, illegal or unenforceable) shall be excused as
if it had never been incorporated into this Agreement, and, in lieu of such
excused provision, there shall be added a provision as similar in terms and
amount to such excused provision as may be possible and be legal, valid and
enforceable, and (2) the remaining part of this Agreement (including the
application of the offending term or provision to persons or circumstances other
than those as to which it is held invalid, illegal or unenforceable) shall not
be affected thereby and shall continue in full force and effect to the fullest
extent provided by law.
(vi) HEADINGS; REFERENCES; INCORPORATION; "PERSON";
GENDER. The headings used in this Agreement are for convenience and reference
purposes only, and shall not be used in construing or interpreting the scope or
intent of this Agreement or any provision hereof. References to this Agreement
shall include all amendments or renewals thereof.
(vii) COUNTERPARTS. This Agreement may be executed in
two or more counterparts, each of which shall constitute an original, but all of
which, when taken together, shall constitute but one instrument, and shall
become effective when one or more counterparts have been signed by each party
hereto and delivered to the other parties.
(b) ENFORCEMENT.
(i) APPLICABLE LAW. This Agreement and the rights and
remedies of each party arising out of or relating to this Agreement (including,
without limitation, equitable remedies) shall be solely governed by, interpreted
under, and construed and enforced in accordance with the laws (without regard to
the conflicts of law principles thereof) of the State of California, as if this
Agreement were made, and as if its obligations are to be performed, wholly
within the State of California.
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(ii) CONSENT TO JURISDICTION. Any and all proceedings
resulting from or arising out of a controversy or claim relating to this
Agreement or the breach thereof, shall be held exclusively in the County of Los
Angeles in the State of California, and the parties hereto expressly consent to
hold themselves subject to such jurisdiction for the purposes of any and all
such proceedings.
(c) ASSIGNMENT AND DELEGATION; SUCCESSORS AND ASSIGNS.
(i) PROHIBITION AGAINST ASSIGNMENT OR DELEGATION.
Except as specifically provided in this Agreement, neither the Company nor the
Purchaser may sell, license, transfer or assign (by operation of law or
otherwise) any of such party's rights or interests in this Agreement or delegate
such party's duties or obligations under this Agreement, in whole or in part,
without the prior written consent of the other party, which consent may be
withheld in such other party's sole discretion.
(ii) SUCCESSORS AND ASSIGNS. Subject to the
foregoing, all of the representations, warranties, covenants, conditions and
provisions of this Agreement shall be binding upon and shall inure to the
benefit of each party and such party's respective successors and permitted
assigns.
(d) ESCROW AGENT. All fees and expenses incurred by the Escrow
Agent shall be paid by the Company. The Escrow Agent is hereby instructed to
receive (i) the purchase price of the investment to be deposited by the
Purchaser at the Closing and held in the Escrow Account; (ii) the validly issued
certificate of Common Stock described in Section 1(c) herein; and (iii) original
or copies of signature pages of this Agreement. At the Closing, the Escrow Agent
shall release (x) the deposited funds along with original or copies of the
signature pages to this Agreement to the Company; and (y) the certificate of
Common Stock along with copies of the signature pages to this Agreement to the
Purchaser.
(e) RELIANCE BY ESCROW AGENT. The Escrow Agent may
conclusively rely on, and shall be protected when it acts in good faith upon,
any statement, certificate, notice, request, consent, order, or other document
which it believes to be genuine and signed by the either the Company or the
Purchaser. The Escrow Agent shall have no duty or liability to verify any such
statement, certificate, notice, request, consent, order or other document and
its sole responsibility shall be to act only as set forth in this Agreement. The
Escrow Agent shall be under no obligation to institute or defend any action,
suit, or proceeding in connection with this Agreement unless it is indemnified
to its satisfaction and such indemnification is memorialized in an
Indemnification Agreement, mutually agreed upon by both the Escrow Agent and the
indemnifying party. The Escrow Agent shall not be liable for any action taken or
omitted, if such action shall be taken or committed, in good faith or upon
advice of counsel. In performing any of its duties hereunder, the Escrow Agent
shall not incur any liability to anyone for damages, losses, or expenses except
for its willful misconduct or gross negligence. All monies held pursuant to this
Agreement shall constitute custodial funds. The Escrow Agent shall not be liable
for any interest incurred or accrued on either the purchase price or the shares.
