EX-4.8
FORM OF FINANCING AGREEMENT
FORM OF FINANCING AGREEMENT
THIS FINANCING AGREEMENT ("Financing Agreement") is dated as of
June 27, 2002, by and between FREESTAR TECHNOLOGIES, INC., a Nevada
corporation, with headquarters located at 1140 Avenue of the
▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ("Company"), and
_________________________________ (who, together with permitted
assigns, will be collectively referred to herein as the "Lender").
W I T N E S S E T H
WHEREAS, the Company wishes to induce the Lender to loan to the
Company, and the Lender is willing to loan to the Company, subject to
the terms and conditions set forth herein, up to
_________________________ dollars ($_________) as a portion of a
total loan to the Company of four hundred thousand dollars ($400,000)
to be made on terms that are identical to the terms granted to the
Lender in this Financing Agreement.
NOW, THEREFORE, for and in consideration of the premises and the
mutual agreement contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Loan. (a) Subject to the terms and conditions set forth
herein, the Lender shall loan, or has loaned, to the Company
_________________________ dollars ($_________) (the "Loan").
(b) In consideration of the Loan and to collateralize the
Company's obligations hereunder and under the Related Agreements (as
defined below in Paragraph 3(b)), the Company shall issue a
promissory note (the "Note") for the principal amount of the Loan
substantially in the form of Exhibit A, payable to the order of the
Lender.
2. Reserved.
3. Mutual Deliveries.
(a) Upon the delivery by the Lender of the Loan as provided in
Section 1 above, the Company shall deliver to the Lender the Note.
(b) The Company shall also deliver, or cause to be delivered,
the original or execution copies of the following instruments and
agreements duly executed by all parties thereto other than the Lender
(together with the Note - the "Related Agreements"):
(i) this Financing Agreement;
(ii) the Registration Rights Agreement in the form attached
as Exhibit B;
(iii) Stock Pledge Agreement and Exhibits thereto (in
the form attached as Exhibit C), together with the
Certificates and Stock Powers;
(iv) The Unconditional Guarantee of ▇▇▇▇ ▇▇▇▇ in the form
attached as Exhibit D; and
(v) the opinions of counsel in the form attached as
Exhibit E.
4. Representations and Warranties of the Company. The
Company represents and warrants to the Lender that except as
described in the Company's reports filed pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 (the "Reports"):
(a) The Company has the corporate power and authority to enter
into this Financing Agreement and the Related Agreements and to
perform its obligations hereunder and thereunder. The execution and
delivery by the Company of this Financing Agreement and the Related
Agreements and the consummation by the Company of the transactions
contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of the Company. This
Financing Agreement and the Related Agreements have been duly
executed and delivered by the Company and constitute valid and
binding obligations of the Company enforceable against it in
accordance with their respective terms, subject to the effects of any
applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally and to the
application of equitable principles in any proceeding (legal or equitable).
(b) The execution, delivery and performance by the Company of
this Financing Agreement and the Related Agreements and the
consummation of the transactions contemplated hereby and thereby do
not and will not breach or constitute a default under any applicable
law or regulation or of any agreement, judgment, order, decree or
other instrument binding on the Company which breach or default could
reasonably by expected to have a material and adverse effect on the Company.
(c) Except as set forth in Schedule 4(c) hereto, the Company is
in material compliance with all applicable laws, regulations,
judgments, decrees and orders material to the conduct of its business.
(d) Except as set forth in Schedule 4(d) hereto, there is no
pending, or to the knowledge of the Company, threatened, judicial,
administrative or arbitral action, claim, suit, proceeding or
investigation which might affect the validity or enforceability of
this Financing Agreement or the Related Agreements or which involves
the Company and which if adversely determined, could reasonably be
expected to have a material adverse effect on the Company.
(e) Except for filings that may be required under federal or
state securities laws, no consent or approval of, or exemption by, or
filing with, any party or governmental or public body or authority is
required in connection with the execution, delivery and performance
under this Financing Agreement or the Related Agreements or the
taking of any action contemplated hereunder or thereunder.
(f) The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of
Nevada. The Company is duly qualified and licensed and in good
standing as a foreign corporation in each jurisdiction in which its
current ownership or leasing of any properties or its ownership or
leasing of any properties or the character of its operations as
currently conducted requires such qualification or licensing, except
where the failure to be so qualified would not have a material
adverse effect on the Company. The Company has all corporate power
and authority, and has obtained all necessary authorizations,
approvals, orders, licenses, certificates, franchises and permits of
and from all governmental or regulatory officials and bodies
necessary to own or lease its properties and conduct its business as
currently conducted other than those authorizations, approvals and
such other documents the lack of which could not reasonably be
expected to have a material and adverse effect on the Company.
(g) The execution, delivery and performance of this Financing
Agreement by the Company and the Related Agreements to be delivered
hereunder and the consummation of the transactions contemplated
hereby and thereby will not: (i) violate any provision of the
Company's articles of incorporation or bylaws, (ii) violate, conflict
with or result in the breach of any of the terms of, result in a
material modification of the effect of, otherwise, give any other
contracting party the right to terminate, or constitute (or with
notice or lapse of time or both constitute) a default under, any
contract or other agreement to which the Company is a party or by or
to which the Company or any of the Company's assets or properties may
be bound or subject, (iii) violate any order, judgment, injunction,
award or decree of any court, arbitrator or governmental or
regulatory body by which the Company, or the assets or properties of
the Company are bound, (iv) to the Company's knowledge, violate any
statute, law or regulation.
(h) Except as set forth in Schedule 4(h) hereto, there has been
no material adverse change in the capitalization, assets, liabilities
or income of the Company since the issuance of the financial
statements, for the period ending January 31, 2002, delivered to Lender.
(i) The Company is not in possession of, nor has the Company or
its agents disclosed to Lender, any material non-public information
(not including the information relating to the negotiations for, and
the transaction contemplated by, this Financing Agreement and also
not including the information contained in Schedule 7(j), both of
which could be considered "material" and which have not yet been
publicly announced) that (a) if disclosed, would reasonably be
expected to have a materially adverse effect on the price of the
Common Stock, or (b) according to applicable law, rule or regulation,
should have been disclosed publicly by the Company prior to the date
hereof but which has not been so disclosed.
(j) To the Company's knowledge, none of the following has
occurred during the past ten (10) years with respect to the Company
(or any subsidiary or predecessor entity) or control person of the
Company (a "Person"):
(i) A petition under the federal bankruptcy laws or any
state insolvency law was filed by or against, or a receiver,
fiscal agent or similar officer was appointed by a court for
the business or property of such Person, or any partnership
in which he was a general partner at or within two years
before the time of such filing, or any corporation or
business association of which he was an executive officer at
or within two years before the time of such filing;
(ii) Such Person was convicted in a criminal proceeding or
is a named subject of a pending criminal proceeding
(excluding traffic violations and other minor offenses);
(iii) Such Person was the subject of any order, judgment or
decree, not subsequently reversed, suspended or vacated, of
any court of competent jurisdiction, permanently or
temporarily enjoining him from, or otherwise limiting, the
following activities:
(1) Acting, as an investment advisor, underwriter, broker or dealer in
securities, or as an affiliated person, director or employee of any investment
company, bank, savings and loan association or insurance company, as a futures
commission merchant, introducing broker, commodity trading advisor, commodity
pool operator, floor broker, any other person regulated by the Commodity
Futures Trading Commission ("CFTC") or engaging in or continuing any
conduct or practice in connection with such activity;
(2) Engaging in any type of business practice; or
(3) Engaging in any activity in connection with the
purchase or sale of any security or commodity or in connection with any
violation of federal or state securities laws or federal commodities laws;
(iv) Such person was the subject of any order, judgment or
decree, not subsequently reversed, suspended or vacated, of
any federal or state authority barring, suspending or
otherwise limiting for more than 60 days the right of such
person to engage in any activity described in paragraph (3)
of this item, or to be associated with persons engaged in
any such activity;
(v) Such person was found by a court of competent
jurisdiction in a civil action or by the CFTC or SEC to
have violated any federal or state securities law, and the
judgment in such civil action or finding by the CFTC or SEC
has not been subsequently reversed, suspended, or vacated.
(k) Except for vFinance Investments, Inc. the Company
represents that it has had no dealings in connection with this
transaction with any finder or broker who will demand payment of any
fee or commission from the Lender. The Company agrees to indemnify
the Lender against and hold the Lender harmless from any and all
liabilities to any persons claiming brokerage commissions or finder's
fees on account of services purported to have been rendered in
connection with this Financing Agreement or the transactions
contemplated hereby.
(l) The Company intends to use the proceeds from the Loan for
the purpose of providing operating capital, and the Company
anticipates that it will be able to repay all borrowings from its
future cash flow or from further investment In addition, the Company
believes that it will be able to, and intends to, comply with all of
its obligations and covenants as set forth in the Related Agreements.
Consequently, the Company does not believe, and does not intend, that
the pledge of shares pursuant to the Related Agreements, will be
called. Consequently, and without limiting the generality of the
foregoing, the Company warrants that the pledge of the shares is for
security only and not in contemplation of a sale of such shares by
the Lender. The Company has not arranged for the pledge of the
shares as a part of any plan for the further distribution of the
pledged securities.
5. Representations and Warranties of the Lender. The Lender
hereby represents and warrants to the Company that:
(a) If the Lender is a corporation, the Lender has the
corporate power and authority to enter into this Financing Agreement
and the Related Agreements and to perform its obligations hereunder
and thereunder. The execution and delivery by the Lender of this
Financing Agreement and the Related Agreements and the consummation
by the Lender of the transactions contemplated hereby and thereby
have been duly authorized by all necessary action on the part of the
Lender. This Financing Agreement and the Related Agreements have
been duly executed and delivered by the Lender and constitute valid
and binding obligations of the Lender, enforceable against it in
accordance with their respective terms, subject to the effects of any
applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally and to the
application of equitable principles in any proceeding (legal or equitable).
(b) The execution, delivery and performance by the Lender of
this Financing Agreement and the Related Agreements and the
consummation of the transactions contemplated hereby and thereby do
not and will not breach or constitute a default under any applicable
law or regulation or of any agreement, judgment, order, decree or
other instrument binding on the Lender.
(c) There is no pending, or to the knowledge of the Lender,
threatened, judicial, administrative or arbitral action, claim, suit,
proceeding or investigation which might ffect the validity or
enforceability of this Financing Agreement or the Related Agreements.
(d) No consent or approval of, or exemption by, or filing with,
any party of governmental or public body or authority is required in
connection with the execution, delivery and performance under this
Financing Agreement or the Related Agreements or the taking of any
action contemplated hereunder or thereunder.
(e) The Lender qualifies as an accredited Lender for purposes
of Regulation D promulgated under the Securities Act of 1933, as
amended (the "Act") and Rules 501(a) and 215 thereunder. The Lender
acknowledges that it has made an independent due diligence
investigation of the Company and has reviewed each of the Reports and
that the Company has made available to the Lender at a reasonable
time prior to the execution of this Financing Agreement. The Lender
has had the opportunity to ask questions and receive answers
concerning the business and affairs of the Company and the terms and
conditions of the sale of securities contemplated by this Financing
Agreement and to obtain any additional information (which the Company
possesses or can acquire without unreasonable effort or expense) as
may be necessary to verify the accuracy of information furnished to
the Lender. The Lender is sophisticated, understands the
transactions described in this Financing Agreement and the Related
Documents, and has previous experience in making loans to
corporations in transactions similar to the Loan contemplated by this
Financing Agreement. The Lender has consulted with its legal,
financial, accounting, tax, and investment advisors with respect to
the advisability of the Lender making the Loan to the Company
contemplated by this Financing Agreement, to the extent the Lender
has deemed that such consultation is necessary or appropriate. The
Lender (a) is able to bear the loss of the entire principal amount of
the Loan without any material adverse effect on his, her or its
business, operations or prospects, (b) has such knowledge and
experience in financial and business matters that he, she or it is
capable of evaluating the merits and risks of making the Loan to the
Company pursuant to this Financing Agreement, (c) realizes that the
Company has a significant need for additional financing and without
such additional financing may be unable to repay the Notes when due
and may have to cease operations, (d) realizes that the advancement
of any funds by the Lender to the Company is highly speculative and
subject to significant risks including, without limitation, those
risks identified in the Reports, and (e) understands that the
documents provided to Lender in connection with the transactions
contemplated hereby may contain forward-looking information that
involve risk and uncertainties that could cause actual results to
differ materially from such statements, including, but not limited
to, those risks relating to product demand, pricing, market
acceptance, the effect of economic conditions, the validity and
enforceability of intellectual property rights, the outcome of
government regulatory proceedings, competitive products, risks in
product and technology development, the ability to complete
transactions, and other risks identified in the Reports.
(f) The Lender understands that the Note, and the shares
issuable upon conversion of the Note are characterized as "restricted
securities" under the federal securities laws inasmuch as they are
being or will be acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable
regulations such securities may be resold without registration under
the Securities Act of 1933 and applicable state law only in certain
limited circumstances. In this regard, the Lender represents that it
is familiar with Rule 144 under the Act, as presently in effect, and
understands the resale limitations imposed thereby and by the Act.
The Lender understands that it is accepting the Note and to the
extent the Lender receives any shares upon conversion or payment of
the Note, the Lender will accept such securities for investment
purposes only and without the view toward the further distribution of
such securities except pursuant to a registration statement that may
be effective permitting the public offer or sale of such securities,
or pursuant to an exemption from registration under federal and
applicable state laws. In the event the Lender does attempt to offer
or sell the Note, or underlying securities in the circumstances
contemplated by the preceding sentence, the Lender will do so only in
accordance with the requirements of federal and applicable state laws
and interpretations thereof.
(g) If the Registration Statement is not effective, the Lender
understands that the certificates evidencing the Shares will bear a
legend substantially in the following form:
"The securities represented by this certificate have not
been registered with the Securities and Exchange Commission
or the securities commission of any state in reliance upon
an exemption from registration under the Securities Act of
1933, as amended (the "Securities Act"), and, accordingly,
may not be offered or sold except pursuant to an effective
registration statement under the securities act or pursuant
to an available exemption from, or in a transaction not
subject to, the registration requirements of the securities
act and in accordance with applicable state securities laws."
