June 16, 2004
XRG, INC.
SUBSCRIPTION AGREEMENT
1. General. This Subscription Agreement is dated as of the date set
forth on the signature page hereof, and sets forth the terms under which the
undersigned investor, ___________________ (the "Investor"), will acquire
__________ common shares (the "Shares") at a price of $.12 per share (the
"Offering Price") of XRG, Inc., a Delaware corporation (the "Company") for an
aggregate purchase price of $___________.
The Investor of the restricted common stock issued pursuant to this
offering will be included in a Registration Statement that will be filed with
the SEC no later than December 15, 2004. The Company, no later than December 15,
2004, shall prepare and file with the Securities and Exchange Commission (the
"Commission"), a Registration Statement, at the Company's expense, under the
Securities Act of 1933, as amended (the "Act"), covering the Securities to be
sold in the Follow On Offering. In the event that the Registration is not
effective within 90 days thereafter or March 15, 2005 a penalty of 3% of the
gross proceeds (PIK) per month will take effect.
This offering (the "Offering") is being made on a "best efforts" basis.
There is no minimum offering level. The net proceeds will be immediately
available to the Company and used for working capital purposes. The Shares are
being offered by the Company solely to "accredited investors" pursuant to Rules
505 or 506 of Regulation D and Section 4(2) of the Act. Execution of this
Subscription Agreement by the Investor shall constitute an irrevocable offer by
the Investor to subscribe for the Shares on the terms and conditions specified
herein and in the Term Sheet. The Company reserves the right to reject such
subscription offer, or, by executing a copy of this Subscription Agreement, to
accept such offer. If the Investor's offer is accepted, the Company will execute
this Subscription Agreement and issue the Shares. The Company will deliver the
Shares and an executed copy of this Agreement to the Investor within five (5)
business days of acceptance. If the Investor's offer is rejected, the payment
accompanying this Subscription Agreement will be returned to the Investor, with
no interest thereon, with the notice of rejection.
2. Acceptance of Subscription Agreement. The Company's acceptance of
this Subscription Agreement shall be indicated by the execution on the last page
hereof by an officer of the Company.
3. Investor's Representations, Warranties and Covenants. The Investor
represents, warrants and covenants to the Company as follows:
a. He acknowledges that he has been furnished with and has
been given access to all underlying documents in connection with this
transaction, as well as such other information as he deems necessary or
appropriate as a prudent and knowledgeable investor in evaluating his investment
in the Shares. He further acknowledges that the Company has given him the
opportunity to obtain additional information and to evaluate the merits and
risks of his investment. He acknowledges that he has had the opportunity to ask
questions of, and receive satisfactory answers from, the officers and directors
of the Company concerning the terms and conditions of the offering.
b. He acknowledges that this transaction has not been reviewed
by the United States Securities and Exchange Commission or by any state
securities commissions.
c. He has adequate means of providing for his current and
future needs and possible personal contingencies, and has no need for liquidity
of his investment in the Shares.
d. He can bear the economic risk of losing his entire
investment in the Shares.
e. He is acquiring the Shares for his own account, for
investment purposes only and not with a view toward the resale,
fractionalization, division or distribution thereof and he has no present plans
to enter into any contract, undertaking, agreement or arrangement for any such
resale, distribution, division or fractionalization thereof.
f. He does not have an overall commitment to investments that
are not readily marketable, including the Shares and other similar investments,
disproportionate to his net worth or gross income.
g. He understands that the offer and sale of the Shares is
being made by means of a private placement of Shares and that he has read or
reviewed and is familiar with this Subscription Agreement and the Company's
filings under the Securities Exchange Act of 1934, as amended.
h. He was previously informed that all documents, records and
books pertaining to this investment were at all times available at the offices
of the Company, located at 0000 Xxxxxxx Xxxxxx, Xxxxx 000, Xxxxx, Xxxxxxx 00000;
that all such documents, records and books pertaining to this investment
requested by the Investor have been made available to him and any persons he has
retained to advise him; and that he has no questions concerning any aspect of
the investment for which he has not previously received satisfactory answers.
i. He and his agents or advisers have had an opportunity to
ask questions of and receive answers from the Company, or a person or persons
acting on its behalf, concerning the terms and conditions of this Subscription
Agreement and the transactions contemplated hereby and thereby, as well as the
affairs of the Company and related matters.