(f) NOTICES. Unless otherwise specifically provided in this
Agreement, all notices, demands, requests, consents, approvals or other
communications (collectively and severally called "Notices") required or
permitted to be given hereunder, or which are given with respect to this
Agreement, shall be in writing, and shall be given by: (i) personal delivery
(which form of Notice shall be deemed to have been given upon delivery), (ii) by
telegraph or by private airborne/overnight delivery service postage prepaid
(which form of Notice shall be deemed to have been given upon confirmed delivery
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by the delivery agency), (iii) by electronic or facsimile or telephonic
transmission, provided the receiving party has a compatible device or confirms
receipt thereof (which form of Notice shall be deemed delivered upon confirmed
transmission or confirmation of receipt), or (iv) by mailing in the United
States mail by registered or certified mail, return receipt requested, postage
prepaid (which form of Notice shall be deemed to have been given upon the 5th
business day following the date mailed). Such Notices shall be addressed as
follows:
(i) If to the Company:
1st Step, Inc.
Xxxxx X.X. Xxxxxxxx
00000 Xxxxxx Xxxxxx
Xxx Xxxx, XX 00000
With a copy to:
Xxxxxx & Xxxxxxxxxx
00000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx Xxxxx, Esq.
(ii) If to Purchaser:
See Signature Page attached hereto
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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
duly executed as of the date first written above.
COMPANY:
1ST STEP, INC.
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By: Xxxx Xxxxxx
Its: Chief Operating Officer
[SIGNATURES CONTINUED ON NEXT PAGE]
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[SIGNATURE PAGE TWO]
PURCHASER:
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Name of Purchaser (Individual or Name of Individual representing
Institution) Purchaser (if an Institution)
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Title of Individual representing Signature of Individual Purchaser or
Purchaser (if an Institution) Individual representing Purchaser
Address:
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Telephone:
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Facsimile:
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Number of Shares to be Purchased Price Per Share in Dollars Aggregate Purchase Price
--------------------------------- ---------------------------- --------------------------
$
--------------------------------- ---------------------------- --------------------------
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EXHIBIT A
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Escrow Agent and Arrangements
Xxxxxx & Xxxxxxxxxx, located at 00000 Xxxxxxxx Xxxxxxxxx, Xxxxx 000,
Xxx Xxxxxxx, Xxxxxxxxxx 00000 (the "Escrow Agent") has been appointed as the
Escrow Agent for the sale of Shares pursuant to the attached Agreement. All
Agreements and any tendered funds should be delivered to the Escrow Agent,
attention Xx. Xxxxxx Xxxxx, at the above address. Any tendered funds should be
in the form of a check, enclosed with the Agreement and made payable to "Xxxxxx
& Xxxxxxxxxx Client Trust Account." All tendered funds received in connection
with this Agreement will be deposited into the Escrow Agent's trust account.
All interest incurred with respect to funds deposited with the Escrow
Agent shall be remitted to the State Bar of California, as required by the State
Bar. The Purchaser will receive no additional Common Stock or other
consideration for the forgone interest.
The Escrow Agent is only acting in that capacity as an accommodation
for the Company in connection with this Agreement. The Escrow Agent shall not be
presumed or construed, by implication or otherwise, to be acting as legal
counsel to any of the Purchasers of Common Stock, hereunder. IN ADDITION, THE
ESCROW AGENT DOES NOT AND HAS NOT ENDORSED, RECOMMENDED OR GUARANTEED THE
PURCHASE OR VALUE OF THE COMMON STOCK OFFERED HEREBY.
HOW TO PURCHASE SHARES
To purchase Shares pursuant to this Agreement, each Purchaser must
provide the following to our Escrow Agent:
1. Complete, sign and date the signature pages of the Stock Purchase
Agreement.
