EXHIBIT 10.1
INTERNATIONAL CARD ESTABLISHMENT, INC.
SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK AND COMMON STOCK WARRANTS
SUBSCRIPTION AGREEMENT
December 6, 2004
Mercator Advisory Group LLC
Mercator Momentum Fund, L.P.
Mercator Momentum Fund III, ▇.▇.
▇▇▇▇▇▇▇▇ ▇▇▇▇, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
International Card Establishment, Inc. a Delaware corporation (the "COMPANY"),
hereby confirms its agreement with Mercator Momentum Fund, L.P., Mercator
Momentum Fund III, L.P., ▇▇▇▇▇▇▇▇ ▇▇▇▇, Inc. (collectively, the "Purchaser") and
Mercator Advisory Group, LLC ("MAG"), as set forth below.
1. THE SECURITIES. Subject to the terms and conditions herein
contained, the Company proposes to issue and sell to the Purchaser an aggregate
of: (a) Thirty-Two Thousand (32,000) shares of its Series A Convertible
Preferred Stock (the "SERIES A STOCK"), which shall be convertible into shares
(the "CONVERSION SHARES") of the Company's Common Stock (the "COMMON STOCK") in
accordance with the formula set forth in the Certificate of Designations further
described below and (b) 8,010,012 warrants, substantially in the form attached
hereto at EXHIBIT A (the "WARRANTS"), to acquire up to 8,010,012 shares of
Common Stock (the "WARRANT SHARES"). The exercise price per share for 50% of the
Warrant Shares shall be $ 0.47 per share; and the exercise price per share for
the remaining 50% of the Warrant Shares shall be $0.75. The rights, preferences
and privileges of the Series A Stock are as set forth in the Certificate of
Designations of Series A Preferred Stock as filed with the Secretary of State of
the State of Delaware (the "CERTIFICATE OF DESIGNATIONS") in the form attached
hereto as EXHIBIT B. The number of Conversion Shares and Warrant Shares that any
Purchaser may acquire at any time are subject to limitation in the Certificate
of Designations and in the Warrants, respectively, so that the aggregate number
of shares of Common Stock of which such Purchaser and all persons affiliated
with such Purchaser have beneficial ownership (calculated pursuant to Rule 13d-3
of the Securities Exchange Act of 1934, as amended) does not at any time exceed
9.99% of the Company's then outstanding Common Stock.
The Series A Stock and the Warrants are sometimes herein collectively
referred to as the "SECURITIES." This Agreement and the Certificate of
Designations are sometimes herein collectively referred to as the "TRANSACTION
DOCUMENTS."
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The Securities will be offered and sold to the Purchaser without such
offers and sales being registered under the Securities Act of 1933, as amended
(together with the rules and regulations of the Securities and Exchange
Commission (the "SEC") promulgated thereunder, the "SECURITIES ACT"), in
reliance on exemptions therefrom.
In connection with the sale of the Securities, the Company has made
available (including electronically via the SEC's ▇▇▇▇▇ system) to Purchaser its
periodic and current reports, forms, schedules, proxy statements and other
documents (including exhibits and all other information incorporated by
reference) filed with the SEC under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"). These reports, forms, schedules, statements,
documents, filings and amendments, are collectively referred to as the
"DISCLOSURE DOCUMENTS." All references in this Agreement to financial statements
and schedules and other information which is "contained," "included" or "stated"
in the Disclosure Documents (or other references of like import) shall be deemed
to mean and include all such financial statements and schedules, documents,
exhibits and other information which is incorporated by reference in the
Disclosure Documents.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth
on the Disclosure Schedule (the "DISCLOSURE SCHEDULE") delivered by the Company
to Purchaser on the Closing Date (as defined in Section 3 below), the Company
represents and warrants to and agrees with Purchaser and MAG as follows:
(a) To the best of Company's knowledge, the Disclosure
Documents as of their respective dates did not, and will not (after giving
effect to any updated disclosures therein) as of the Closing Date, contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading. To the best of Company's knowledge, the
Disclosure Documents and the documents incorporated or deemed to be incorporated
by reference therein, at the time they were filed or hereafter are filed with
the SEC, complied and will comply, at the time of filing, in all material
respects with the requirements of the Securities Act and/or the Exchange Act, as
the case may be, as applicable.