j. He has had an opportunity to obtain additional information
necessary to verify the accuracy of the information referred to in subparagraph
(i) hereof. Specifically, the Investor acknowledges receipt and confirms
Investor has thoroughly reviewed and read the Company's Form 10-KSB for the year
ended March 31, 2003; the Company's Forms 10-QSB for the three (3) months ended
June 30, 2003, September 30, 2003 and December 31, 2003; and its information
statement dated April 23, 2004. In addition, the Investor acknowledges receipt
and confirms Investor has thoroughly reviewed and read the Company's Form 8-K
filed April 30, 2004 and Form 8-K/A Amendment No.1 filed May 6, 2004
(collectively, the "SEC Reports").
k. HE UNDERSTANDS THAT THE COMPANY HAS A LIMITED FINANCIAL AND
OPERATING HISTORY.
l. HE UNDERSTANDS THAT THE SHARES ARE A SPECULATIVE
INVESTMENT, WHICH INVOLVES A HIGH DEGREE OF RISK OF LOSS BY HIM OF HIS ENTIRE
INVESTMENT. THERE IS NO ASSURANCE THAT THE RISKS SET FORTH IN THIS SUBSCRIPTION
AGREEMENT ARE THE MOST SIGNIFICANT WHICH AN INVESTOR SHOULD CONSIDER.
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m. He understands all aspects of and risks associated with
this investment or has consulted with his own financial adviser who has advised
him thereof and he has no further questions with respect thereto.
n. Unless the Shares are registered, the undersigned will be
required to comply with the provisions of Rule 144 adopted by the Securities and
Exchange Commission under the Securities Act. Investor understands Rule 144 has
at least a one (1) year holding period and limits on the amount of securities
that may be sold in any 90 day period. THUS, THE INVESTOR MAY NOT BE ABLE TO
LIQUIDATE HIS INVESTMENT OR TRANSFER ANY SHARES WITHOUT POTENTIAL ADVERSE
FINANCIAL CONSEQUENCES. THEREFORE, THE SHARES SHOULD NOT BE PURCHASED UNLESS THE
INVESTOR HAS LIQUID ASSETS SUFFICIENT TO ASSURE THAT SUCH PURCHASE WILL CAUSE NO
UNDUE FINANCIAL DIFFICULTIES AND UNLESS THE INVESTOR CAN OTHERWISE PROVIDE FOR
HIS CURRENT NEEDS AND POSSIBLE PERSONAL CONTINGENCIES.
o. He is knowledgeable and experienced in financial and
business matters. He and/or his financial or business advisers, if any, are
capable of evaluating the merits and risks of an investment in the Shares.
p. All information which he has provided to the Company
concerning his financial position and knowledge of financial and business
matters is correct and complete as of the date set forth at the end of this
Subscription Agreement, and if there should be any material change in such
information prior to acceptance of this Subscription Agreement by the Company,
he will immediately provide the Company with such information.
q. He is a bona fide resident of the State of ___________, or
maintains his principal residence there and is at least eighteen (18) years of
age.
r. If he is executing this Subscription Agreement on behalf of
a corporation, partnership, trust or other entity, he has been duly authorized
by such entity to execute this Subscription Agreement and all other instruments
in connection with the purchase of the Shares, his signature is binding upon
such corporation, partnership, trust or other entity and he represents and
warrants that such corporation, partnership, trust or other entity was not
organized for the purpose of acquiring the Shares subscribed for pursuant to
this Subscription Agreement and that the acquisition of the Shares is an
authorized investment of the corporation, partnership, trust or other entity.
s. This Subscription Agreement shall be binding upon the
heirs, estate, legal representatives, successors and assigns of the undersigned.
4. Regulation FD Confidentiality Covenant of Investor. The Investor
understands that certain of the information made available to Investor in
connection with the purchase of the Shares is confidential and not currently
publicly available. Accordingly, the Investor expressly agrees to treat the
information provided to Investor regarding the Company, including possible
future transactions, in strict confidence and not disclose such information to
any other party. Investor understands the Company is relying upon Investor's
agreement of confidentiality to comply with the exemptive provisions of
Regulation FD as set forth in Rule 100(b)(2)(ii) of Regulation FD.
5. Company's Representations and Warranties. The Company hereby
represents and warrants as follows:
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a. (i) It is duly organized, validly existing and in good
standing under the laws of Delaware;
(ii) The Company has all requisite power and
authority to execute and perform its obligations under
this Agreement, and to issue, sell and deliver the Shares. This Agreement has
been duly authorized by the Company, and when executed and delivered by the
Company, will constitute the legal, valid and binding obligation of the Company,
enforceable as to the Company in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization,
arrangement, fraudulent conveyance or transfer, moratorium or other laws or
court decisions, now or hereinafter in effect, relating to or affecting the
rights of creditors generally and as may be limited by general principles of
equity and the discretion of the court having jurisdiction in an enforcement
action (regardless of whether such enforceability is considered in a proceeding
in equity or at law).