(h) The Lender has no intention or right to obtain the shares
of the Company's common stock pledged by certain affiliates of the
Company to collateralize the repayment of the Note and the Company's
performance of its covenants in this Financing Agreement and the
Related Documents except pursuant to a foreclosure as permitted in
the Related Documents following a material default by the Company and
the guarantors, not cured in accordance with the terms of the Related
Documents. The Lender has no intention to sell the pledged shares
except after a foreclosure accomplished pursuant to the preceding
sentence. The Lender has not sought the pledge of the shares
pursuant to the Related Documents as a part of any plan or scheme to
distribute any securities in a manner not in compliance with the
requirements of federal and all applicable state laws.
(i) In all matters related to this Financing Agreement and the
Related Documents, the Lender is acting strictly on his, her, or its
own behalf, and is not acting as a group with any other person in
connection with this Financing Agreement, the Loan, the Related
Documents, or any Loan made, pledge accepted, or Related Documents
executed and accepted by any other person, whether or not a part of
the four hundred thousand dollar ($400,000) aggregate Loan being
sought by the Company pursuant hereto.
(j) The Lender is a legal resident of the country set forth
beneath his, her, or its signature to this Financing Agreement, and
there is no basis that the Lender can claim residence in any country
other than such country.
(k) The Lender is not, and has never been, an "affiliate" of
the Company as the term "affiliate" is defined in Rule 405 of
Regulation C adopted under the Securities Act of 1933, as amended.
If the Lender becomes an affiliate of the Company at any time during
the period the Note is outstanding, the Lender will notify the
Company in writing.
6. [RESERVED]
7. Covenants of the Company The Company covenants and agrees
that, so long as the Note shall be outstanding, except as otherwise
required under the Related Agreements, the Company shall:
(a) Promptly pay and discharge all lawful taxes, assessments
and governmental charges or levies imposed upon it or upon its income
and profits, or upon any of its property, before the same shall
become in default as well as all lawful material claims for labor,
materials and supplies which, if unpaid, might become a lien or
charge upon such properties or any part thereof; provided, however,
that it shall not be required to pay and discharge any such tax,
assessment, charge, levy or claim so long as the validity thereof
shall be contested in good faith by appropriate proceedings, and the
Company shall set aside on its books adequate reserves with respect
to any such tax, assessment, charge, levy or claim so contested.
(b) Pay, or cause to be paid, all material financing
obligations and perform, or cause to be performed, all material
obligations promptly and in accordance with the respective terms thereof.
(c) Implement and maintain a standard system of accounting in
accordance with generally accepted accounting principles ("GAAP").
(d) Provide or otherwise make available to the Lender as soon
as available after the end of each fiscal year of the Company, its
annual report on Form 10-KSB or similar reports.
(e) Do, or cause to be done, all things that may be necessary
to (i) maintain its due organization, valid existence and good
standing under the laws of its state of incorporation; (ii) preserve
and keep in full force and effect all qualifications, registrations
and licenses in those jurisdictions in which the failure to do so
could or would have a material adverse effect; (iii) maintain its
power or authority to carry on its business as now conducted; and
(iv) use its best efforts to keep available the services of its key
present employees and agents and maintain its current relations with
suppliers, customers, distributors and joint venture partners
(subject to the business judgment of executive management).
(f) At all times maintain, preserve, protect and keep material
property used and useful in the conduct of its business in a manner
not substantially different from the manner in which the Company
maintained, preserved, protected, and kept its material property
prior to the date of this Financing Agreement.
(g) Keep insurance on its property in a manner not
substantially different from the manner in which the Company
maintained insurance prior to the date of this Financing Agreement.
(h) Not assume, guaranty or otherwise, directly or indirectly,
become liable or responsible for the obligations of the any other
person or entity, except for 75% or greater owned subsidiaries, for
the purpose of paying or discharging the obligations of such person
or entity unless such guarantees relate to the business of the
Company, are incurred in the ordinary course of its business and do
not exceed in the aggregate $100,000.
(i) Not declare or pay any cash dividends or authorize or make
any other distribution on any class of equity securities of the
Company.
(j) Except as set forth in Schedule 7(j) hereto, not
consolidate with or merge with or into any entity or sell, lease,
transfer, exchange or otherwise dispose of any material part of its
properties and assets except in the ordinary course of business,
however, the Company may engage in any of the foregoing transactions
with a parent or subsidiary of the Company so long as such parent or
subsidiary assumes the obligations of the Company hereunder.
(k) Not enter into any agreement or understanding which may,
directly or indirectly, cause or effect a change in "control" as
defined in Rule 405 under the Securities Act of 1933, without the
prior written consent of the Lender
(8) [RESERVED]
(9) Indemnification. (a) If:
(i) the Lender becomes involved in any capacity in any
action, proceeding or investigation brought by any
stockholder of the Company, in connection with or as a
result of the consummation of the transactions contemplated
by the Related Agreements, or if such Lender is impleaded
in any such action, proceeding or investigation by any
person, or
(ii) the Lender becomes involved in any capacity in any
action, proceeding or investigation brought by the
Securities and Exchange Commission, any self-regulatory
organization or other body having jurisdiction in
connection with or as a result of the consummation of the
transactions contemplated by the Related Agreements, or
(iii) if the Lender is impleaded in any such action,
proceeding or investigation by any person, then in any such
case, the Company hereby agrees to indemnify, defend and
hold harmless the Lender from and against and in respect of
all losses, claims, liabilities, damages or expenses
resulting from, imposed upon or incurred by the Lender,
directly or indirectly, and reimburse such Lender for its
reasonable legal and other expenses (including the cost of
any investigation and preparation) incurred in connection
therewith, as such expenses are incurred. The foregoing
indemnification does not include any obligation to
reimburse the Lender for internal and overhead costs for
the time of any officers or employees of the Lender devoted
to appearing and preparing to appear as witnesses,
assisting in preparation for hearings, trials or pretrial
matters, or otherwise with respect to inquiries, hearing,
trials, and other proceedings relating to the subject
matter of the Note and Related Agreements. The
indemnification and reimbursement obligations of the
Company under this paragraph shall be in addition to any
liability which the Company may otherwise have (other than
matters specifically addressed in the Registration Rights
Agreement, which shall be governed solely by that
agreement), shall extend upon the same terms and conditions
to any affiliates of the Lender who are actually named in
such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if
any), as the case may be, of the Lender and any such
affiliate, and shall be binding upon and inure to the
benefit of any successors, assigns, heirs and personal
representatives of the Company, the Lender, any such
affiliate and any such person. The Company also agrees that
neither the Lender nor any such affiliate, partner,
director, agent, employee or controlling person shall have
any liability to the Company or any person asserting claims
on behalf of or in right of the Company in connection with
or as a result of the consummation of the transactions
hereunder, except as provided in or contemplated by the
Note or Related Agreements unless such action by the Lender
or any affiliate, partner, director, agent, employee, or
controlling person results from the fraud, negligence,
criminal act or omission, or other action or omission by
such person that violates any applicable law or regulation
(b) Notwithstanding the above, the Company shall have no
obligation under this Section 9 if any such action, proceeding, or
investigation arises out of or relates to any fraudulent, negligent,
or criminal act or omission of the Lender or any affiliate, partner,
director, agent, employee, or controlling person of the Lender in
connection with the transactions contemplated by this Financing
Agreement or otherwise, or other action or omission by such person
that violates any applicable law or regulation.
10. Assignment. This Financing Agreement and the Related
Agreements may be assigned by the Lender to transferees or assignees
of the Note, provided that such assignment or transfer is
accomplished in accordance with all applicable laws and in a manner
that is reasonably satisfactory to the Company, and provided further
that the Company is, prior to or simultaneously with such transfer,
furnished with written notice of the name and address of such
transferee or assignee, and such assignee agrees in writing to be
bound by the terms hereof and provided further that, if the Note is
only assigned or transferred in part, then such assignment shall only
be made in part on an appropriate proportionate basis. If there is a
conflict between this provision and any provision of the Related
Agreements, this provision shall govern.
11. [RESERVED]
12. Notices Any notice required or permitted hereunder shall
be given in writing (unless otherwise specified herein) and shall be
deemed effectively given upon personal delivery or seven business
days after deposit in the United States Postal Service, by (a)
advance copy by fax, and (b) mailing by express courier or registered
or certified mail with postage and fees prepaid, addressed to each of
the other parties thereunto entitled at the following addresses, or
at such other addresses as a party may designate by ten days advance
written notice to each of the other parties hereto.
COMPANY: FREESTAR TECHNOLOGIES, INC.
1140 Avenue of the ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
ATT: ▇▇▇▇ ▇▇▇▇, President
with a copy to:
Law Offices of ▇▇▇▇ ▇. Tow
Attn: ▇▇▇▇ ▇▇▇, Esq.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇- ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone No.: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
LENDER: to the address, telephone number, and facsimile number
set forth beneath his, her or its signature, below.
13. Severability. If a court of competent jurisdiction
determines that any provision of this Financing Agreement is invalid,
unenforceable or illegal for any reason, such determination shall not
affect or impair the validity, legality and enforceability of the
other provisions of this Financing Agreement. If any such
invalidity, unenforceability or illegality of a provision of this
Financing Agreement becomes known or apparent to any of the parties
hereto, the parties shall negotiate promptly and in good faith in an
attempt to make appropriate changes and adjustments to such provision
specifically and this Financing Agreement generally to achieve as
closely as possible, consistent with applicable law, the intent and
spirit of such provision specifically and this Financing Agreement
generally.
14. Execution in Counterparts. This Financing Agreement may
be signed in any number of counterparts with the same effect as if
the signatures upon any counterpart were upon the same instrument.
All signed counterparts shall be deemed to be one original. This
Financing Agreement, once executed by a party, may be delivered to
the other parties hereto by telephone line facsimile transmission of
a copy of this Financing Agreement bearing the signature of the
parties so delivering this Financing Agreement. A facsimile
transmission of this signed Agreement shall be legal and binding on
all parties hereto.
15. Expenses. Each party shall bear its own expenses in
connection with the preparation of this Financing Agreement and the
Related Agreements. In order to a portion of the expenses incurred
by the Lender and others involved in the transaction, the Company
will pay $3,500 to the law firm of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ LLP on
behalf of the Lender and others, to be allocated as the Lender may
deem appropriate. The payment may be made at the Closing by the
Lender from the Closing proceeds.
16. Governing Law. This Financing Agreement and the Related
Agreements shall be governed by and construed in accordance with the
laws of the State of New York. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part
of the City of New York or the state courts of the State of New York
sitting in the City of New York in connection with any dispute
arising under this Financing Agreement and hereby waives, to the
maximum extent permitted by law, any objection, including any
objection based on forum non coveniens, to the bringing of any such
proceeding in such jurisdictions.
17. Survival of Representations and Warranties.
(a) The Lender has the right to rely fully upon the
representations, warranties, covenants and agreements of the Company
contained in this Agreement or in any documents delivered pursuant to
this Agreement. All such representations and warranties of the
Company shall survive the execution and delivery of this Agreement,
the Lender's advancement of the Loan, and the Company's delivery of
the Note to the Lender hereunder. All such representations and
warranties of the Company shall continue in full force and effect for
three years from the date hereof with respect to claims which may
arise hereunder or under the Related Documents.
(b) The Company has the right to rely fully upon the
representations, warranties, covenants and agreements of the Lender
contained in this Agreement or in any documents delivered pursuant to
this Agreement. All such representations and warranties of the
Lender shall survive the execution and delivery of this Agreement,
the Lender's advancement of the Loan, and the Company's delivery of
the Note to the Lender hereunder. All such representations and
warranties of the Lender shall continue in full force and effect for
three years from the date hereof with respect to claims which may
arise hereunder or under the Related Documents.
IN WITNESS WHEREOF, the parties have executed this Financing
Agreement as of the date first written above.
FREESTAR TECHNOLOGIES, INC.
▇▇▇▇ ▇▇▇▇, President
INVESTOR:
Name: _____________________
Title: ______________________
Address: ___________________
EXHIBIT A
FORM OF CONVERTIBLE NOTE
NEITHER THIS NOTE NOR THE SECURITIES INTO WHICH THIS NOTE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED
OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
No. ___ U.S. $______________ Original Issue Date: June 27, 2002
Holder: ___________________
___________________
Address: ___________________
___________________
___________________
SERIES 2002A 8% CONVERTIBLE NOTE DUE MARCH 1, 2003
THIS Note is one of a duly authorized issue of Notes of FREESTAR
TECHNOLOGIES, INC., a Nevada corporation, having a principal place of
business at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
(the "Company"), designated as its Series 2002A 8% Convertible Notes,
due June 1, 2003 (the "Notes"), in an aggregate principal amount of
up to Four Hundred Thousand and 00/100 Dollars ($400,000.00). This
Note is acquired by the Holder (as defined herein) pursuant to the
terms of that certain Financing Agreement dated as of the Original
Issue Date (as defined herein), between the Company and the Holder,
as amended, modified or supplemented from time to time in accordance
with its terms ("Financing Agreement").
FOR VALUE RECEIVED, the Company promises to pay to the Holder or
registered assigns, the principal sum of __________________ Dollars
($_________), on or before June 1, 2003 (the "Maturity Date") and to
pay interest to the Holder on the principal sum at the rate of 8% per
annum, which interest shall be due and payable on the earlier of the
Conversion Date (with respect to the principal amount converted) or
the Maturity Date. Interest shall accrue daily commencing on the
Original Issue Date (as defined in Section 6) until payment in full
of the principal sum, together with all accrued and unpaid interest
and other amounts which may become due hereunder, has been made.
Interest shall be calculated on the basis of a 360-day year and for
the actual number of days elapsed. Interest hereunder will be paid
to the person in whose name this Note (or one or more predecessor
Notes) is registered on the records of the Company regarding
registration and transfers of the Notes (the "Note Register"). All
overdue, accrued and unpaid interest and other amounts due hereunder
shall bear interest at the rate of 18% per annum from the day such
interest is due hereunder through and including the date of payment.
The principal of, and interest on, this Note are payable in such coin
or currency of the United States of America as at the time of payment
is legal tender for payment of public and private debts, at the
address of the Holder last appearing on the Note Register, except
that the Company may, at the Company's option and at any time, pay
the principal amount due (but not the interest due) in shares of the
Company's Common Stock (as defined in Section 6) calculated based
upon the Conversion Price (as defined below). The Company shall
provide the Holder notice of its intention to pay amounts hereunder
in cash or shares not less than five (5) Trading Days (as defined in
Section 6) prior to the Maturity Date. Except as otherwise provided
herein, if at any time the Company pays less than the total amount of
interest then accrued on account of the Note, such payment shall be
distributed ratably among the Holders based upon the aggregate
principal amount of Notes held by each Holder.