(b) SCHEDULE A attached hereto sets forth a complete list of
the subsidiaries of the Company (the "SUBSIDIARIES"). Each of the Company and
its Subsidiaries has been duly incorporated and each of the Company and the
Subsidiaries is validly existing in good standing as a corporation under the
laws of its jurisdiction of incorporation, with the requisite corporate power
and authority to own its properties and conduct its business as now conducted as
described in the Disclosure Documents and is duly qualified to do business as a
foreign corporation in good standing in all other jurisdictions where the
ownership or leasing of its properties or the conduct of its business requires
such qualification, except where the failure to be so qualified would not,
individually or in the aggregate, have a material adverse effect on the
business, condition (financial or other), properties, prospects or results of
operations of the Company and the Subsidiaries, taken as a whole (any such
event, a "MATERIAL ADVERSE EFFECT"); as of the Closing Date, the Company will
have the authorized, issued and outstanding capitalization set forth in on
SCHEDULE B attached hereto (the "COMPANY CAPITALIZATION"); except as set forth
in the Disclosure Documents or on SCHEDULE A, the Company does not have any
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subsidiaries or own directly or indirectly any of the capital stock or other
equity or long-term debt securities of or have any equity interest in any other
person; all of the outstanding shares of capital stock of the Company and the
Subsidiaries have been duly authorized and validly issued, are fully paid and
nonassessable and were not issued in violation of any preemptive or similar
rights and are owned free and clear of all liens, encumbrances, equities, and
restrictions on transferability (other than those imposed by the Securities Act
and the state securities or "Blue Sky" laws) or voting; except as set forth in
the Disclosure Documents, all of the outstanding shares of capital stock of the
Subsidiaries are owned, directly or indirectly, by the Company; except as set
forth in the Disclosure Documents, no options, warrants or other rights to
purchase from the Company or any Subsidiary, agreements or other obligations of
the Company or any Subsidiary to issue or other rights to convert any obligation
into, or exchange any securities for, shares of capital stock of or ownership
interests in the Company or any Subsidiary are outstanding; and except as set
forth in the Disclosure Documents or on SCHEDULE C, there is no agreement,
understanding or arrangement among the Company or any Subsidiary and each of
their respective stockholders or any other person relating to the ownership or
disposition of any capital stock of the Company or any Subsidiary or the
election of directors of the Company or any Subsidiary or the governance of the
Company's or any Subsidiary's affairs, and, if any, such agreements,
understandings and arrangements will not be breached or violated as a result of
the execution and delivery of, or the consummation of the transactions
contemplated by, the Transaction Documents.
(c) The Company has the requisite corporate power and
authority to execute, deliver and perform its obligations under the Transaction
Documents. Each of the Transaction Documents has been duly and validly
authorized by the Company and, when executed and delivered by the Company, will
constitute a valid and legally binding agreement of the Company, enforceable
against the Company in accordance with its terms except as the enforcement
thereof may be limited by (A) bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other similar laws now or hereafter in effect relating
to or affecting creditors' rights generally or (B) general principles of equity
and the discretion of the court before which any proceeding therefore may be
brought (regardless of whether such enforcement is considered in a proceeding at
law or in equity) (collectively, the "ENFORCEABILITY EXCEPTIONS").
(d) The Series A Stock and the Warrants have been duly
authorized and, when issued upon payment thereof in accordance with this
Agreement, will have been validly issued, fully paid and non-assessable. The
Conversion Shares issuable have been duly authorized and validly reserved for
issuance, and when issued upon conversion of the Series A Stock in accordance
with the terms of the Certificate of Designations, will have been validly
issued, fully paid and non-assessable. The Warrant Shares have been duly
authorized and validly reserved for issuance, and when issued upon exercise of
the Warrants in accordance with the terms thereof, will have been validly
issued, fully paid and non-assessable. The Common Stock of the Company conforms
to the description thereof contained in the Disclosure Documents. The
stockholders of the Company have no preemptive or similar rights with respect to
the Common Stock.