(iii) Except for a Form D filing with the Securities
and Exchange Commission and any required blue sky
filings, no consent, authorization, approval, order, license, certificate or
permit of or from, or declaration or filing with, any federal, state, local or
other governmental authority or any court or any other tribunal is required by
the Company for the execution, delivery or performance by the Company of this
Agreement or the execution, issuance, sale or delivery of the Shares.
(iv) No consent of any party to any material
contract, agreement, instrument, lease, license,
arrangement or understanding to which the Company is a party or to which any of
its properties or assets are subject is required for the execution, delivery or
performance by the Company of this Agreement, or the execution, issuance, sale
or delivery of the Shares.
(v) The Shares, upon delivery to the Investor, will
be validly issued, fully paid and non-assessable
and will not be issued in violation of any preemptive or other rights of
stockholders known to the Company except as described in the Memorandum.
(vi) The Company is current in its periodic reporting
obligations under the Securities Exchange Act of
1934, as amended;
(vii) This Subscription Agreement has been duly executed and delivered on its
behalf and constitutes its legal, valid and binding agreement;
(viii) The authorized capital stock of the Company consists of 50,000,000 shares
of Preferred Stock, par value $.001 per share (the "Preferred Stock"), and
300,000,000 shares of Common Stock, par value $.001 per share. There are ____
outstanding shares of Series A Preferred Stock and no other Preferred Stock
issued and outstanding. There are ___ outstanding shares of Common Stock. Each
outstanding share of Common Stock and Preferred Stock is duly authorized,
validly issued, fully paid and non-assessable.
6. Financial Advisory Agreement. The Company has engaged Vertical
Capital Partners, Inc ("Vertical") as Managing Financial Advisor under an
Agreement dated June 15, 2004, for Vertical to advise the Company in connection
with the structure, terms and conditions of the Offering. As consideration for
its services, Vertical or any other NASD member that acts as Financial Advisor
in connection with this Offering, will receive (i) a fee of 10% of the aggregate
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gross proceeds from the sale of the Shares in the Offering with Vertical acting
as Financial Advisor in connection with such sale, and (iii) warrants to be sold
for $.001 per warrant to purchase 10% of the aggregate number of Shares sold in
the Offering at an exercise price equal to $.12 per share, exercisable for five
years from closing on a cashless basis. Vertical did not prepare any of the
information relating to the Company or its operations to be delivered to
prospective Investors in connection with the Offering. Prospective Investors are
advised to conduct their own review of the business, properties and affairs of
the Company and the SEC Reports (as defined below) before subscribing to
purchase Shares.
7. Responsibility and Indemnification. The Company will exercise its
best judgment in the conduct of all matters arising under this Subscription
Agreement. The undersigned acknowledges that he understands the meaning and
legal consequences of the representations and warranties contained herein, and
he hereby agrees to indemnify and hold harmless the Company, its officers,
directors, shareholders and employees, and any of their affiliates and their
officers, directors, shareholders and employees, or any professional advisor or
entity thereto, from and against any and all loss, damage, liability or expense,
including costs and reasonable attorney's fees, to which said entities and
persons may be put or which they may incur by reason of, or in connection with,
any misrepresentation made by the Investor, any breach of any of his warranties,
or his failure to fulfill any of his covenants or agreements under this
Subscription Agreement.
8. Company Solely Responsible for Disclosure; No Independent Review or
Opinions. The Company has assumed sole responsibility for compliance with the
disclosure requirements of federal and state securities laws in connection with
the offer and sale of the Shares. No law firm, accounting firm, securities
broker/dealer or other third party has conducted any due diligence review of the
Company and its business and affairs or any disclosures with respect thereto,
written or oral, made by the Company or others. Notwithstanding the preparation
of any documents or agreements related to the Company or this investment, the
Company's law firm has not rendered any legal opinions concerning any aspect of
the Company's business and affairs, including but not limited to, the validity
or enforceability of any contracts, agreements, obligations or security
interests related to an investment in the Company. By execution of this
Subscription Agreement, the undersigned acknowledges that the Company is solely
responsible for all disclosures to potential Investors concerning the Company
and its business and affairs and that no legal opinions have been rendered by
the Company's law firm as described above.