Notwithstanding anything to the contrary contained herein, the
Company may not prepay any portion of this Note by issuing shares of
its Common Stock unless (i) upon issuance such shares will be legally
and validly issued, fully-paid, and non-assessable; and (ii) such
shares are registered for resale pursuant to an effective
Registration Statement (as defined in Section 6) and (iii) such
shares are listed or quoted for trading on an "Authorized Market" (as
defined in Section 6). Notwithstanding anything to the contrary
contained herein, the Company may not prepay any portion of this Note
by issuing shares of its Common Stock if the issuance of such shares
would result in a violation of Section 4(a)(ii).
This Note is subject to the following additional provisions:
Section 1. The Notes are issuable in denominations of one
Thousand Dollars ($1,000.00). The Notes are exchangeable for an
equal aggregate principal amount of Notes of different authorized
denominations, as requested by the Holder surrendering the same but
shall not be issuable in denominations of less than integral
multiples of One Thousand Dollars ($1,000) unless such amount
represents the full principal balance of Notes outstanding to such
Holder. No service charge will be made for such registration of
transfer or exchange.
Section 2.
(a) This Note may not be sold, transferred, assigned,
hypothecated or divided into two or more Notes of smaller
denominations, nor may any Underlying Shares be transferred, sold,
assigned or hypothecated except in accordance with this Section. The
Holder, by acceptance hereof, agrees to give written notice to the
Company before transferring this Note or transferring any Underlying
Shares; such notice will describe briefly the any proposed transfer
and will give the Company the name, address, and tax identification
number of the proposed transferee, and will further provide the
Company with an opinion of the Holder's counsel that such transfer
can be accomplished in accordance with federal and applicable state
securities laws (unless such transaction is permitted by the plan of
distribution in an effective Registration Statement). Promptly upon
receiving such written notice, the Company shall present copies
thereof to the Company's counsel.
(i) If in the opinion of such counsel the proposed transfer may
be effected without registration or qualification (under any
federal or state securities laws), the Company, as promptly as
practicable, shall notify the Holder of such opinion, whereupon
the Holder shall be entitled to transfer this Note or to dispose
of Underlying Shares received upon the previous conversion of
this Note, all in accordance with the terms of the notice
delivered by the Holder to the Company; provided that an
appropriate legend may be endorsed on this Note or the
certificates for such Underlying Shares respecting restrictions
upon transfer thereof necessary or advisable in the opinion of
counsel and satisfactory to the Company to prevent further
transfers which would be in violation of Section 5 of the
Securities Act and applicable state securities laws; and
provided further that the prospective transferee or purchaser
shall execute such documents and make such representations,
warranties, and agreements as may be required solely to comply
with the exemptions relied upon by the Company for the transfer
or disposition of the Note or Underlying Shares.
(ii) If in the opinion of the counsel referred to in this
Section 2, the proposed transfer or disposition of this Note or
such Underlying Shares described in the written notice given
pursuant to this Section 2 may not be effected without
registration or qualification of this Note or such Underlying
Shares the Company shall promptly give written notice thereof to
the Holder, and the Holder will limit its activities in respect
to such as, in the opinion of such counsel, are permitted by law.
(b) Prior to transfer of this Note in compliance with this
Section 2, the Company and any agent of the Company may treat the
person in whose name this Note is duly registered on the Note
Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Note
is overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.
Section 3. Events of Default.
"Event of Default" wherever used herein, means any one of the
following events (whatever the reason and whether it shall be
voluntary or involuntary or effected by operation of law or pursuant
to any judgment, decree or order of any court, or any order, rule or
regulation of any administrative or governmental body):
(i) any default in the payment of the principal of, interest on
or liquidated damages, or other obligations on conversion in
respect of, this Note, free of any claim of subordination, as
and when the same shall become due and payable, (whether on an
Interest Payment Date, Conversion Date or the Maturity Date or
by acceleration or otherwise);
(ii) the Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise
commit any breach of, this Note, the Financing Agreement or the
Registration Rights Agreement (as defined in Section 6) and
such failure or breach shall not have been remedied within 10
days after the date on which notice of such failure or breach
shall have been given;
(iii) the Company shall commence a voluntary case under the
United States Bankruptcy Code or insolvency laws as now or
hereafter in effect or any successor thereto (the "Bankruptcy
Code"); or an involuntary case is commenced against the Company
under the Bankruptcy Code and the petition is not controverted
within 30 days, or is not dismissed within 60 days, after
commencement of such involuntary case; or a "custodian" (as
defined in the Bankruptcy Code) is appointed for, or takes
charge of, all or any substantial part of the property of the
Company or the Company commences any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law
of any jurisdiction whether now or hereafter in effect relating
to the Company or there is commenced against the Company any
such proceeding which remains undismissed for a period of 60
days; or the Company is adjudicated insolvent or bankrupt; or
any order of relief or other order approving any such case or
proceeding is entered; or the Company suffers any appointment of
any custodian or the like for it or any substantial part of its
property which continues undischarged or unstayed for a period
of 60 days; or the Company makes a general assignment for the
benefit of creditors; or the Company shall fail to pay, or shall
state that it is unable to pay its debts generally as they
become due; or the Company shall call a meeting of all of its
creditors with a view to arranging a composition or adjustment
of its debts; or the Company shall by any act or failure to act
indicate its consent to, approval of or acquiescence in any of
the foregoing; or any corporate or other action is taken by the
Company for the purpose of effecting any of the foregoing;
(iv) the Company shall default in any of its obligations under
any mortgage, credit agreement or other facility, indenture,
agreement or other instrument under which there may be issued,
or by which there may be secured or evidenced any indebtedness
of the Company in an amount exceeding two hundred thousand
dollars ($200,000), whether such indebtedness now exists or
shall hereafter be created and such default shall result in such
indebtedness becoming or being declared due and payable prior to
the date on which it would otherwise become due and payable;
(v) the Common Stock shall fail to be listed or authorized for
quotation on an Authorized Market, or trading in an Authorized
Market has been suspended without the Common Stock having been
relisted or having such suspension lifted, as the case may be,
within five (5) Trading Days, or the closing bid price of the
Common Stock on any Trading Day shall be $.10 or less;
(vi) the Company shall be a party to any Change of Control
Transaction (as defined in Section 6), shall agree to sell or
dispose of all or in excess of 49% of its assets (based on book
value calculation as reflected in the Company's most recent
financial statements) in one or more transactions (whether or
not such sale would constitute a Change of Control Transaction),
or shall redeem more than a de minimis number of shares of
Common Stock or other equity securities of the Company (other
than redemptions of Underlying Shares);
(vii) an Event (as hereinafter defined) shall not have been
cured to the satisfaction of the Holder prior to the expiration
of thirty (30) days from the Event Date (as hereinafter defined)
relating thereto (other than as a result from a failure of a
Registration Statement to be declared effective by the
Commission on or prior to the Effective Date (as defined in the
Registration Rights Agreement)); or
(viii) the Company shall fail for any reason to deliver Free
Trading Certificates (as defined in Section 6) to a Holder on or
prior to the third (3rd) Trading Day after a Conversion Date, or
the Company shall provide notice to the Holder, including by way
of public announcement, at any time, of its intention not to
comply with requests for conversions of any Notes in accordance
with the terms hereof.
Section 4. Conversion.
(a) (i) This Note shall be convertible into shares of Common
Stock (subject to the limitation set forth in Section 4(a)(ii))
at the option of the Holder in whole or in part at any time and
from time to time commencing sixty-one (61) days after the
Original Issue Date and prior to the close of business on the
Maturity Date, except that this Note shall not be convertible
until all other Series 2002A Notes have been completely paid or
converted into Common Stock. The number of shares of Common
Stock issuable upon a conversion hereunder shall be determined
by dividing the outstanding principal amount of this Note to be
converted by the Conversion Price, each as subject to adjustment
as provided hereunder. The Holder shall effect conversions by
delivering to the Company a conversion notice in the form of
conversion notice attached hereto as Exhibit A (the "Conversion
Notice"), specifying the information on the Conversion Notice
form. Each Conversion Notice shall specify the principal amount
of Notes to be converted and the date on which such conversion
is to be effected, which date may not be prior to the date of
such Conversion Notice is deemed to have been delivered pursuant
to Section 4(h) (the "Conversion Date"). If no Conversion Date
is specified in a Conversion Notice, the Conversion Date shall
be the date that the Conversion Notice is deemed delivered
pursuant to Section 4(h). Subject to Section 4(b) hereof, each
Conversion Notice, once given, shall be irrevocable. If the
Holder is converting less than all of the principal amount
represented by the Note(s) tendered by the Holder with the
Conversion Notice, or if a conversion hereunder cannot be
effected in full for any reason, the Company shall honor such
conversion and shall promptly deliver to such Holder (in the
manner and within the time set forth in Section 4(b)) a new Note
for such principal amount as has not been converted.
(ii) Certain Conversion Restrictions. The Holder agrees not to
convert Notes to the extent such conversion would result in the
Holder beneficially owning (as determined in accordance with
Section 13(d) of the Exchange Act and the rules thereunder) in
excess of 4.999% of the then issued and outstanding shares of
Common Stock, including shares issuable upon conversion of the
Notes held by such Holder after application of this Section.
The Holder shall have the sole authority and obligation to
determine whether the restriction contained in this Section
applies and to the extent the Holder determines that the
restriction contained in this Section applies, the determination
of which portion of the principal amount of such Notes is
convertible shall be in the sole discretion of the Holder. The
provisions of this Section may be waived by a Holder (but only
as to itself and not to any other Holder) upon not less than 65
days prior notice to the Company. Other Holders shall be
unaffected by any such waiver.
(b) (i) Not later than three (3) Trading Days after the
Conversion Date, the Company will deliver to the Holder a Free
Trading Certificate or certificates free of restrictive legends,
trading restrictions or stop transfer orders representing the
number of shares of the Common Stock being acquired upon the
conversion of Notes, and (ii) a corporate check in the amount of
all accrued and unpaid interest, together with all other amounts
then due and payable in accordance with the terms hereof, in
respect of Notes tendered for conversion. The Company shall
keep a register and log each conversion of the Notes by entering
the amount of the Notes converted and the principal balance of
the Notes once the conversion has taken place. There shall be
no obligation on the part of the Holder to deliver the Notes
with each conversion. Upon a final conversion of the Notes, or
payment by the Company of all amounts due under the Notes, as
the case may be, the Holder will surrender the original Notes to
the Company. Nothing stated herein shall preclude the Holder
from requesting from the Company Notes reflecting the principal
balance thereunder which shall be provided to the Holder
simultaneously upon the surrender of any Notes in the Holder's
possession. The Company shall, upon request of the Holder, use
its best efforts to deliver any certificate or certificates
required to be delivered by the Company under this Section
electronically through the Depository Trust Corporation or
another established clearing corporation performing similar
functions. If in the case of any Conversion Notice such Free
Trading Certificate or certificates, are not delivered to or as
directed by the applicable Holder by the third Trading Day after
a Conversion Date, the Holder shall be entitled by written
notice to the Company at any time on or before its receipt of
such certificate or certificates thereafter, to rescind such conversion.
(ii) If the Company fails to deliver to the Holder such
certificate or certificates pursuant to this Section prior to
the third Trading Day after a Conversion Date, then the Company
shall pay to the Holder $150 per day for each day late in
delivering the certificates up to and including the 10th late
day, and $500 per day for each day late in delivering the
Certificates after the 10th late day ("Liquidated Damages").
Any Liquidated Damages incurred by the Company shall be payable
immediately and in cash upon demand in writing made by the
Holder, or their agent, to the Company.
(iii) Intentionally omitted.
(iv) In the event a Holder shall elect to convert a Note or part
thereof, the Company may not refuse conversion based on any
claim that such Holder or any one associated or affiliated with
such Holder has been engaged in any violation of law, or for any
other reason, unless, an injunction from a court, or 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 Holder 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
litigation of the dispute and the proceeds of which shall be
payable to such Holder to the extent Holder obtains judgment.
(c)(i) The conversion price (the "Conversion Price") in
effect shall be 80% of the Market Price; and the term "Market
Price" means the lower of (i) the average closing bid price of a
share of Common Stock as reported by the National Association of
Securities Dealers Electronic Bulletin Board ("OTC Bulletin
Board") for the 10 Trading Days prior to June 27, 2002, or (ii)
the lowest closing bid price of a share of Common Stock as
reported by the OTC Bulletin Board for the 3 Trading Days
immediately preceding the date of receipt by the Company of
Notice of Conversion.
(ii) If the Company, at any time while any Notes are
outstanding, (a) shall pay a stock dividend or otherwise make a
distribution or distributions on shares of its Common Stock or
any other equity or equity equivalent securities payable in
shares of the Common Stock, (b) subdivide outstanding shares of
the Common Stock into a larger number of shares, (c) combine
outstanding shares of the Common Stock into a smaller number of
shares, or (d) issue by reclassification of shares of the Common
Stock any shares of capital stock of the Company, the Initial
Conversion Price shall be multiplied by a fraction of which the
numerator shall be the number of shares of the Common Stock
(excluding treasury shares, if any) outstanding before such
event and of which the denominator shall be the number of shares
of the Common Stock outstanding after such event. Any
adjustment made pursuant to this Section 4(c)(ii) shall become
effective immediately after the record date for the
determination of stockholders entitled to receive such dividend
or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or
re-classification.
(iii) If the Company, at any time while any Notes are
outstanding, shall issue rights or warrants to all holders of
the Common Stock (and not to Holders of Notes) entitling them to
subscribe for or purchase shares of the Common Stock at a price
per share less than the Conversion Price, the Conversion Price
shall be multiplied by a fraction, of which the denominator
shall be the number of shares of the Common Stock (excluding
treasury shares, if any) outstanding on the date of issuance of
such rights or warrants plus the number of additional shares of
the Common Stock offered for subscription or purchase, and the
numerator shall be the number of shares of the Common Stock
(excluding treasury shares, if any) outstanding on the date of
issuance of such rights or warrants plus the number of shares
which the aggregate offering price of the total number of shares
so offered would purchase at the Conversion Price.