(e) No consent, approval, authorization, license,
qualification, exemption or order of any court or governmental agency or body or
third party is required for the performance of the Transaction Documents by the
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Company or for the consummation by the Company of any of the transactions
contemplated thereby, or the application of the proceeds of the issuance of the
Securities as described in this Agreement, except for such consents, approvals,
authorizations, licenses, qualifications, exemptions or orders (i) as have been
obtained on or prior to the Closing Date, (ii) as are not required to be
obtained on or prior to the Closing Date that will be obtained when required, or
(iii) the failure to obtain which would not, individually or in the aggregate,
have a Material Adverse Effect.
(f) Except as set forth on SCHEDULE D, none of the Company or
the Subsidiaries is (i) in material violation of its articles of incorporation
or bylaws (or similar organizational document), (ii) in breach or violation of
any statute, judgment, decree, order, rule or regulation applicable to it or any
of its properties or assets, which breach or violation would, individually or in
the aggregate, have a Material Adverse Effect, or (iii) except as described in
the Disclosure Documents, in default (nor has any event occurred which with
notice or passage of time, or both, would constitute a default) in the
performance or observance of any obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, deed of trust, loan agreement,
note, lease, license, franchise agreement, permit, certificate or agreement or
instrument to which it is a party or to which it is subject, which default
would, individually or in the aggregate, have a Material Adverse Effect.
(g) The execution, delivery and performance by the Company of
the Transaction Documents and the consummation by the Company of the
transactions contemplated thereby and the fulfillment of the terms thereof will
not (a) violate, conflict with or constitute or result in a breach of or a
default under (or an event that, with notice or lapse of time, or both, would
constitute a breach of or a default under) any of (i) the terms or provisions of
any contract, indenture, mortgage, deed of trust, loan agreement, note, lease,
license, franchise agreement, permit, certificate or agreement or instrument to
which any of the Company or the Subsidiaries is a party or to which any of their
respective properties or assets are subject, (ii) the Certificate of
Incorporation or bylaws of any of the Company or the Subsidiaries (or similar
organizational document) or (iii) any statute, judgment, decree, order, rule or
regulation of any court or governmental agency or other body applicable to the
Company or the Subsidiaries or any of their respective properties or assets or
(b) result in the imposition of any lien upon or with respect to any of the
properties or assets now owned or hereafter acquired by the Company or any of
the Subsidiaries; which violation, conflict, breach, default or lien would,
individually or in the aggregate, have a Material Adverse Effect.
(h) The audited consolidated financial statements included in
the Disclosure Documents present fairly the consolidated financial position,
results of operations, cash flows and changes in shareholders' equity of the
entities, at the dates and for the periods to which they relate and have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis; the interim un-audited consolidated financial statements
included in the Disclosure Documents present fairly the consolidated financial
position, results of operations and cash flows of the entities, at the dates and
for the periods to which they relate subject to year-end audit adjustments and
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis with the audited consolidated financial statements
included therein; the selected financial and statistical data included in the
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Disclosure Documents present fairly the information shown therein and have been
prepared and compiled on a basis consistent with the audited financial
statements included therein, except as otherwise stated therein; and each of the
auditors previously engaged by the Company or to be engaged in the future by the
Company is an independent certified public accountant as required by the
Securities Act for an offering registered thereunder.
(i) Except as described in the Disclosure Documents, there is
not pending or, to the knowledge of the Company, threatened any action, suit,
proceeding, inquiry or investigation, governmental or otherwise, to which any of
the Company or the Subsidiaries is a party, or to which their respective
properties or assets are subject, before or brought by any court, arbitrator or
governmental agency or body, that, if determined adversely to the Company or any
such Subsidiary, would, individually or in the aggregate, have a Material
Adverse Effect or that seeks to restrain, enjoin, prevent the consummation of or
otherwise challenge the issuance or sale of the Securities to be sold hereunder
or the application of the proceeds therefrom or the other transactions described
in the Disclosure Documents.
(j) The Company and the Subsidiaries own or possess adequate
licenses or other rights to use all patents, trademarks, service marks, trade
names, copyrights and know-how that are necessary to conduct their businesses as
described in the Disclosure Documents. None of the Company or the Subsidiaries
has received any written notice of infringement of (or knows of any such
infringement of) asserted rights of others with respect to any patents,
trademarks, service marks, trade names, copyrights or know-how that, if such
assertion of infringement or conflict were sustained, would, individually or in
the aggregate, have a Material Adverse Effect.