9. Survival of Representations, Warranties, Covenants and Agreements.
The representations, warranties, covenants and agreements contained herein shall
survive the delivery of, and the payment for, the Shares.
10. Notices. Any and all notices, designations, consents, offers,
acceptances or any other communication provided for herein shall be given in
writing by registered or certified mail which shall be addressed, in the case of
the Company, to 0000 Xxxxxxx Xxxxxx, Xxxxx 000, Xxxxx, Xxxxxxx 00000, and in the
case of the Investor, to the address set forth in this Subscription Agreement or
otherwise appearing on the books of the Company or his residence or to such
other address as may be designated by him in writing.
11. Miscellaneous. This Subscription Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Florida, both
substantive and remedial. The section headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Subscription Agreement. This Subscription Agreement shall
be enforceable in accordance with its terms and be binding upon and shall inure
to the benefit of the parties hereto and their respective successors, assigns,
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executors and administrators, but this Subscription Agreement and the respective
rights and obligations of the parties hereunder shall not be assignable by any
party hereto without the prior written consent of the other. This Subscription
Agreement represents the entire understanding and agreement between the parties
hereto with respect to the subject matter hereof; supersedes all prior
negotiations, letters and understandings relating to the subject matter hereof;
and cannot be amended, supplemented or modified except by an instrument in
writing signed by the party against whom enforcement of any such amendment,
supplement or modification is sought. In the event of any litigation between the
parties to this Subscription Agreement relating to, or arising out of, this
Subscription Agreement, the prevailing party shall be entitled to an award of
reasonable attorney's fees and costs, whether incurred before, during or after
trial or at the appellate level. The failure or finding of invalidity of any
provision of this Subscription Agreement shall in no manner affect the right to
enforce the other provisions of same, and the waiver by any party of any breach
of any provision of this Subscription Agreement shall not be construed to be a
waiver by such party of any subsequent breach of any other provision.
12. State Blue Sky Notices:
The following special provisions are applicable solely to the
residents of the various states mentioned:
FOR FLORIDA RESIDENTS: THESE SECURITIES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE FLORIDA
SECURITIES ACT, BY REASON OF SPECIFIC EXEMPTIONS THEREUNDER RELATING TO THE
LIMITED AVAILABILITY OF THE OFFERING. THESE SECURITIES CANNOT BE SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF TO ANY PERSON OR ENTITY UNLESS THEY ARE
SUBSEQUENTLY REGISTERED OR EXEMPTION FROM REGISTRATION IS AVAILABLE.
THE SHARES REFERRED TO HEREIN WILL BE SOLD TO, AND ACQUIRED
BY, THE HOLDER IN A TRANSACTION EXEMPT UNDER SECTION 517.061 OF THE FLORIDA
SECURITIES ACT. THE SHARES HAVE NOT BEEN REGISTERED UNDER SAID ACT IN THE STATE
OF FLORIDA. IN ADDITION, ALL FLORIDA RESIDENTS SHALL HAVE THE PRIVILEGE OF
VOIDING THE PURCHASE WITHIN THREE (3) DAYS AFTER THE FIRST TENDER OF
CONSIDERATION IS MADE BY SUCH PURCHASER TO THE ISSUER, AN AGENT OF THE ISSUER,
OR AN ESCROW AGENT OR WITHIN THREE (3) DAYS AFTER THE AVAILABILITY OF THAT
PRIVILEGE IS COMMUNICATED TO SAID PURCHASER, WHICHEVER OCCURS LATER.
FOR NEW YORK RESIDENTS: THESE SECURITIES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE NEW YORK
FRAUDULENT PRACTICES ("XXXXXX") ACT, BY REASON OF SPECIFIC EXEMPTIONS THEREUNDER
RELATING TO THE LIMITED AVAILABILITY, OR OTHERWISE DISPOSED OF TO ANY PERSON OR
ENTITY UNLESS SUBSEQUENTLY REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE NEW YORK FRAUDULENT PRACTICES ("XXXXXX") ACT, IF SUCH
REGISTRATION IS REQUIRED.
THIS PRIVATE OFFERING MEMORANDUM HAS NOT BEEN FILED WITH OR
REVIEWED BY THE ATTORNEY GENERAL PRIOR TO ITS ISSUANCE AND USE. THE ATTORNEY
GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF
THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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PURCHASE OF THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK.