Such adjustment shall be made whenever such rights or warrants
are issued, and shall become effective immediately after the
record date for the determination of stockholders entitled to
receive such rights or warrants. However, upon the expiration
of any right or warrant to purchase shares of the Common Stock
the issuance of which resulted in an adjustment in the
Conversion Price pursuant to this Section 4(c)(iii), if any such
right or warrant shall expire and shall not have been exercised,
the Conversion Price shall immediately upon such expiration be
recomputed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting
any other adjustments in the Conversion Price made pursuant to
the provisions of this Section 4 after the issuance of such
rights or warrants) had the adjustment of the Conversion Price
made upon the issuance of such rights or warrants been made on
the basis of offering for subscription or purchase only that
number of shares of the Common Stock actually purchased upon the
exercise of such rights or warrants actually exercised.
(iv) If the Company, as applicable with respect to Common Stock
Equivalents (as defined below), at any time while this Note is
outstanding, shall issue shares of Common Stock or rights,
warrants, options or other securities or debt that is
convertible into or exchangeable for shares of Common Stock
("Common Stock Equivalents") entitling any Person to acquire
shares of Common Stock at a price per share less than the
Conversion Price, then the Conversion Price shall be multiplied
by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to the
issuance of shares of Common Stock or such Common Stock
Equivalents plus the number of shares of Common Stock which the
offering price for such shares of Common Stock or Common Stock
Equivalents would purchase at the Conversion Price, and the
denominator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to such issuance plus
the number of shares of Common Stock so issued or issuable,
rovided, that for purposes hereof, all shares of Common Stock
that are issuable upon exercise or exchange of Common Stock
Equivalents shall be deemed outstanding immediately after the
issuance of such Common Stock Equivalents. Such adjustment
shall be made whenever such shares of Common Stock or Common
Stock Equivalents are issued.
(v) If the Company, at any time while Notes are outstanding,
shall distribute to all holders of the Common Stock (and not to
Holders of Notes) evidences of its indebtedness or assets or
rights or warrants to subscribe for or purchase any security,
then in each such case the Initial Conversion Price at which
Notes shall thereafter be convertible shall be determined by
multiplying the Initial Conversion Price in effect immediately
prior to the record date fixed for determination of stockholders
entitled to receive such distribution by a fraction of which the
denominator shall be the Per Share Market Value of the Common
Stock determined as of the record date mentioned above, and the
numerator shall be such Per Share Market Value of the Common
Stock on such record date less the then fair market value at
such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share
of the Common Stock as determined by the Board of Directors in
good faith; provided, however, that in the event of a
distribution exceeding ten percent (10%) of the net assets of
the Company, such fair market value shall be determined by a
nationally recognized or major regional investment banking firm
or firm of independent certified public accountants of
recognized standing (which may be the firm that regularly
examines the financial statements of the Company) (an
"Appraiser") selected in good faith by the holders of a majority
in interest of Notes then outstanding; and provided, further,
that the Company, after receipt of the determination by such
Appraiser shall have the right to select an additional
Appraiser, in good faith, in which case the fair market value
shall be equal to the average of the determinations by each such
Appraiser.
In either case the adjustments shall be described in a statement
provided to the holders of Notes of the portion of assets or
evidences of indebtedness so distributed or such subscription
rights applicable to one share of the Common Stock. Such
adjustment shall be made whenever any such distribution is made
and shall become effective immediately after the record date
mentioned above.
(vi) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is
converted into other securities, cash or property, the Holder of
this Note shall have the right thereafter to, at its option,
convert the then outstanding principal amount only into the
shares of stock and other securities, cash and property
receivable upon or deemed to be held by holders of the Common
Stock following such reclassification or share exchange, and the
Holders of the Notes shall be entitled upon such event to
receive such amount of securities, cash or property as the
shares of the Common Stock of the Company into which the then
outstanding principal amount could have been converted
immediately prior to such reclassification or share exchange
would have been entitled. The terms of any such
reclassification or share exchange shall include such terms so
as to continue to give to the Holder the right to receive the
securities, cash or property set forth in this Section 4(c)(vi)
upon any conversion following such event. This provision shall
similarly apply to successive reclassifications or share exchanges.
(vii) If:
A. the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
B. the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
C. the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to subscribe
for or purchase any shares of capital stock of any class or
of any rights; or
D. the approval of any stockholders of the Company shall
be required in connection with any reclassification of the
Common Stock of the Company, any consolidation or merger to
which the Company is a party, any sale or transfer of all
or substantially all of the assets of the Company, of any
compulsory share of exchange whereby the Common Stock is
converted into other securities, cash or property; or
E. the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the
affairs of the Company;
then the Company shall cause to be filed at each office or
agency maintained for the purpose of conversion of the Notes,
and shall cause to be mailed to the Holders of Notes at their
last addresses as they shall appear upon the stock books of the
Company, at least 30 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating
(x) the date on which a record is to be taken for the purpose of
such dividend, distribution, redemption, rights or warrants, or
if a record is not to be taken, the date as of which the holders
of the Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is
expected to become effective or close, and the date as of which
it is expected that holders of the Common Stock of record shall
be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share
exchange; provided, however, that the failure to mail such
notice or any defect therein or in the mailing thereof shall not
affect the validity of the corporate action required to be
specified in such notice. Holders are entitled to convert Notes
during the 30-day period commencing the date of such notice to
the effective date of the event triggering such notice.
(viii) All calculations under this Section 4 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case
may be.
(ix) Whenever the Conversion Price is adjusted pursuant to
Section 4(c)(i) - (v), the Company shall promptly mail to each
Holder of Notes, a notice setting forth the Initial Conversion
Price after such adjustment and setting forth a brief statement
of the facts requiring such adjustment.
(x) Notwithstanding anything to the contrary herein, in no
event shall the Conversion Price be adjusted for (i) issuances
of shares upon exercise of any warrants, options or convertible
securities outstanding as of the date hereof; (ii) issuances of
shares upon conversion of any Notes or exercise of the Warrants
(as defined in the Financing Agreement); or (iii) issuances of
options (or shares upon the exercise thereof), stock bonuses, or
shares pursuant to the Company's 2001 Employee Stock Incentive Plan.
(d) If at any time conditions shall arise by reason of action
taken by the Company which in the opinion of the Board of Directors
are not adequately covered by the other provisions hereof and which
might materially and adversely affect the rights of the Holders
(different than or distinguished from the effect generally on rights
of holders of any class of the Company's capital stock) or if at any
time any such conditions are expected to arise by reason of any
action contemplated by the Company, the Company shall mail a written
notice briefly describing the action contemplated and the material
adverse effects of such action on the rights of the Holders at least
30 calendar days prior to the effective date of such action, and an
Appraiser selected by the Holders of majority in interest of the
Notes shall give its opinion as to the adjustment, if any (not
inconsistent with the standards established in this Section 4), of
the Conversion Price (including, if necessary, any adjustment as to
the securities into which Notes may thereafter be convertible) and
any distribution which is or would be required to preserve without
diluting the rights of the Holders; provided, however, that the
Company, after receipt of the determination by such Appraiser, shall
have the right to select an additional Appraiser, in good faith, in
which case the adjustment shall be equal to the average of the
adjustments recommended by each such Appraiser. The Board of
Directors shall make the adjustment recommended forthwith upon the
receipt of such opinion or opinions or the taking of any such action
contemplated, as the case may be; provided, however, that no such
adjustment of the Conversion Price shall be made which in the opinion
of the Appraiser(s) giving the aforesaid opinion or opinions would
result in an increase of the Conversion Price to more than the
Conversion Price then in effect.
(e) The Company covenants that it will at all times reserve and
keep available out of its authorized and unissued shares of the
Common Stock solely for the purpose of issuance upon conversion of
the Notes and payment of interest on the Notes, each as herein
provided, free from preemptive rights or any other actual contingent
purchase rights of persons other than the Holders, not less than such
number of shares of the Common Stock as shall (subject to any
additional requirements of the Company as to reservation of such
shares set forth in the Financing Agreement) be issuable (taking into
account the adjustments and restrictions of Section 4(c)) upon the
conversion of the outstanding principal amount of the Notes and
payment of interest hereunder. The Company covenants that all shares
of the Common Stock that shall be so issuable shall, upon issue, be
duly and validly authorized, issued and fully paid, nonassessable
and, if the Registration Statement has been declared effective under
the Securities Act, freely tradeable.
(f) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares
of the Common Stock, but may if otherwise permitted, make a cash
payment in respect of any final fraction of a share based on the Per
Share Market Value at such time. If the Company elects not, or is
unable, to make such a cash payment, the holder shall be entitled to
receive, in lieu of the final fraction of a share, one whole share of
Common Stock.
(g) The issuance of certificates for shares of the Common Stock
on conversion of the Notes shall be made without charge to the
Holders thereof for any documentary stamp or similar taxes that may
be payable in respect of the issue or delivery of such certificate,
provided that the Company shall not be required to pay any tax that
may be payable in respect of any transfer involved in the issuance
and delivery of any such certificate upon conversion in a name other
than that of the Holder of such Notes so converted and the Company
shall not be required to issue or deliver such certificates unless or
until the person or persons requesting the issuance thereof shall
have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
(h) Any and all notices or other communications or deliveries
to be provided by the Holders of the Notes hereunder, including,
without limitation, any Conversion Notice, shall be in writing and
delivered personally, by facsimile, sent by a nationally recognized
overnight courier service or sent by certified or registered mail,
postage prepaid, addressed to the Company, at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (facsimile number 809-338-0768),
attention ▇▇▇▇ ▇▇▇▇, President, or such other address or facsimile
number as the Company may specify for such purposes by notice to the
Holders delivered in accordance with this Section. Any and all
notices or other communications or deliveries to be provided by the
Company hereunder shall be in writing and delivered personally, by
facsimile, sent by a nationally recognized overnight courier service
or sent by certified or registered mail, postage prepaid, addressed
to the Holder at the facsimile telephone number or address of such
Holder appearing on the books of the Company, or if no such facsimile
telephone number or address appears, at the principal place of
business of the holder. Any notice or other communication or
deliveries hereunder shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone
number specified in this Section prior to 5:00 p.m. (New York City
time), (ii) the date after the date of transmission, if such notice
or communication is delivered via facsimile at the facsimile
telephone number specified in this Section later than 5:00 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York
City time) on such date, (iii) four days after deposit in the United
States mails, (iv) the Business Day following the date of mailing, if
send by nationally recognized overnight courier service, or (v) upon
actual receipt by the party to whom such notice is required to be given.
Section 5. Prepayment.
(a) The Company shall have the right to prepay this Note and
all accrued but unpaid interest thereon prior to the Maturity Date
provided that, if the prepayment is accomplished in cash, the Company
shall issue to the Holder a warrant to purchase one (1) share of
Common Stock at an exercise price of $0.10 for each $0.10 principal
amount so prepaid, and the warrant will be in the form attached to
the Financing Agreement.
(b)(i) The Company shall give at least five (5) business
days, but not more than ten (10) business days, written notice
of any intention to prepay this Note prior to the Maturity Date
to the Holder which notice shall specify the "Prepayment Date.".
(ii) With respect to any Note for which a Notice of Conversion
is submitted to the Company prior to the Prepayment Date, the
Notice of Conversion shall take precedence and such Note shall
be converted in accordance with the terms hereof. Furthermore,
in the event such prepayment is not timely made, the Notice of
Prepayment shall be null and void, and any rights of the Company
to thereafter prepay this Note shall be subject to the deposit
of the amount to be paid in escrow, with an attorney designated
by the Holder, not later than two business days after delivery
of any Notice.
Section 6. Definitions. For the purposes hereof, the
following terms shall have the following meanings:
"Authorized Market" means the OTC Bulletin Board, the Nasdaq
SmallCap Stock Market ("NASDAQ"), the American Stock Exchange, Nasdaq
National Market or The New York Stock Exchange.
"Business Day" means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions
in the State of New York are authorized or required by law or other
government action to close.
"Change of Control Transaction" means the occurrence of any of
(i) an acquisition after the date hereof by an individual or legal
entity or "group" (as described in Rule 13d-5(b)(1) promulgated under
the Exchange Act) of in excess of 49% of the voting securities of the
Company coupled with a replacement of more than one-half of the
members of the Company's board of directors which is not approved by
those individuals who are members of the board of directors on the
date hereof in one or a series of related transactions, or (ii) the
merger of the Company with or into another entity, consolidation or
sale of all or substantially all of the assets of the Company in one
or a series of related transactions, unless following such
transaction, the holders of the Company's securities continue to hold
at least 40% of such securities following such transaction. The
execution by the Company of an agreement to which the Company is a
party or by which it is bound providing for any of the events set
forth above in (i) or (ii) does not constitute the occurrence of the
event until after the event in fact occurs.
"Common Stock" means the Company's common stock, no par value
per share, and stock of any other class into which such shares may
hereafter have been reclassified or changed.
"Free Trading Certificates" shall mean certificates representing
shares of Common Stock which are eligible for sale pursuant to an
effective Registration Statement.
"Original Issue Date" shall mean the date of the first issuance
of any Notes regardless of the number of transfers of any Note and
regardless of the number of instruments which may be issued to
evidence such Note.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Registration Rights Agreement" means the Registration
Rights Agreement, dated June 27, 2002, between the Company and the
initial Holders of the Notes.
"Registration Statement" means a registration statement
meeting the requirements set forth in the Registration Rights
Agreement, covering among other things the resale of the Underlying
Shares and naming the Holder as a "selling stockholder" thereunder.
"Trading Day" means (a) a day on which the Common Stock is
traded on the NASDAQ, or (b) if the Common Stock is not listed on the
NASDAQ, a day on which the Common Stock is traded in the
over-the-counter market, as reported by the OTC Bulletin Board, or
(c) if the Common Stock is not quoted on the OTC Bulletin Board, a
day on which the Common Stock is quoted in the over-the-counter
market as reported by the National Quotation Bureau Incorporated (or
any similar organization or agency succeeding its functions of
reporting prices); provided, however, that in the event that the
Common Stock is not listed or quoted as set forth in (a), (b) and (c)
hereof, then Trading Day shall mean any day except Saturday, Sunday
and any day which shall be a legal holiday or a day on which banking
institutions in the State of New York are authorized or required by
law or other government action to close.