(k) Each of the Company and the Subsidiaries possesses all
licenses, permits, certificates, consents, orders, approvals and other
authorizations from, and has made all declarations and filings with, all
federal, state, local and other governmental authorities, all self-regulatory
organizations and all courts and other tribunals presently required or necessary
to own or lease, as the case may be, and to operate its respective properties
and to carry on its respective businesses as now or proposed to be conducted as
set forth in the Disclosure Documents ("PERMITS"), except where the failure to
obtain such Permits would not, individually or in the aggregate, have a Material
Adverse Effect and none of the Company or the Subsidiaries has received any
notice of any proceeding relating to revocation or modification of any such
Permit, except as described in the Disclosure Documents and except where such
revocation or modification would not, individually or in the aggregate, have a
Material Adverse Effect.
(l) Subsequent to the respective dates as of which information
is given in the Disclosure Documents and except as described therein, (i) the
Company and the Subsidiaries have not incurred any material liabilities or
obligations, direct or contingent, or entered into any material transactions not
in the ordinary course of business or (ii) the Company and the Subsidiaries have
not purchased any of their respective outstanding capital stock, or declared,
paid or otherwise made any dividend or distribution of any kind on any of their
respective capital stock or otherwise (other than, with respect to any of such
Subsidiaries, the purchase of capital stock by the Company), (iii) there has not
been any material increase in the long-term indebtedness of the Company or any
of the Subsidiaries, (iv) there has not occurred any event or condition,
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individually or in the aggregate, that has a Material Adverse Effect, and (v)
the Company and the Subsidiaries have not sustained any material loss or
interference with respect to their respective businesses or properties from
fire, flood, hurricane, earthquake, accident or other calamity, whether or not
covered by insurance, or from any labor dispute or any legal or governmental
proceeding.
(m) There are no material legal or governmental proceedings
nor are there any material contracts or other documents required by the
Securities Act to be described in a prospectus that are not described in the
Disclosure Documents. Except as described in the Disclosure Documents, none of
the Company or the Subsidiaries is in default under any of the contracts
described in the Disclosure Documents, has received a notice or claim of any
such default or has knowledge of any breach of such contracts by the other party
or parties thereto, except for such defaults or breaches as would not,
individually or in the aggregate, have a Material Adverse Effect.
(n) Each of the Company and the Subsidiaries has good and
marketable title to all real property described in the Disclosure Documents as
being owned by it and good and marketable title to the leasehold estate in the
real property described therein as being leased by it, free and clear of all
liens, charges, encumbrances or restrictions, except, in each case, as described
in the Disclosure Documents or such as would not, individually or in the
aggregate, have a Material Adverse Effect. All material leases, contracts and
agreements to which the Company or any of the Subsidiaries is a party or by
which any of them is bound are valid and enforceable against the Company or any
such Subsidiary, are, to the knowledge of the Company, valid and enforceable
against the other party or parties thereto and are in full force and effect.
(o) Each of the Company and the Subsidiaries has filed all
necessary federal, state and foreign income and franchise tax returns, except
where the failure to so file such returns would not, individually or in the
aggregate, have a Material Adverse Effect, and has paid all taxes shown as due
thereon; and other than tax deficiencies which the Company or any Subsidiary is
contesting in good faith and for which adequate reserves have been provided in
accordance with generally accepted accounting principles, there is no tax
deficiency that has been asserted against the Company or any Subsidiary that
would, individually or in the aggregate, have a Material Adverse Effect.
(p) None of the Company or the Subsidiaries is, or immediately
after the Closing Date will be, required to register as an "investment company"
or a company "controlled by" an "investment company" within the meaning of the
Investment Company Act of 1940, as amended (the "INVESTMENT COMPANY ACT").
(q) None of the Company or the Subsidiaries or, to the
knowledge of any of such entities' directors, officers, employees, agents or
controlling persons, has taken, directly or indirectly, any action designed, or
that might reasonably be expected, to cause or result in the stabilization or
manipulation of the price of the Common Stock.