2. Make your check payable to: Xxxxxx & Xxxxxxxxxx Client Trust
Account
or
If you are using wire transfer to pay for the Shares use the
following wiring instructions:
Account Name: Xxxxxx & Xxxxxxxxxx A Law Corporation
Client Trust Account
ABA Routing Number: 000000000
Account Number: 1891716076
Bank Name: Comerica Bank of California
00000 Xxxxxxxx Xxxx.
Xxx Xxxxxxx, XX 00000
(000) 000-0000
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INVESTOR SUITABILITY STANDARDS AND TRANSFER RESTRICTIONS
THIS OFFERING AND AN INVESTMENT IN THE SHARES INVOLVES A HIGH DEGREE OF
RISK AND IS SUITABLE ONLY FOR THOSE PERSONS WITH SUBSTANTIAL FINANCIAL RESOURCES
IN RELATION TO THEIR INVESTMENT AND WHO UNDERSTAND THE PARTICULAR RISKS OF THIS
INVESTMENT. IN ADDITION, INVESTMENT IN THE SHARES IS SUITABLE ONLY FOR THOSE
PERSONS WHO DO NOT NEED LIQUIDITY AND ARE WILLING TO ACCEPT SUBSTANTIAL
RESTRICTIONS ON THE TRANSFER OF THEIR DEBENTURES AND WARRANTS. SEE "RISK
FACTORS."
The Shares are being offered solely to those persons who are
"accredited investors" as defined in Rule 501(a) of Regulation D promulgated
under the Securities Act. In addition, you must:
o be acquiring the Shares for your own account and not with a view
to or for resale in connection with any distribution or public
offering thereof within the meaning of the Securities Act, except
pursuant to an effective registration statement under the
Securities Act;
o have a pre-existing substantive relationship with us or the
selling broker, and by reason of your business or financial
experience (or the business or financial experience of your
professional advisors who are unaffiliated with us or the selling
broker) be reasonably assumed to have the capacity to protect your
own interests in connection with the transaction;
o represent and agree that you understand that the Shares have not
been registered under the Securities Act by reason of a specific
exemption therefrom, and that you may not transfer or sell them
except pursuant to an effective registration statement or
exemption from registration and each certificate representing the
shares will be endorsed with the following legends:
(i) THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). THE SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF A CURRENT AND
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT WITH
RESPECT TO SUCH SHARES, OR AN OPINION OF THE ISSUER'S
COUNSEL TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED
UNDER THE ACT; and
(ii) Any legend required to be placed thereon by applicable
federal or state securities laws.
Accredited investors are persons or entities who fall within one of the
following categories at the time of the sale of the securities to that person:
(i) Any bank as defined in Section 3(a)(2) of the Securities Act or any
savings and loan association or other institution as defined in Section
3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary
capacity; any broker or dealer registered pursuant to Section 15 of the
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Securities Exchange Act of 1934; any insurance company as defined in Section
2(13) of the Securities Act; any 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; any 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; any plan established and maintained by a state,
its political subdivisions, or any agency or instrumentality of a state or its
political subdivisions for the benefit of its employees, if such plan has total
assets in excess of $5,000,000; any employee benefit plan within the meaning of
the Employee Retirement Income Security Act of 1974 if the investment decision
is made by the 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 advisor, 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;
(ii) Any private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;
(iii) Any organization described in Section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business trust or
partnership, not formed for the specific purpose of acquiring the securities
offered, with total assets in excess of $5,000,000;
(iv) Any director or executive officer of our company;
(v) Any natural person whose individual net worth, or joint net worth
with that person's spouse, at the time of the purchase exceeds $1,000,000;
(vi) Any natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income with that person's
spouse in excess of $300,000 in each of the two most recent years and who
reasonably expects to reach the same income level in the current year;
(vii) Any trust, with total assets in excess of $5,000,000, not formed
for the specific purpose of acquiring the securities offered hereby, whose
purchase is directed by a sophisticated person as described in Rule
506(b)(2)(ii) of Regulation D; or
(viii) Any entity in which all of the equity owners are accredited
investors.
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