"Underlying Shares" means the number of shares of Common Stock
into which the Notes are convertible and any shares of Common Stock
issuable in payment of interest as provided under and in accordance
with the terms hereof and the Financing Agreement.
Section 7. Except as expressly provided herein, no provision
of this Note shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of,
interest and liquidated damages (if any) on, this Note at the time,
place, and rate, and in the coin or currency, herein prescribed.
This Note is a direct obligation of the Company. This Note ranks
pari passu with all other Notes now or hereafter issued under the
terms set forth herein.
Section 8. This Note shall not entitle the Holder to any of
the rights of a stockholder of the Company, including without
limitation, the right to vote, to receive dividends and other
distributions, or to receive any notice of, or to attend, meetings of
stockholders or any other proceedings of the Company, unless and to
the extent converted into shares of Common Stock in accordance with
the terms hereof. As long as there are Notes outstanding, the
Company shall not and shall cause it subsidiaries not to, without the
consent of the Holders, (i) amend its certificate of incorporation,
bylaws or other charter documents so as to adversely affect any
rights of the Holders; or (ii) repay, repurchase or otherwise acquire
shares of its Common Stock or other equity securities other than as
to the Underlying Shares to the extent permitted or required under
the Related Agreements (as defined in the Purchase Agreement).
Section 9. If this Note shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated Note, or in
lieu of or in substitution for a lost, stolen or destroyed Note, a
new Note for the principal amount of this Note so mutilated, lost,
stolen or destroyed but only upon receipt of evidence of such loss,
theft or destruction of such Note, and of the ownership hereof, and
indemnity, if requested, all reasonably satisfactory to the Company.
Section 10. This Note shall be governed by and construed in
accordance with the laws of the State of New York. Each of the
parties consents to the exclusive jurisdiction of the federal courts
whose districts encompass any part of the City of New York or the
state courts of the State of New York sitting in the City of New York
in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non coveniens, to the bringing
of any such proceeding in such jurisdictions. To the extent
determined by such court, the Company shall reimburse the Holder for
any reasonable legal fees and disbursements incurred by the Holder in
enforcement of or protection of any of its rights under any of this Note.
Section 11. Any waiver by the Company or the Holder of a
breach of any provision of this Note shall not operate as or be
construed to be a waiver of any other breach of such provision or of
any breach of any other provision of this Note. The failure of the
Company or the Holder to insist upon strict adherence to any term of
this Note on one or more occasions shall not be considered a waiver
or deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Note. Any waiver
must be in writing.
Section 12. If any provision of this Note is invalid,
illegal or unenforceable, the balance of this Note shall remain in
effect, and if any provision is inapplicable to any person or
circumstance, it shall nevertheless remain applicable to all other
persons and circumstances.
Section 13. Whenever any payment or other obligation
hereunder shall be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day (or, if
such next succeeding Business Day falls in the next calendar month,
the preceding Business Day in the appropriate calendar month).
Section 14. Security The obligation of the Company for
payment of principal, interest and all other sums hereunder, in the
event of a default and failure of the Company to perform hereunder,
is secured solely by the pledge of certain shares of the Company's
Common Stock owned beneficially and of record by the Persons
specified on Schedule A hereto, (the "Collateral Shares") under the
terms and conditions of a Stock Pledge Agreement, by reference made a
part of the terms of this Note. The security interest of the Holder
as to the Collateral Shares is perfected by the delivery of the
Collateral Shares to any one of the persons set forth on Schedule A
or their duly appointed counsel as pursuant to the terms of the
Pledge Agreement.
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed by an officer duly authorized for such purpose, as of
the date first above indicated.
FREESTAR TECHNOLOGIES, INC.
By:________________________________
▇▇▇▇ ▇▇▇▇, President
Attest:
By:___________________________
▇▇▇▇▇▇ ▇▇▇▇, Secretary
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Note)
The undersigned hereby elects to convert Note No. [ ] into shares
of Common Stock, no par value (the "Common Stock"), of FREESTAR
TECHNOLOGIES, INC. (the "Company") according to the conditions
hereof, as of the date written below. If shares are to be issued in
the name of a person other than undersigned, the undersigned will pay
all transfer taxes payable with respect thereto and is delivering
herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith, and such transfer may only be
accomplished to the extent permitted in Section 2 of this Note. No
fee will be charged to the holder for any conversion, except for such
transfer taxes, if any.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Notes to be Converted:
Number of shares of Common Stock to be Issued:
Applicable Conversion Price:
Shares to be Issued in Name of:
Shares to be Delivered to:
Signature _____________________________
Name ________________________________
Address ______________________________
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of June 27, 2002
(this "Agreement"), is made by and between FREESTAR TECHNOLOGIES,
INC., a Nevada corporation, with headquarters located at ▇▇▇▇ ▇▇▇▇▇▇
▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (the "Company"), and each
entity named on a signature page hereto (each, an "Initial Investor")
(each agreement with an Initial Investor being deemed a separate and
independent agreement between the Company and such Initial Investor,
except that each Initial Investor acknowledges and consents to the
rights granted to each other Initial Investor under such agreement).
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the
Financing Agreement, dated as of June 27, 2002, between the Initial
Investors and the Company (the "Financing Agreement;" capitalized
terms not otherwise defined herein shall have the meanings ascribed
to them in the Financing Agreement), the Company has agreed to issue
and sell to the Initial Investors the Notes; and
WHEREAS, the Notes are convertible into shares of Common Stock
(the "Conversion Shares"; which term, for purposes of this Agreement,
shall include shares of Common Stock of the Company issuable in lieu
of accrued interest as contemplated by the Notes) upon the terms and
subject to the conditions contained in the Notes; and
WHEREAS, the Company has agreed to issue the Warrants to the
Initial Lenders in connection with the issuance of the Debentures,
and the Warrants may be exercised for the purchase of shares of
Common Stock (the "Warrant Shares") upon the terms and conditions of
the Warrants; and
WHEREAS, to induce the Initial Investors to execute and deliver
the Financing Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and
the rules and regulations thereunder, or any similar successor
statute (collectively, the "Securities Act"), with respect to the
Registrable Securities;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the
Company and the Initial Investor hereby agree as follows:
1. Definitions. As used in this Agreement, the following
terms shall have the following meanings:
(a) "Closing Date" means the date hereof.
(b) "Effective Date" means the date the SEC declares a
Registration Statement covering Registrable Securities and otherwise
meeting the conditions contemplated hereby to be effective.
(c) "Initial Investors" means Papell Holdings, Ltd., a Turks &
Caicos Islands company, Boat Basin Investors, L.L.C., a St. Kitts and
Nevis limited liability company, vFinance, Inc., ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, and ▇▇▇▇ ▇▇▇▇▇▇.
(d) "Investors" means the Initial Investors and any permitted
transferee or assignee who agrees to become bound by the provisions
of this Agreement in accordance with Section 9 hereof and who holds
Debentures, Warrants or Registrable Securities.
(e) "Potential Material Event" means any of the following: (i)
the possession by the Company of material information not ripe for
disclosure in a registration statement, which shall be evidenced by a
determination in good faith by the Board of Directors of the Company
that disclosure of such information in the registration statement
would be detrimental to the business and affairs of the Company or
(ii) any material engagement or activity by the Company which would,
in the good faith determination of the Board of Directors of the
Company, be adversely affected by disclosure in a registration
statement at such time; in each case where such determination shall
be accompanied by a good faith determination by the Board of
Directors of the Company that the registration statement would be
materially misleading absent the inclusion of such information.
(f) "Principal Trading Market" means The NASDAQ/Over-the-
Counter Bulletin Board Market.
(g) "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a Registration
Statement or Statements in compliance with the Securities Act and
pursuant to Rule 415 under the Securities Act or any successor rule
providing for offering securities on a continuous basis ("Rule 415"),
and the declaration or ordering of effectiveness of such Registration
Statement by the United States Securities and Exchange Commission
(the "SEC").
(h) "Registrable Securities" means the Conversion Shares and
the Warrant Shares.
(i) "Registration Statement" means a registration statement of
the Company under the Securities Act covering Registrable Securities
on Form SB-2, if the Company is then eligible to file using such
form, and if not eligible, on Form S-1 or other appropriate form.
2. Registration.
(a) Mandatory Registration.
(i) The Company shall prepare and file with the SEC, as soon as
possible after the Closing Date a Registration Statement
registering for resale by the Investor a sufficient number of
shares of Common Stock for the Initial Investors to sell the
Registrable Securities, but in no event less than the number of
shares equal to the aggregate of (x) two hundred percent (200%)
of the number of shares into which the Notes and all interest
thereon through the Maturity Date (as defined in the Notes)
would be convertible at the time of filing of such Registration
Statement (assuming for such purposes that all Notes had been
issued, had been eligible to be converted, and had been
converted, into Conversion Shares in accordance with their
terms, whether or not such issuance, eligibility, accrual of
interest or conversion had in fact occurred as of such date) and
(y) the number of Warrant Shares which would be issuable on
exercise of the Warrants (assuming for such purposes that
Warrants for the twice the number of shares as are covered by
the Warrants actually issued on the Closing Date had been
issued, had been eligible for exercise and had been exercised
for Warrant Shares in accordance with their terms, whether or
not such issuance, eligibility or exercise had in fact occurred
as of such date). The Registration Statement shall also state
that, in accordance with Rule 416 and 457 under the Securities
Act, it also covers such indeterminate number of additional
shares of Common Stock as may become issuable upon conversion of
the Notes or exercise of the Warrants to prevent dilution
resulting from stock splits, or stock dividends. The Company
will use its reasonable best efforts to cause such Registration
Statement to be declared effective on a date (the "Required
Effective Date") which is no later than the earlier of (Y) five
(5) business days after oral or written notice by the SEC that
it may be declared effective or (Z) sixty (60) days after the
Closing Date.
(ii) The aggregate number of shares registered for the
Investors in each Registration Statement or amendment thereto
shall be allocated among the Investors on a pro rata basis among
them according to their relative Registrable Shares included in
such Registration Statement.
(b) Payments by the Company.
(i) If the Registration Statement covering the Registrable
Securities is not declared effective by the SEC by the Required
Effective Date, then (i) the Company will pay the Initial
Investor on such day an amount equal to 3% of the outstanding
principal amount of the Notes as of such date; (ii) unless the
Effective Date has previously occurred, thirty (30) days after
the Required Effective Date, the Company will pay the Initial
Investor on such day an additional amount equal to 3% of the
outstanding principal amount of the Note as of such date; and
(iii) unless the Effective Date has previously occurred, sixty
(60) days after the Required Effective Date, the Company will
pay the Initial Investor on such day an additional amount equal
to 3% of the outstanding principal amount of the Notes as of
such date. All amounts due pursuant to this Section 2(b)(i)
shall be paid by the Company to the Initial Investor in
immediately available funds.
(ii) The parties acknowledge that the damages which may be
incurred by the Investor if the Registration Statement has not
been declared effective by the Required Effective Date may be
difficult to ascertain. The parties agree that the amounts
provided in Section 2(b)(i) represent a reasonable estimate on
the part of the parties, as of the date of this Agreement, of
the amount of such damages and, except for any rights or
remedies granted by one or more pledgors under that certain
Stock Pledge Agreement of event date herewith or otherwise,
shall be the Initial Investor's sole remedy against the Company
with respect to such damages.
(iii) Notwithstanding the foregoing, the amounts payable by
the Company pursuant to this provision shall not be payable to
the extent any delay in the effectiveness of the Registration
Statement occurs because of an act of, or a failure to act or to
act timely by the Initial Investor or its counsel.
3. Obligations of the Company. In connection with the
registration of the Registrable Securities, the Company shall do each
of the following:
(a) Prepare promptly, and file with the SEC a Registration
Statement with respect to not less than the number of Registrable
Securities provided in Section 2(a) above, and thereafter use its
reasonable best efforts to cause such Registration Statement relating
to Registrable Securities to become effective by the Required
Effective Date and keep the Registration Statement effective at all
times during the period (the "Registration Period") continuing until
the earlier of (i) the date when the Investors may sell all
Registrable Securities under Rule 144 without volume or other
restrictions or limits or (ii) the date the Investors no longer own
any of the Registrable Securities, which Registration Statement
(including any amendments or supplements thereto and Prospectuses, as
defined below, contained therein) shall 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, in light of the circumstances in which they were made, not
misleading;
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration
Statement and the Prospectus used in connection with the Registration
Statement as may be necessary to keep the Registration Statement
effective at all times during the Registration Period, and, during
the Registration Period, comply with the provisions of the Securities
Act with respect to the disposition of all Registrable Securities of
the Company covered by the Registration Statement until such time as
all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or
sellers thereof as set forth in the Registration Statement;
(c) Permit a single firm of counsel designated by the Initial
Investors (which, until further notice, shall be deemed to be ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ LLP, which firm has requested to receive such
notification; each, an "Investor's Counsel") to review the
Registration Statement and all amendments and supplements thereto a
reasonable period of time (but not less than three (3) business days)
prior to their filing with the SEC, and not file any document in a
form to which such counsel reasonably objects;
(d) Notify each Investor and the Investor's Counsel and any
managing underwriters immediately (and, in the case of (i)(A) below,
not less than three (3) business days prior to such filing) and (if
requested by any such person) confirm such notice in writing no later
than one (1) business day following the day (i)(A) when a Prospectus
or any Prospectus supplement or post-effective amendment to the
Registration Statement is proposed to be filed; (B) whenever the SEC
notifies the Company whether there will be a "review" of such
Registration Statement; (C) whenever the Company receives (or a
representative of the Company receives on its behalf) any oral or
written comments from the SEC in respect of a Registration Statement
(copies or, in the case of oral comments, summaries of such comments
shall be promptly furnished by the Company to the Investors); and (D)
with respect to the Registration Statement or any post-effective
amendment, when the same has become effective; (ii) of any request by
the SEC or any other Federal or state governmental authority for
amendments or supplements to the Registration Statement or Prospectus
or for additional information; (iii) of the issuance by the SEC of
any stop order suspending the effectiveness of the Registration
Statement covering any or all of the Registrable Securities or the
initiation of any proceedings for that purpose; (iv) if at any time
any of the representations or warranties of the Company contained in
any agreement (including any underwriting agreement) contemplated
hereby ceases to be true and correct in all material respects; (v) of
the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of
any of the Registrable Securities for sale in any jurisdiction, or
the initiation or threatening of any proceeding for such purpose; and
(vi) of the occurrence of any event that to the best knowledge of the
Company makes any statement made in the Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated
therein by reference untrue in any material respect or that requires
any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the
Prospectus, as the case may be, it will not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made,
not misleading. In addition, the Company shall furnish the
Investor's Counsel with copies of all intended written responses to
the comments contemplated in clause (C) of this Section 3(d) not
later than one (1) business day in advance of the filing of such
responses with the SEC so that the Investors shall have the
opportunity to comment thereon;
(e) Furnish to each Investor and to Investor's Counsel (i)
promptly after the same is prepared and publicly distributed, filed
with the SEC, or received by the Company, one (1) copy of the
Registration Statement, each preliminary Prospectus and Prospectus,
and each amendment or supplement thereto, and (ii) such number of
copies of a Prospectus, and all amendments and supplements thereto
and such other documents, as such Investor may reasonably request in
order to facilitate the disposition of the Registrable Securities
owned by such Investor;
(f) As promptly as practicable after becoming aware thereof,
notify each Investor of the happening of any event of which the
Company has knowledge, as a result of which the Prospectus included
in the Registration Statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made,
not misleading, and use its best efforts promptly to prepare a
supplement or amendment to the Registration Statement or other
appropriate filing with the SEC to correct such untrue statement or
omission, and deliver a number of copies of such supplement or
amendment to each Investor as such Investor may reasonably request;
(g) As promptly as practicable after becoming aware thereof,
notify each Investor who holds Registrable Securities being sold (or,
in the event of an underwritten offering, the managing underwriters)
of the issuance by the SEC of a notice of effectiveness or any stop
order or other suspension of the effectiveness of the Registration
Statement at the earliest possible time;
(h) Notwithstanding the foregoing, if at any time or from time
to time after the date of effectiveness of the Registration
Statement, the Company notifies the Investors in writing of the
existence of a Potential Material Event, the Investors shall not
offer or sell any Registrable Securities, or engage in any other
transaction involving or relating to the Registrable Securities, from
the time of the giving of notice with respect to a Potential Material
Event until such Investor receives written notice from the Company
that such Potential Material Event either has been disclosed to the
public or no longer constitutes a Potential Material Event; provided,
however, that the Company shall, if lawful to do so, provide the
Investor with at least two (2) business days' notice of the existence
(but not the substance of) a Potential Material Event;
(i) Use its reasonable efforts to secure and maintain the
designation of all the Registrable Securities covered by the
Registration Statement on the Principal Trading Market and the
quotation of the Registrable Securities on the Principal Trading
Market.