(r) None of the Company, the Subsidiaries or any of their
respective Affiliates (as defined in Rule 501(b) of Regulation D under the
Securities Act) directly, or through any agent, engaged in any form of general
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solicitation or general advertising (as those terms are used in Regulation D
under the Securities Act) in connection with the offering of the Securities or
engaged in any other conduct that would cause such offering to be constitute a
public offering within the meaning of Section 4(2) of the Securities Act.
Assuming the accuracy of the representations and warranties of the Purchaser in
Section 6 hereof, it is not necessary in connection with the offer, sale and
delivery of the Securities to the Purchaser in the manner contemplated by this
Agreement to register any of the Securities under the Securities Act.
(s) There is no strike, labor dispute, slowdown or work
stoppage with the employees of the Company or any of the Subsidiaries which is
pending or, to the knowledge of the Company or any of the Subsidiaries,
threatened.
(t) Each of the Company and the Subsidiaries carries general
liability insurance coverage comparable to other companies of its size and
similar business.
(u) Each of the Company and the Subsidiaries maintains
internal accounting controls which provide reasonable assurance that (A)
transactions are executed in accordance with management's authorization, (B)
transactions are recorded as necessary to permit preparation of its financial
statements and to maintain accountability for its assets, and and (C) access to
its material assets is permitted only in accordance with management's
authorization.
(v) Except for a Due Diligence fee payable to MAG, a due
diligence fee payable to ▇▇▇▇▇▇▇▇ ▇▇▇▇, Inc. and a broker fee payable to ▇.▇.
▇▇▇▇▇▇ & Company, L.L.C., ("▇▇ ▇▇▇▇▇▇") in the amount of $320,000, the Company
does not know of any claims for services, either in the nature of a finder's fee
or financial advisory fee, with respect to the offering of the Securities and
the transactions contemplated by the Transaction Documents.
(w) The Common Stock is traded on the Over-the-Counter
Bulletin Board (the "OTC-BB"). Except as described in the Disclosure Documents,
the Company currently is not in violation of, and the consummation of the
transactions contemplated by the Transaction Documents will not violate, any
rule of the National Association of Securities Dealers.
(x) The Company is eligible to use SB-2 for the resale of the
Conversion Shares and the Warrant Shares by Purchaser or their transferees and
the Warrant Shares by Purchaser, MAG or their transferees. The Company has no
reason to believe that it is not capable of satisfying the registration or
qualification requirements (or an exemption therefrom) necessary to permit the
resale of the Conversion Shares and the Warrant Shares under the securities or
"blue sky" laws of any jurisdiction within the United States.
(y) The attached Schedule E accurately sets forth the
Company's intended use of proceeds for the Purchase Price.
3. PURCHASE, SALE AND DELIVERY OF THE SECURITIES. On the basis of the
representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell to the Purchaser, and Purchaser agree to purchase from the
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Company, Thirty-Two Thousand (32,000) shares of Series A Stock at $100.00 per
share in the amounts shown on the signature page hereto. In connection with the
purchase and sale of Series A Stock, for no additional consideration, the
Purchaser and MAG will receive Warrants to purchase an aggregate of 8,010,012
shares of Common Stock, subject to adjustment as set forth in the Warrants. The
Warrants shall be allocated as set forth on the signature page to this
Subscription Agreement.
The closing of the transactions described herein (the "CLOSING") shall
take place at a time and on a date (the "CLOSING DATE") to be specified by the
parties, which will be no later than 5:00 p.m. (Pacific time) on November 30,
2004. On the Closing Date, the Company shall deliver (a) certificates in
definitive form for the Series A Stock in the names and amounts set forth on the
signature page hereto, (b) Warrants, in the names and amounts set forth on the
signature page hereto, (c) the Subscription Agreement, Certificate of
Designation and Registration Rights Agreement, each duly executed on behalf of
the Company, and (d) the Opinion of Counsel in the form attached hereto as
EXHIBIT C. On the Closing Date, Purchaser shall deliver (i) 66% of the Purchase
Price or $2,112,000 by wire transfer of immediately available funds to an escrow
account mutually acceptable to the parties, and (ii) the Subscription Agreement
and Registration Rights Agreement, each duly executed on behalf of the Purchaser
and MAG. The Closing will occur when all documents and instruments necessary or
appropriate to effect the transactions contemplated herein are exchanged by the
parties and all actions taken at the Closing will be deemed to be taken
simultaneously.