THIS PRIVATE OFFERING MEMORANDUM DOES NOT CONTAIN AN UNTRUE STATEMENT OF A
MATERIAL FACT OR OMIT TO STATE A MATERIAL FACT NECESSARY TO MAKE THE STATEMENTS
MADE, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING,
IT CONTAINS A FAIR SUMMARY OF THE MATERIAL TERMS OF DOCUMENTS PURPORTED TO BE
SUMMARIZED HEREIN.
13. Suitability Questions. Please complete all of the following
suitability questions which apply to the Investor.
a. I am an Accredited Investor because I meet one of the following
standards:
___ (i) An individual whose individual net worth, or joint net worth with
that individual's spouse, exceeds $1,000,000 (including the value of homes, home
furnishings and personal automobiles).
___ (ii) Natural person(s) who had an income in excess of $200,000
(individual) or $300,000 (joint) in each of the years 2002 and 2003 and who
reasonably expects an income in excess of $200,000 (individual) or $300,000
(joint) in 2004. For purposes of this offering, individual income shall equal
adjusted income, as reported in the Investor's federal tax return, increased by
the following amounts: (i) the amount of any tax exempt interest received, (ii)
the amount of losses claimed as a limited partner in a limited partnership,
(iii) any deduction claimed for depletion, (iv) amounts contributed to an XXX or
Xxxxx retirement plan, (v) alimony paid, and (vi) any amount by which income
from long-term capital gains has been reduced in arriving at adjusted gross
income pursuant to the provisions of Section 1202 of the Internal Revenue Code.
For the individual test, income related to a spouse is excluded.
___ (iii) Employee Benefit Plan which has total assets in excess of
$5,000,000.
___ (iv) A Self-Directed Plan with investment decisions made solely by
persons that are accredited Investors.
___ (v) A Trust with total assets in excess of $5,000,000 not formed for
the specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person as described in Rule 506(b) (2) (ii) of the
Securities Act.
___ (vi) Any entity in which all of the equity owners are accredited
Investors.
b. Do you think you have sufficient knowledge of the Company
to evaluate the risks associated with investing in the Shares?
Yes___ No___ If so, why?
--------------------------------
--------------------------
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c. If you answered "No" to the preceding question, do you have
an Investment Advisor or Purchaser Representative upon whom you rely for
investment advice?
Yes___ No___
If so, please provide his name and address
------------------------------------
---------------------------
d. Do you understand the nature of the investment in the
Shares and the risks involved?
Yes___ No___
e. Do you understand that unless the Company registers your
Shares under the Securities Act, you will not be able to resell the Shares which
you purchase, unless you do so in an exempt transaction or unless you comply
with the provisions of Rule 144 and applicable state securities laws?
Yes___ No___
f. Do you understand that there is no assurance of any
financial return on this investment and that you run the risk of losing your
entire investment?
Yes___ No___
g. Are you aware that you have the opportunity to inspect the
Company's financial records, legal documents, and other records?
Yes___ No___ Did you do so? Yes___ No___
h. Are you acting for your own account?
Yes___ No___
If No, please complete the following:
(i) Capacity in which you are acting (agent, trustee
or otherwise):
(ii) Name, address and telephone number(s) of
person(s) you represent:
(iii) Nature of evidence of authority attached:
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14. Documents Incorporated by Reference. By execution of this
Subscription Agreement, the Investor acknowledges that he has been provided with
a copy of the following:
o Form 10-KSB for year ended March 31, 2003.
o Forms 10-QSB for three (3) months ended June 30, 2003,
September 30, 2003 and December 31, 2003.
o Form 8-K filed April 30, 2004 and Form 8-K/A Amendment No.1
filed May 6, 2004.
o Information Statement dated April 23, 2004.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year this subscription has been accepted by the Company as set forth
below.
Number of Shares Print Name of Subscriber:
Being Purchased __________________________________________
__________________ By: _______________________________________
($0.12 per Share) Signature of Subscriber or Authorized Signatory
Social security Number or other Taxpayer
Identification Number:
------------------------------------------
Address:
==========================================
If the Shares will be held as
joint tenants, tenants in
common, or community property,
please complete the following:
------------------------------------------
Print name of spouse or other co-subscriber
------------------------------------------
Signature of spouse or other co-subscriber
------------------------------------------
Print manner in which Shares will be held
------------------------------------------
Social Security Number of spouse or other
co-subscriber
ACCEPTED BY:
XRG, Inc.
By:_____________________________
Name:
Title:
Date:_____________________, 2004
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