(j) Provide a transfer agent ("Transfer Agent") and registrar,
which may be a single entity, for the Registrable Securities not
later than the initial Effective Date.
(k) Cooperate with the Investors who hold Registrable
Securities being offered to facilitate the timely preparation and
delivery of certificates for the Registrable Securities to be offered
pursuant to the Registration Statement and enable such certificates
for the Registrable Securities to be in such denominations or amounts
as the case may be, as the Investors may reasonably request, and,
within five (5) business days after a Registration Statement which
includes Registrable Securities is ordered effective by the SEC, the
Company shall deliver, and shall cause legal counsel selected by the
Company to deliver, to the Transfer Agent for the Registrable
Securities (with copies to the Investors whose Registrable Securities
are included in such Registration Statement) an appropriate
instruction and opinion of such counsel, which shall include, without
limitation, directions to the Transfer Agent to issue certificates of
Registrable Securities(including certificates for Registrable
Securities to be issued after the Effective Date and replacement
certificates for Registrable Securities previously issued) without
legends or other restrictions; and
(l) Take all other reasonable actions necessary to expedite and
facilitate disposition by the Investor of the Registrable Securities
pursuant to the Registration Statement.
4. Obligations of the Investors. In connection with the
registration of the Registrable Securities, the Investors shall have
the following obligations:
(a) Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as
reasonably requested by the Company in connection with the
preparation and filing of the Registration Statement hereunder,
unless such Investor has notified the Company in writing of such
Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement; and
(b) Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in
Section 3(f) or 3(g), above, such Investor will immediately
discontinue disposition of Registrable Securities pursuant to the
Registration Statement covering such Registrable Securities until
such Investor's receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 3(f) or 3(g) and, if so directed
by the Company, such Investor shall deliver to the Company (at the
expense of the Company) or destroy (and deliver to the Company a
certificate of destruction) all copies in such Investor's possession,
of the Prospectus covering such Registrable Securities current at the
time of receipt of such notice.
5. Expenses of Registration. All reasonable expenses (other
than underwriting discounts and commissions of the Investor) incurred
in connection with registrations, filings or qualifications pursuant
to Section 3, but including, without limitation, all registration,
listing, and qualifications fees, printers and accounting fees, the
fees and disbursements of counsel for the Company shall be borne by
the Company. In addition, a fee for a single counsel for the
Investors (as a group and not individually) equal to $2,500 for the
review of each Registration Statement and $1,500 for each post-
effective amendment to a Registration Statement, shall be borne by
the Company.
6. Indemnification. After Registrable Securities are
included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless, the Investor, the directors, if any, of such
Investor, the officers, if any, of such Investor, and each Person
(each, an "Indemnified Party"), against any losses, claims, damages,
liabilities or expenses (joint or several) incurred (collectively,
"Claims") to which any of them may become subject under the
Securities Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act") or otherwise, insofar as such Claims (or actions or
proceedings, whether commenced in respect thereof) arise out of or
are based upon: (i) any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement or any
post-effective amendment thereof or 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, (ii) any
untrue statement or alleged untrue statement of a material fact
contained in the final Prospectus (as amended or supplemented, if the
Company files any amendment thereof or supplement thereto with the
SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in the
light of the circumstances under which the statements therein were
made, not misleading or (iii) any violation or alleged violation by
the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation under the Securities Act,
the Exchange Act or any state securities law (the matters in the
foregoing clauses (i) through (iii) being collectively referred to as
"Violations"). The Company shall reimburse the Investor, promptly as
such expenses are incurred and are due and payable, for any
reasonable legal fees or other reasonable expenses incurred by them
in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a) shall not
(i) apply to any Claims arising out of or based upon a Violation
which occurs in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of any
Indemnified Party expressly for use in connection with the
preparation of the Registration Statement or any such amendment
thereof or supplement thereto, if such Prospectus was timely made
available by the Company pursuant to Section 3(c) hereof; (ii) be
available to the extent such Claim is based on a failure of the
Investor to deliver or cause to be delivered the Prospectus made
available by the Company; or (iii) apply to amounts paid in
settlement of any Claim if such settlement is effected without the
prior written consent of the Company, which consent shall not be
unreasonably withheld. The Investor will indemnify the Company, its
officers, directors and agents (including legal counsel) (each an
"Indemnified Party") against any claims arising out of or based upon
a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company, by or on behalf of
such Investor, expressly for use in connection with the preparation
of the Registration Statement, subject to such limitations and
conditions set forth in this Section 6. Such indemnity shall remain
in full force and effect regardless of any investigation made by or
on behalf of the Indemnified Party, and shall survive the offering
and transfer of the Registrable Securities by the Investor.
(b) Promptly after receipt by an Indemnified Party under this
Section 6 of notice of the commencement of any action (including any
governmental action), such Indemnified Party shall, if a Claim in
respect thereof is to be made against any indemnifying party under
this Section 6, deliver to the indemnifying party a written notice of
the commencement thereof and the indemnifying party shall have the
right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed,
to assume control of the defense thereof with counsel mutually
satisfactory to the indemnifying party and the Indemnified Party, as
the case may be; provided, however, that an Indemnified Party shall
have the right to retain its own counsel with the reasonable fees and
expenses to be paid by the indemnifying party, if, in the reasonable
opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Party and the
indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Party and any other
party represented by such counsel in such proceeding. The failure to
deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Party under
this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action. The indemnification
required by this Section 6 shall be made by periodic payments of the
amount thereof during the course of the investigation or defense, as
such expense, loss, damage or liability is incurred and is due and payable.
7. Contribution. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying
party agrees to make the maximum contribution with respect to any
amounts for which it would otherwise be liable under Section 6 to the
fullest extent permitted by law; provided, however, that (a) no
contribution shall be made under circumstances where the maker would
not have been liable for indemnification under the fault standards
set forth in Section 6; (b) no seller of Registrable Securities
guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from
any seller of Registrable Securities who was not guilty of such
fraudulent misrepresentation; and (c) except where the seller has
committed fraud (other than a fraud by reason of the information
included or omitted from the Registration Statement as to which the
Company has not given notice as contemplated under Section 3 hereof)
or intentional misconduct, contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities.
8. Reports under Securities Act and Exchange Act. With a view
to making available to Investor the benefits of Rule 144 promulgated
under the Securities Act or any other similar rule or regulation of
the SEC that may at any time permit Investor to sell securities of
the Company to the public without Registration ("Rule 144"), the
Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the
Exchange Act;
(c) furnish to the Investor so long as the Investor owns
Registrable Securities, promptly upon request, (i) a written
statement by the Company that it has complied with the reporting
requirements of Rule 144, the Securities Act and the Exchange Act,
(ii) if not available on the SEC's ▇▇▇▇▇ system, a copy of the most
recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company and (iii) such other
information as may be reasonably requested to permit the Investor to
sell such securities pursuant to Rule 144 without Registration; and
(d) at the request of any Investor holding Registrable
Securities (a "Holder"), give its Transfer Agent irrevocable
instructions (supported by an opinion of Company counsel, if required
or requested by the Transfer Agent) to the effect that, upon the
Transfer Agent's receipt from such Holder of
(i) a certificate (a "Rule 144 Certificate") certifying (A)
that the Holder's holding period (as determined in
accordance with the provisions of Rule 144) for the shares
of Registrable Securities which the Holder proposes to sell
(the "Securities Being Sold") is not less than (1) year and
(B) as to such other matters as may be appropriate in
accordance with Rule 144 under the Securities Act, and
(ii) an opinion of counsel acceptable to the Company (for
which purposes it is agreed that the initial Investor's
Counsel shall be deemed acceptable) if not given by
▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, P.A. within three (3) business days
after request by the Investor that, based on the Rule 144
Certificate, Securities Being Sold may be sold pursuant to
the provisions of Rule 144, even in the absence of an
effective Registration Statement,
the Transfer Agent is to effect the transfer of the Securities Being
Sold and issue to the buyer(s) or transferee(s) thereof one or more
stock certificates representing the transferred Securities Being Sold
without any restrictive legend and without recording any restrictions
on the transferability of such shares on the Transfer Agent's books
and records (except to the extent any such legend or restriction
results from facts other than the identity of the Holder, as the
seller or transferor thereof, or the status, including any relevant
legends or restrictions, of the shares of the Securities Being Sold
while held by the Holder). If the Transfer Agent reasonably requires
any additional documentation at the time of the transfer, the Company
shall deliver or cause to be delivered all such reasonable additional
documentation as may be necessary to effectuate the issuance of an
unlegended certificate.
9. Assignment of the Registration Rights. The rights to have
the Company register Registrable Securities pursuant to this
Agreement shall be automatically assigned by the Investors to any
transferee of the Registrable Securities (or all or any portion of
any unconverted Debentures) only if the Company is, within a
reasonable time after such transfer or assignment, furnished with
written notice of (a) the name and address of such transferee or
assignee and (b) the securities with respect to which such
registration rights are being transferred or assigned.
10. Amendment of Registration Rights. Any provision of this
Agreement may be amended and the observance thereof may be waived
(either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the
Company and Investors who hold a eighty (80%) percent interest of the
Registrable Securities (as calculated by the stated value of the
Notes). Any amendment or waiver effected in accordance with this
Section 10 shall be binding upon each Investor and the Company.
11. Miscellaneous.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such
Registrable Securities. If the Company receives conflicting
instructions, notices or elections from two or more persons or
entities with respect to the same Registrable Securities, the Company
shall act upon the basis of instructions, notice or election received
from the registered owner of such Registrable Securities.
(b) Notices required or permitted to be given hereunder shall
be given in the manner contemplated by the Financing Agreement, (i)
if to the Company or to the Initial Investor, to their respective
address contemplated by the Financing Agreement, and (ii) if to any
other Investor, at such address as such Investor shall have provided
in writing to the Company, or at such other address as each such
party furnishes by notice given in accordance with this Section 11(b).
(c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such
right or remedy, shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York for contracts to be
wholly performed in such state and without giving effect to the
principles thereof regarding the conflict of laws. Each of the
parties consents to the jurisdiction of the federal courts whose
districts encompass any part of the City of New York or the state
courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement and hereby
waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non coveniens, to the bringing
of any such proceeding in such jurisdictions.
(e) The Company and the Investor hereby waive a trial by jury
in any action, proceeding or counterclaim brought by either of the
parties hereto against the other in respect of any matter arising out
of or in connection with this Agreement or any of the other
Transaction Agreements.
(f) If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of
the remainder of this Agreement or the validity or enforceability of
this Agreement in any other jurisdiction.
(g) Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto.
(h) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may
require.
(i) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning
thereof.
(j) This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed
by a party, may be delivered to the other party hereto by telephone
line facsimile transmission of a copy of this Agreement bearing the
signature of the party so delivering this Agreement.
(k) Neither party shall be liable to the other party hereunder
for any indirect, special, incidental or consequential damages.
(l) This Agreement constitutes the entire agreement among
the parties hereto with respect to the subject matter hereof. There
are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein. This Agreement supersedes all
prior agreements and understandings among the parties hereto with
respect to the subject matter hereof. This Agreement may be amended
only by an instrument in writing signed by the party to be charged
with enforcement thereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized
as of the day and year first above written.
COMPANY:
FREESTAR TECHNOLOGIES, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, President
INITIAL INVESTORS:
PAPELL HOLDINGS, LTD.
By: /s/ International First
Secretarial Group Ltd.