Upon receipt of written confirmation from MAG that all documents and
instruments have been duly executed and delivered, the escrow holder shall
release (a) to the Company, the sum of $1,762,080 (b) to MAG, the sum of 66% of
its Due Diligence Fee or $97,020 and the legal fees in the amount of $12,000,
(c) to ▇▇▇▇▇▇▇▇ ▇▇▇▇, Inc., the sum 66% of its Due Diligence fee or $29,700, and
(d) to ▇▇ ▇▇▇▇▇▇ the sum of 66% of its broker fee or $211,200.
Provided that Company is not in default under Paragraph 10(i) (iv) or
(v) hereof, the Purchaser covenants and agrees to pay, within two trading days
after Company files the Registration Statement (as defined in Paragraph 9
below), the balance of the Purchase Price or $913,920 to Company by wire
transfer of immediately available funds to an escrow account mutually acceptable
to the parties. The escrow holder shall then release via wire transfer (a) to
MAG the balance of its Due Diligence fee in the amount of $49,980, (d) to the
▇▇▇▇▇▇▇▇ ▇▇▇▇, Inc., the balance of its Due Diligence fee in the amount of
$15,300, (c) to ▇▇ ▇▇▇▇▇▇ the balance of its fee or $108,800 and (d) to the
Company, the balance of the Purchase Price totaling $913,920.
4. CERTAIN COVENANTS OF THE COMPANY. The Company covenants and agrees
with each Purchaser as follows:
(a) None of the Company or any of its Affiliates will sell,
offer for sale or solicit offers to buy or otherwise negotiate in respect of any
"security" (as defined in the Securities Act) which could be integrated with the
sale of the Securities in a manner which would require the registration under
the Securities Act of the Securities.
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(b) The Company will not become, at any time prior to the
expiration of three years after the Closing Date, an open-end investment
company, unit investment trust, closed-end investment company or face-amount
certificate company that is or is required to be registered under the Investment
Company Act.
(c) None of the proceeds of the Series A Stock will be used to
reduce or retire any insider note or convertible debt held by an officer or
director of the Company.
(d) Subject to Section 10 of this Agreement, the Conversion
Shares and the Warrant Shares will be eligible for trading on the
Over-the-Counter Bulletin Board or such market on which the Company's shares are
subsequently listed or traded, immediately following the effectiveness of the
Registration Statement.
(e) The Company will use best efforts to do and perform all
things required to be done and performed by it under this Agreement and the
other Transaction Documents and to satisfy all conditions precedent on its part
to the obligations of the Purchaser to purchase and accept delivery of the
Securities.
(f) The Purchaser shall have a right of first refusal on any
financing in which the Company is the issuer of debt or equity securities from
the date of Closing through and including eighty-five (85) days after the date
the Registration Statement is declared "effective." The Purchaser shall exercise
its right of first refusal within five (5) trading days of the date the Company
provides written notice to Purchaser of all material terms and conditions of the
proposed financing. In the event Purchaser declines to exercise its right of
first refusal, then Company shall be entitled to complete the proposed financing
on the terms and conditions stated.
5. CONDITIONS OF THE PURCHASER' OBLIGATIONS. The obligation of each
Purchaser to purchase and pay for the Securities is subject to the following
conditions unless waived in writing by the Purchaser:
(a) The representations and warranties of the Company
contained in this Agreement shall be true and correct in all material respects
(other than representations and warranties with a Material Adverse Effect
qualifier, which shall be true and correct as written) on and as of the Closing
Date; the Company shall have complied in all material respects with all
agreements and satisfied all conditions on its part to be performed or satisfied
hereunder at or prior to the Closing Date.