International First Secretarial Group
Ltd., Director
By: /s/ ▇.▇. ▇▇▇▇▇▇▇▇
▇.▇. ▇▇▇▇▇▇▇▇
BOAT BASIN INVESTORS LLC
By: /s/ ▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, Manager
VFINANCE, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇
EXHIBIT C
UNCONDITIONAL GUARANTEE
THIS UNCONDITIONAL GUARANTY ("Guaranty"), dated as of June 27,
2002, is made by ▇▇▇▇ ▇▇▇▇, with an address at Calle Fantino Falco
#24, Edificio ▇. ▇▇▇▇, Ensanche Naco, Santo ▇▇▇▇▇▇▇, Dominican
Republic ("Guarantor") in favor of the in favor of persons named on
Schedule 1 (together with its permitted assigns and successors, the
"Holders").
Reference is made to the Series 2002A 8% Converible Notes in an
aggregate amount of $400,000 dated of even date herewith (the
"Notes") that Freestar Technologies, a Nevada corporation (the
"Obligor") has issued to the Holders. Reference is also made to the
Stock Pledge Agreement, dated of even date herewith (the "Pledge
Agreement"), pursuant to which the Guarantor has pledged to the
Holders an aggregate of 14,400,000 shares of common stock owned of
record and beneficially by the Guarantor (the "Pledged Stock") as
partial collateral to secure payment and performance of the "Secured
Obligations described below.
Unless otherwise defined herein, all capitalized terms, when
used herein shall have the same meaning as is defined in the Note.
In order to induce the Holders to provide an aggregate of $400,000 to
the Obligor, as evidenced by the Notes, the undersigned Guarantor has
agreed to execute and deliver this Guaranty to the Holders. The
Guarantor is the president and a director of the Obligor.
The Guarantor does hereby irrevocably and unconditionally
guaranty to the Holders, to the extent hereinafter set forth, the
full and timely performance by the Obligor of each of the Obligor's
covenants, agreements, and obligations under the Transaction
Documents (collectively, the "Obligations").
This is an absolute, irrevocable and unconditional guaranty of
payment and performance and not merely of collection and the
Guarantor shall be liable with the Obligor. In furtherance hereof,
the Guarantor does hereby acknowledge and confirm that the
Obligations are intended to and will confer significant benefit upon
the Guarantor.
1. Notwithstanding any payment(s) made by the Guarantor
hereunder, but without prejudice to the Guarantor's rights as a
creditor of the Obligor, the Guarantor shall in no event be entitled
to be subrogated to any of the rights of the Holders against the
Obligor unless and until all Obligations shall have been paid in
full; and the Guarantor shall in no event seek any contribution or
reimbursement from the Obligor in respect of any payment(s) made by
or received in respect of the Guarantor hereunder, unless and until
all of the Obligations shall have been paid in full.
2. The Guarantor hereby acknowledges and agrees that the
validity of this Guaranty and the Guarantor's obligations hereunder
shall in no way be terminated, modified, affected, impaired or
diminished by reason of
(i) any failure by the Holders (or any of them) to insist in any
one or more instances upon strict performance or observance by
the Obligor of any of the terms, provisions or conditions of the
Transaction Documents,
(ii) any assertion or non-assertion by the Holders (or any of
them) against the Obligor of any of the rights or remedies
reserved to the Holders in the Transaction Documents,
(iii) any forbearance by the Holders (or any of them) from
exercising any of its rights or remedies as aforesaid,
(iv) any bankruptcy, insolvency, receivership, reorganization,
liquidation or other similar proceeding relating to the Obligor,
(v) any relief of the Obligor and/or the Guarantor from any of
its obligations under any of the Transaction Documents , by
operation of law, in equity or otherwise,
(vi) any amendment, modification, extension, renewal,
termination, compromise or waiver under or in respect of any of
the Transaction Documents, or
(vii) any transfer, assignment or negotiation of any of the
Transaction Documents or this Guaranty.
Except for any required demand in respect of payment hereunder, the
Guarantor hereby waives any and all notice, demand, presentment,
protest and other such privilege or formality, and all notice in
respect of the creation, renewal, extension or accrual of any
Obligations. The Guarantor represents and warrants to the Holders
that this Guaranty has been duly executed and delivered by the
Guarantor, constitutes the legal, valid and binding obligation of the
Guarantor, and is enforceable against the Guarantor in accordance
with its terms; the Guarantor has full capacity and power to execute
and deliver this Guaranty; and the execution and delivery by the
Guarantor of this Guaranty and the performance by the Guarantor of
his obligations hereunder, do not violate, or conflict with, any
agreement, instrument, note, judgment, order or decree binding on the
Guarantor or under any law, rule or regulation applicable to the
Guarantor, which violation or conflict would have a material and
adverse effect on the Guarantor's ability to perform his obligations
under this Guaranty.
3. This Guaranty shall inure to the benefit of the Holders and
their successors and assigns.
4. Subject to applicable statutes of limitations, no delay on
the part of any of the Holders in exercising any rights hereunder,
or any failure by any of the Holders to exercise any such rights,
shall operate as a waiver of any such rights for any purposes, it
being understood that, subject to applicable statutes of limitations,
the Holders may exercise any and all of his rights hereunder at any
time and from time to time pursuant to the terms hereof.
5. Except as otherwise provided herein, this Guaranty may not
be terminated, modified or amended except by a writing duly executed
by the Holders.
6. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York. Each of the
parties consents to the jurisdiction of the federal courts whose
districts encompass any part of the City of New York or the state
courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement and hereby
waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non coveniens, to the bringing
of any such proceeding in such jurisdictions.
7. In the event that the Holders shall, after default by the
Guarantor of any of his obligations hereunder, place this Guaranty in
the hands of any attorney for enforcement and/or collection, the
Guarantor shall pay to the Holders reasonable attorneys' fees
together with all other reasonable costs and expenses of enforcement
and collection.
8. This Guaranty may be executed in any number of counterparts,
each of whom shall be deemed an original but all of which together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned Guarantor, intending to be
legally bound hereby, has executed this Guaranty as of the date set
forth above.
/s/ ▇▇▇▇ ▇▇▇▇
Name: ▇▇▇▇ ▇▇▇▇
ACCEPTED AND AGREED TO:
PAPELL HOLDINGS, LTD.
By: /s/ International First
Secretarial Group Ltd.
International First Secretarial Group
Ltd., Director
By: /s/ ▇.▇. ▇▇▇▇▇▇▇▇
▇.▇. ▇▇▇▇▇▇▇▇
BOAT BASIN INVESTORS LLC
By: /s/ ▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, Manager
VFINANCE, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇
EXHIBIT D
FORM OF STOCK PLEDGE AGREEMENT
STOCK PLEDGE AGREEMENT ("Agreement") entered into as of the 27th
day of June, by and among the persons set forth on Schedule 1 (the
"Secured Parties," and each a "Secured Party"), FREESTAR
TECHNOLOGIES, INC., a Nevada corporation having its principal
executive offices at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇ ("Company") and ▇▇▇▇ ▇▇▇▇ ("Pledgor").
RECITALS
A. Pledgor has agreed to pledge certain Company shares as
security for: (i) the performance by the Company of its obligations
under its Series 2002A 8% Convertible Notes in an aggregate principal
amount of Four Hundred Thousand and 00/100 Dollars ($400,000.00)
payable to the Secured Parties (the "Notes"); (ii) the performance by
the Company of its obligations, covenants, and agreements under the
Financing Agreements between the Company and each Secured Party as
well as the Related Agreements (as that term is defined in the
Financing Agreement), and (iii) the performance by the Pledgor under
the Unconditional Guaranty executed by the Pledgor (the "Guaranty").
Capitalized terms in this Agreement which are not identified herein
will have the meanings given such terms in the Notes.
B. The Secured Parties are willing to accept the Notes from
the Company only upon receiving Pledgor's guarantee and pledge of
certain stock of the Company, as set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual
covenants and conditions contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. Grant of Security Interest. Pledgor hereby pledges to the
Secured Parties (and to each of them to the extent of the Note held
by each), as collateral and security for the Secured Obligations (as
defined in paragraph 2) all of the shares of Common Stock set forth
on the attached Schedule 2 of this Agreement (the "Pledged Shares").
Unless otherwise set forth on Schedule 2 of this Agreement, the
Pledgor is the beneficial and record owner of the Pledged Shares set
forth opposite Pledgor's name on such Schedule. Such Pledged Shares,
together with any substitutes therefor, or proceeds thereof, are
hereinafter referred to collectively as the "Collateral."
2. Obligations Secured. During the term hereof, the
Collateral shall secure the following:
(a) The performance by the Company of its obligations,
covenants, and agreements under the Notes, the Financing Agreements,
and the Related Agreements (the "Transaction Documents"), and
(b) The performance by the Pledgors of their obligations,
covenants, and agreements under the Guaranty
The obligations, covenants and agreements described in clauses (a)
and (b) are the "Secured Obligations."
3. Perfection of Security Interests. Upon execution of this
Agreement by each Pledgor, the Pledgor shall deliver and transfer
possession of the stock certificates identified opposite the
Pledgor's name on Schedule 2 of this Agreement (the "Certificates"),
together with stock transfer powers duly executed in blank by the
registered owner of the shares represented by such Certificates, with
appropriate Medallion signature guaranty ("Stock Powers"), to the
Secured Parties to be held by the Secured Parties until the earlier of
(a) the termination of this Agreement, or
(b) foreclosure of Secured Party's security interests as
provided herein.
The Pledgor hereby appoints the Secured Parties, or either of them,
as attorney-in-fact to execute all documents and perform all acts as
Secured Parties, in order to perfect and maintain a valid security
interest for Secured Parties in the Collateral.
4. Assignment. Only in connection with the transfer of the
Notes in accordance with their terms, a Secured Party may assign or
transfer the whole or any part of its security interest granted
hereunder, and may transfer as collateral security the whole or any
part of Secured Party's security interest in the Collateral. Any
transferee of the Collateral shall be vested with all of the rights
and powers of Secured Party hereunder with respect to the Collateral.
5. Pledgors' Warranty. Each Pledgor represents and warrants
hereby to the Secured Parties as follows with respect to the Pledged
Shares set forth opposite such Pledgor's name on Schedule 2 to this
Agreement:
(a) Title: (i) that upon transfer by Pledgor of the
Pledgor's Certificates and Stock Powers to Secured Parties pursuant
to this Agreement at such time, if any, as the occurrence of an Event
of Default by the Company under the Notes, the Secured Parties (and
each of them to the extent of the Notes held by such Secured Party)
will have good title (both record and beneficial) to the Pledged Shares;
(ii) that there are no restrictions upon transfer and pledge of
the Pledged Shares pursuant to the provisions of this Agreement
except the restrictions imposed by Rule 144 under the Securities
Act of 1933, and that such restrictions on resale shall not be
applicable if an Event of Default occurs under the Notes, and
the Secured Parties exercise their remedies under the Guaranty
and foreclose on the Pledged Shares;
(iii) that the Pledged Shares are free and clear of any
encumbrances of every nature whatsoever, the Pledgor is the sole
owner of the Pledged Shares, and such shares are duly
authorized, validly issued, fully paid and non-assessable,
(iv) the Pledgor has owned the Pledged Shares since the date
specified on Schedule 1 to this Agreement. The Pledgor further
agrees not to grant or create, any security interest, claim,
lien, pledge or other encumbrance with respect to the Pledgor's
Pledged Shares or attempt to sell, transfer or otherwise dispose
of any of such shares until the Secured Obligations have been
paid in full or this Agreement terminates; and
(v) this Agreement constitutes a legal, valid and binding
obligation of the Pledgor enforceable in accordance with its
terms (except as the enforcement thereof may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium, and similar laws, now or hereafter in effect),
The Company represents and warrants that the Pledged Shares are duly
authorized, validly issued, fully paid and non-assessable and that it
will not permit the transfer of the Pledged Shares except in
accordance with this Agreement while the same is in effect.
(a) Other: (i) Pledgor has made necessary inquiries of the
Company and believes that the Company fully intends to fulfill
and has the capability of fulfilling the Secured Obligations to
be performed by the Company in accordance with the terms of the
Notes, the Financing Agreements, and the Related Agreements.
(ii) The Pledgors are not (and neither of them is ) acting, and
have not (and neither of them has) agreed to act, in any plan to
sell or dispose of the pledged shares in a manner intended to
circumvent the registration requirements of the Securities Act
of 1933, as amended, or any applicable state law.
(iii) Pledgor has been advised by counsel of the elements of
a bona-fide pledge for purposes of Rule 144(d)(3)(iv) under the
Securities Act of 1933, as amended, including the relevant SEC
interpretations and affirm the pledge of shares by the Pledgor
pursuant to this Pledge Agreement will constitute a bona-fide
pledge of such shares for purposes of such Rule.
6. Collection of Dividends and Interest During the term of
this Agreement and so long as Pledgor is not in default under the
Notes, Pledgor is authorized to collect all dividends,
distributions, interest payments, and other amounts that may be, or
may become, due on any of the Collateral.
7. Voting Rights During the term of this Agreement and until
such time as this Agreement has terminated or Secured Party has
exercised its rights under this Agreement to foreclose its security
interest in the Collateral, Pledgor shall have the right to exercise
any voting rights evidenced by, or relating to, the Collateral.
8. Warrants and Options. In the event that, during the term
of this Agreement, subscription, warrants, dividends, or any other
rights or option shall be issued in connection with
the Collateral, such warrants, dividends, rights and options shall be
immediately delivered to Secured Party to be held under the terms
hereof in the same manner as the Collateral.
9. Preservation of the Value of the Collateral and
Reimbursement of Secured Party Pledgor shall pay all taxes, charges,
and assessments against the Collateral and do all acts necessary to
preserve and maintain the value thereof. On failure of Pledgor,
Secured Party may make such payments on account thereof as (in
Secured Party's discretion) is deemed desirable, and Pledgor shall
reimburse Secured Party immediately on demand for any and all such
payments expended by Secured Party in enforcing, collecting, and
exercising its remedies hereunder.
10. Default and Remedies.
(a) For purposes of this Agreement, "Event of Default" shall
mean:
(i) default in the performance by the Company or the Pledgor of
any of the Secured Obligations after the expiration, without
cure following the expiration of any applicable cure period; and
(ii) a breach by the Pledgor of any of his representations,
warranties, covenants or agreements in this Agreement.