(b) None of the issuance and sale of the Securities pursuant
to this Agreement or any of the transactions contemplated by any of the other
Transaction Documents shall be enjoined (temporarily or permanently) and no
restraining order or other injunctive order shall have been issued in respect
thereof; and there shall not have been any legal action, order, decree or other
administrative proceeding instituted or, to the Company's knowledge, threatened
against the Company or against any Purchaser relating to the issuance of the
Securities or any Purchaser's activities in connection therewith or any other
transactions contemplated by this Agreement, the other Transaction Documents or
the Disclosure Documents.
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(c) The Purchaser shall have received certificates, dated the
Closing Date and signed by the Chief Executive Officer and the Chief Financial
Officer of the Company, to the effect of paragraphs 5(a) and (b).
(d) The Purchaser shall have received an opinion of ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, Esq., with respect to the authorization of the Series A Stock, the
Conversion Shares, the Warrants and the Warrant Shares and other customary
matters in the form attached hereto as EXHIBIT C.
6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
(a) Each Purchaser and MAG represents and warrants to the
Company that the Securities to be acquired by it hereunder (including the
Conversion Shares and the Warrant Shares that it may acquire upon conversion or
exercise thereof, as the case may be) are being acquired for its own account for
investment and with no intention of distributing or reselling such Securities
(including the Conversion Shares and the Warrant Shares that it may acquire upon
conversion or exercise thereof, as the case may be) or any part thereof or
interest therein in any transaction which would be in violation of the
securities laws of the United States of America or any State. Nothing in this
Agreement, however, shall prejudice or otherwise limit a Purchaser's right to
sell or otherwise dispose of all or any part of such Conversion Shares or
Warrant Shares under an effective registration statement under the Securities
Act and in compliance with applicable state securities laws or under an
exemption from such registration. By executing this Agreement, each Purchaser
further represents that such Purchaser does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participation to any Person with respect to any of the Securities.
(b) Each Purchaser and MAG understands that the Securities
(including the Conversion Shares and the Warrant Shares that it may acquire upon
conversion or exercise thereof, as the case may be) have not been registered
under the Securities Act and may not be offered, resold, pledged or otherwise
transferred except (a) pursuant to an exemption from registration under the
Securities Act (and, if requested by the Company, based upon an opinion of
counsel acceptable to the Company) or pursuant to an effective registration
statement under the Securities Act and (b) in accordance with all applicable
securities laws of the states of the United States and other jurisdictions.
Each Purchaser and MAG agrees to the imprinting, so long as
appropriate, of the following legend on the Securities (including the Conversion
Shares and the Warrant Shares that it may acquire upon conversion or exercise
thereof, as the case may be):
THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ("TRANSFERRED")
IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. IN THE ABSENCE OF SUCH REGISTRATION, SUCH SHARES MAY NOT BE
TRANSFERRED UNLESS, IF THE COMPANY REQUESTS, THE COMPANY HAS RECEIVED A
WRITTEN OPINION FROM COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
-10-
COMPANY STATING THAT SUCH TRANSFER IS BEING MADE IN COMPLIANCE WITH ALL
APPLICABLE FEDERAL AND STATE SECURITIES LAWS.
The legend set forth above may be removed if and when the Conversion
Shares or the Warrant Shares, as the case may be, are disposed of pursuant to an
effective registration statement under the Securities Act or in the opinion of
counsel to the Company experienced in the area of United States Federal
securities laws such legends are no longer required under applicable
requirements of the Securities Act. The Series A Stock, the Warrants, the
Conversion Shares and the Warrant Shares shall also bear any other legends
required by applicable Federal or state securities laws, which legends may be
removed when in the opinion of counsel to the Company experienced in the
applicable securities laws, the same are no longer required under the applicable
requirements of such securities laws. The Company agrees that it will provide
each Purchaser, upon request, with a substitute certificate, not bearing such
legend at such time as such legend is no longer applicable. Each Purchaser
agrees that, in connection with any transfer of the Conversion Shares or the
Warrant Shares by it pursuant to an effective registration statement under the
Securities Act, such Purchaser will comply with all prospectus delivery
requirements of the Securities Act. The Company makes no representation,
warranty or agreement as to the availability of any exemption from registration
under the Securities Act with respect to any resale of the Series A Stock, the
Warrants, the Conversion Shares or the Warrant Shares.