(b) During the term of this Agreement, the Secured Party shall
have the following rights after any Event of Default and for so long
as the Secured Obligations are not satisfied in full:
(i) the rights and remedies provided by the Uniform Commercial
Code as adopted by the State of New York (as said law may at any
time be amended), except that the Secured Party waives any right
to a deficiency pursuant to Section 9-608 thereof or otherwise;
(ii) the right to receive and retain all dividends, payments and
other distributions of any kind upon any or all of the Pledged
Shares as additional Collateral;
(iii) the right to cause any or all of the Pledged Shares
and all additional Collateral to be transferred to its own name
and have such transfer recorded in any place or places deemed
appropriate by Secured Party; and
(iv) the right to sell, at a public or private sale, the
Collateral or any part thereof for cash, upon credit or for
future delivery, and at such price or prices in accordance with
the Uniform Commercial Code (as such law may be amended from
time to time). Upon any such sale, Secured Party shall have the
right to deliver, assign and transfer to the purchaser thereof
the Collateral so sold. Secured Party shall give the Pledgor
not less than ten (10) days written notice of its intention to
make any such sale. Any such sale shall be held at such time or
times during ordinary business hours and at such place or places
as Secured Party may fix in the notice of such sale. Secured
Party may adjourn or cancel any sale or cause the same to be
adjourned from time to time by announcement at the time and
place fixed for the sale, and such sale may be made at any time
or place to which the same may be so adjourned. In case of any
sale of all or any part of the Collateral upon terms calling for
payments in the future, any Collateral so sold may be retained
by Secured Party until the selling price is paid by the
purchaser thereof, but Secured Party shall incur no liability in
the case of the failure of such purchaser to take up and pay for
the Collateral so sold and, in the case of such failure, such
Collateral may again be sold upon like notice. Secured Party,
however, instead of exercising the power of sale herein
conferred upon it, may proceed by a suit or suits at law or in
equity to foreclose the security interest and sell the
Collateral, or any portion thereof, under a judgment or decree
of a court or courts of competent jurisdiction, the Pledgor
having been given due notice of all such action. Secured Party
shall incur no liability as a result of a sale of the Collateral
or any part thereof.
(c) Notwithstanding anything in this Agreement to the contrary,
the Secured Party may only exercise the rights and remedies set forth
in this Section 10 with respect to up to the aggregate number of
shares of Common Stock into which the outstanding Notes are then
convertible, and simultaneously with such exercise the amount owing
by the Company under the Notes shall be reduced by an amount equal to
the then applicable Conversion Price (as defined in the Note)
multiplied by the number of Pledged Shares with respect to which the
Secured Party has exercised its foregoing rights and remedies. For
the purposes of any such sale, the Conversion Price set forth in any
Notice of Conversion (as defined in the Note) issued in connection
with the sale of the Collateral shall be controlling, regardless of
the actual price received for the sale of the Collateral. There
shall be no obligation on the part of the Secured Parties to sell the
Collateral at one sale. The sale of Collateral may take place on as
many occasions as Secured Parties deem fit in order to pay in full
the Secured Obligations.
(d) Should the Secured Parties (or any of them) exercise the
rights set forth in clauses (b)(ii) or (b)(iii) of this Section 10,
the Secured Party(ies) so acting shall assign to the Pledgor all of
the rights and benefits of such Secured Party(ies) under the Notes,
the Financing Agreements, and Related Agreements The Secured
Party(ies) shall make such assignment to the Pledgor without
recourse.
11. Waiver The Pledgor waives any right that it may have to
require Secured Party to proceed against any other person, or proceed
against or exhaust any other security, or pursue any other remedy
Secured Party may have.
12. Term of Agreement. This Agreement shall continue in full
force and effect until the Secured Obligations shall have been paid
in full and the security interests are thereby released or until
amounts owing under the Notes have been reduced to zero (-0-)
pursuant to Section 10(c) hereof. Upon termination of this
Agreement, the Collateral shall be returned within five (5) Business
Days to Pledgor or counsel for the Company.
13. General Provisions:
13.1 Binding Agreement. This Agreement shall be binding upon
and shall inure to the benefit of the successors and assigns of the
respective parties hereto.
13.2 Captions. The headings used in this Agreement are inserted
for reference purposes only and shall not be deemed to define, limit,
extend, describe, or affect in any way the meaning, scope or
interpretation of any of the terms or provisions of this Agreement or
the intent hereof.
13.3 Counterparts. This Agreement may be signed in any number
of counterparts with the same effect as if the signatures upon any
counterpart were upon the same instrument. All signed counterparts
shall be deemed to be one original. This Agreement, once executed
by a party, may be delivered to the other parties hereto by telephone
line facsimile transmission of a copy of this Agreement bearing the
signature of the parties so delivering this Agreement. A facsimile
transmission of this signed Agreement shall be legal and binding on
all parties hereto.
13.4 Further Assurances The parties hereto agree that, from
time to time upon the written request of any party hereto, they will
execute and deliver such further documents and do such other acts and
things as such party may reasonably request in order fully to effect
the purposes of this Agreement. The Transfer Agent Instructions
annexed hereto are deemed an integral part of this Agreement.
13.5 Waiver of Breach. Any waiver by either party of any breach
of any kind or character whatsoever by the other, whether such be
direct or implied, shall not be construed as a continuing waiver of
or consent to any subsequent breach of this Agreement.
13.6 Cumulative Remedies. The rights and remedies of the
parties hereto shall be construed cumulatively, and none of such
rights and remedies shall be exclusive of, or in lieu or limitation
of any other right, remedy, or priority allowed by applicable law.
13.7 Amendment. This Agreement may be modified only in a
written document that refers to this Agreement and is executed by
Secured Parties, the Pledgor and the Company.
13.8 Interpretation. This Agreement shall be interpreted,
construed, and enforced according to the substantive laws of the
State of New York.
13.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York. Each
of the parties consents to the jurisdiction of the federal courts
whose districts encompass any part of the City of New York or the
state courts of the State of New York sitting in the City of New York
in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non coveniens, to the bringing
of any such proceeding in such jurisdictions.
13.10 Notice Any notice or other communication required or
permitted to be given hereunder shall be effective upon receipt.
Such notices may be sent (i) in the United States mail, postage
prepaid and certified, (ii) by express courier with receipt, (iii) by
facsimile transmission, with a copy subsequently delivered as in (i)
or (ii) above. Any such notice shall be addressed or transmitted as
follows:
If to Pledgor:
▇▇▇▇ ▇▇▇▇
Calle Fantino Falco #24
▇▇▇▇▇ ▇▇▇▇▇▇▇
Republicana Dominicana
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
If to Secured Party, to the addresses set forth on Schedule 1.
or such other address as may be designated in writing hereafter, in
the same manner, by such Person.
13.11 Acknowledgement by Pledgors In the event that any
provision of the Notes or this Agreement as applied to any party or
circumstances shall be adjudged by a court to be invalid or
unenforceable, Pledgor acknowledges and agrees that this Agreement
shall remain valid and enforceable in all respects against Pledgor.
IN WITNESS WHEREOF, the Parties have executed this Agreement as
of the day, month and year first above written.
SECURED PARTIES:
PAPELL HOLDINGS, LTD.
By: /s/ International First
Secretarial Group Ltd.
International First Secretarial Group
Ltd., Director
By: /s/ ▇.▇. ▇▇▇▇▇▇▇▇
▇.▇. ▇▇▇▇▇▇▇▇
BOAT BASIN INVESTORS LLC
By: /s/ ▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, Manager
VFINANCE, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇
FREESTAR TECHNOLOGIES, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, President
Pledgor:
/s/ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇
SCHEDULE 1
Secured Parties
Name Address Dollar Value of Notes
Boat Basin Investors LLC Main Street $65,000
A St. Kitts & Nevis ▇▇▇▇▇▇▇ Plaza
Limited Liability ▇.▇. ▇▇▇ ▇▇▇
Company CharlestownNevis
West Indies
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 19 Horizon Drive $65,338
▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
vFinance, Inc. ▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇,▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇,▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ $42,448
▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
SCHEDULE 1
Secured Parties
Papell Holdings, Ltd. Duke Street, P.O. Box 65 $117,000
A Turks & Caicos Grand Turks
Islands Company Turks & Caicos Islands
British West Indies
SCHEDULE 2
The following shares are pledged hereunder as the Pledged
Shares, each certificate in the name of:
Holders Name Certificate No. No. of Shares Date of Acquisition
▇▇▇▇ ▇▇▇▇ 01580 14,400,000 11/05/01
EXHIBIT E
FORM OF OPINION OF COUNSEL
___________, 2002
Re: FreeStar Technologies, Inc.
Ladies and Gentlemen:
We have acted as counsel to FreeStar Technologies, Inc., a
corporation incorporated under the laws of the State of Nevada (the
"Company"), in connection with the proposed loan of $400,000 that
certain accredited investors propose to make to the Company pursuant
to a Financing Agreement between the Company and Papell Holdings,
Ltd., Boat Basin Investors, LLC, vFinance, Inc., ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, and ▇▇▇▇ ▇▇▇▇▇▇ (the "Lenders") dated June 27, 2002,
including all schedules, exhibits and appendices attached thereto and
all documents and instruments executed and delivered as contemplated
thereby (collectively, the "Agreements"), and to ▇▇▇▇ ▇▇▇▇, president
of the Company, in connection with an Unconditional Guaranty and
Pledge Agreement ("▇▇▇▇ Transaction Documents") to be given by him in
connection with the Agreements. All capitalized terms appearing in
this Opinion Letter, unless defined herein, shall have the meanings
ascribed to them in the Agreements or in the ▇▇▇▇ Transaction
Documents, as the case may be.
In connection with rendering the opinions set forth herein, we
have examined drafts of the Agreements, ▇▇▇▇ Transaction Documents,
the Company's Certificate of Incorporation, and its Bylaws, each as
amended to date, the proceedings of the Company's Board of Directors
taken in connection with entering into the Agreements, and such other
documents, agreements and records as we deemed necessary to render
the opinions set forth below.
This Opinion Letter is governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord (the "Accord") of the ABA
Section of Business Law (1991). As a consequence, it is subject to a
number of qualifications, exceptions, definitions, limitations on
coverage and other limitations, all as more particularly described in
the Accord, and this Opinion Letter should be read in conjunction therewith.
In rendering the opinions included herein, we have relied upon
the factual representations and warranties made by the Company in the
Agreements, and upon other factual representations made to us by the
Company. Based upon and subject to the foregoing, we are of the
opinion that:
1. (a) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Nevada, (b) is duly qualified to do business as a foreign
corporation and is in good standing in the states of Nevada and New
York, and (c) the Company has all requisite corporate power and
authority to own its properties and conduct its business.
2. The Company's common stock is registered pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended.
3. (a) The Company has the requisite corporate power and
authority to enter into the Agreements and to perform the
transactions described therein; each of the Agreements has been duly
and validly authorized by all necessary corporate action by the
Company. ▇▇▇▇ ▇▇▇▇ has the requisite power and authority to enter
into and perform the ▇▇▇▇ Transaction Documents.
(b) No approval of any governmental or other body is
required for the execution and delivery of each of the Agreements by
the Company and the ▇▇▇▇ Transaction Documents by ▇▇▇▇ ▇▇▇▇ or the
consummation of the transactions contemplated thereby except to the
extent such approval is required by the securities (blue sky) laws of
any state.
(c) Each of the Agreements has been duly and validly
executed and delivered by and on behalf of the Company, and is a
valid and binding agreement of the Company, enforceable in accordance
with its terms, and each of the ▇▇▇▇ Transaction Documents has been
duly and validly executed and delivered by ▇▇▇▇ ▇▇▇▇ and is a valid
and binding obligation of ▇▇▇▇ ▇▇▇▇, enforceable in accordance with
its terms.
4. To our knowledge, after due inquiry, the execution,
delivery and performance of the Agreements by the Company and the
▇▇▇▇ Transaction Documents by ▇▇▇▇ ▇▇▇▇, and the performance of its
and ▇▇▇▇ ▇▇▇▇'▇ obligations thereunder, respectively, do not and will
not constitute a breach or violation of any of the terms and
provisions of, or constitute a default under or conflict with or
violate any provision of (a) the Company's Articles of Incorporation
or Bylaws, each as currently in effect, (b) any indenture, mortgage,
deed of trust, agreement or other instrument to which the Company is
a party or by which it or any of its property is bound, (c) any
applicable statute or regulation, or (d) any judgment, decree or
order of any court or governmental body having jurisdiction over the
Company or any of its property.
The completion of the transactions contemplated in the
Agreements in accordance with the terms and conditions of the
Agreements and the ▇▇▇▇ Transaction Documents, will not violate the
applicable listing agreement between the Company and any securities
exchange or market on which the Company's securities are listed
provided the Company files its additional listing application as
required by the National Association of Securities Dealers in
connection with securities quoted on the Nasdaq SmallCap Marketplace.
Based on representations from the Company, the Lenders, and the
Pledgor that the proposed loan transaction contemplated by the
Agreements is secured by a bona fide pledge of securities, the
provisions of Rule 144(d)(3)(iv) are applicable. Upon an Event of
Default that occurs under the Agreements and the ▇▇▇▇ Transaction
Documents, any restrictive legend appearing on the Pledged Shares may
be removed by the transfer agent upon transfer of the shares to the
Secured Parties, and such Pledged Shares may thereafter be sold into
the market without restriction.
The phrase "Primary Lawyer Group," as used in the Accord, is
hereby modified and for the purposes of applying the Accord to this
Opinion Letter, the Primary Lawyer Group means ▇▇▇▇ ▇▇▇.
You have also requested that we make certain factual
representations to you, based upon our investigation. In that
connection:
Based on the articles of incorporation which the Company advises
us is complete and accurate, the authorized capital of the
Company consists of 80,000,000 shares of Common Stock, $0.001
par value.
To our knowledge, there is no pending or threatened litigation,
investigation or other proceedings against the Company or ▇▇▇▇ ▇▇▇▇.
The Pledgor has each represented that he has acquired the
Pledged Shares pursuant to the Company's 2001 Employee Stock
Option Incentive Plan, which has been registered on Form S-8
with the Securities and Exchange Commission
To the extent any of the foregoing opinions or factual
representations is based on information or representations of one or
more specified individuals, organizations, agencies or entities or is
stated to be "to the best of our knowledge," we hereby confirm that
we are aware of no information inconsistent with such opinion there
expressed.
The opinions expressed herein are given to you solely for your
use in connection with the transaction contemplated by the Agreements
and may not be relied upon by any other person or entity or for any
other purpose without our prior consent.
Very truly yours,
▇▇▇▇ ▇▇▇ & ASSOCIATES