(c) Each Purchaser and MAG is an "accredited investor" within
the meaning of Rule 501(a) of Regulation D under the Securities Act. Neither
Purchaser nor MAG learned of the opportunity to acquire Securities or any other
security issuable by the Company through any form of general advertising or
public solicitation.
(d) Each Purchaser and MAG represents and warrants to the
Company that it has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks of
the prospective investment in the Securities, having been represented by
counsel, and has so evaluated the merits and risks of such investment and is
able to bear the economic risk of such investment and, at the present time, is
able to afford a complete loss of such investment.
(e) Each Purchaser represents and warrants to the Company that
(i) the purchase of the Securities to be purchased by it has been duly and
properly authorized and this Agreement has been duly executed and delivered by
it or on its behalf and constitutes the valid and legally binding obligation of
the Purchaser, enforceable against the Purchaser in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights generally and to general principles of equity; (ii) the
purchase of the Securities to be purchased by it does not conflict with or
violate its charter, by-laws or any law, regulation or court order applicable to
it; and (iii) the purchase of the Securities to be purchased by it does not
impose any penalty or other onerous condition on the Purchaser under or pursuant
to any applicable law or governmental regulation.
-11-
(f) Each Purchaser and MAG represents and warrants to the
Company that neither it nor any of its directors, officers, employees, agents,
partners, members, controlling persons or shareholders holding 5% or more of the
Common Stock outstanding on the Closing Date, has taken or will take, directly
or indirectly, any actions designed, or might reasonably be expected to cause or
result in the de-stabilization or manipulation of the price of the Common Stock.
(g) Each Purchaser and MAG acknowledges it or its
representatives have reviewed the Disclosure Documents and further acknowledges
that it or its representatives have been afforded (i) the opportunity to ask
such questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment in the Securities;
and (iii) the opportunity to obtain such additional information which the
Company possesses or can acquire without unreasonable effort or expense that is
necessary to verify the accuracy and completeness of the information contained
in the Disclosure Documents.
(h) Each Purchaser and MAG represents and warrants to the
Company that it has based its investment decision solely upon the information
contained in the Disclosure Documents and such other information as may have
been provided to it or its representatives by the Company in response to their
inquiries, and has not based its investment decision on any research or other
report regarding the Company prepared by any third party ("THIRD PARTY
REPORTS"). Each Purchaser understands and acknowledges that (i) the Company does
not endorse any Third Party Reports and (ii) its actual results may differ
materially from those projected in any Third Party Report.
(i) Each Purchaser and MAG understands and acknowledges that
(i) any forward-looking information included in the Disclosure Documents
supplied to Purchaser by the Company or its management is subject to risks and
uncertainties, including those risks and uncertainties set forth in the
Disclosure Documents; and (ii) the Company's actual results may differ
materially from those projected by the Company or its management in such
forward-looking information.
(j) Each Purchaser and MAG understands and acknowledges that
(i) the Securities are offered and sold without registration under the
Securities Act in a private placement that is exempt from the registration
provisions of the Securities Act and (ii) the availability of such exemption
depends in part on, and that the Company and its counsel will rely upon, the
accuracy and truthfulness of the foregoing representations and Purchaser hereby
consents to such reliance.
7. COVENANTS OF PURCHASER NOT TO SHORT STOCK. Purchaser, on behalf of
themselves and their affiliates, hereby covenant and agree not to, directly or
indirectly, offer to "short sell", contract to "short sell" or otherwise "short
sell" the securities of the Company, including, without limitation, shares of
Common Stock that will be received as a result of the conversion of the Series A
Stock or the exercise of the Warrants.
-12-
8. TERMINATION.
(a) This Agreement may be terminated in the sole discretion of
the Company by notice to each Purchaser if at the Closing Date:
(i) the representations and warranties made by any
Purchaser in Section 6 are not true and correct in all material respects; or
(ii) as to the Company, the sale of the Securities
hereunder (i) is prohibited or enjoined by any applicable law or governmental
regulation or (ii) subjects the Company to any penalty, or in its reasonable
judgment, other onerous condition under or pursuant to any applicable law or
government regulation that would materially reduce the benefits to the Company
of the sale of the Securities to such Purchaser, so long as such regulation, law
or onerous condition was not in effect in such form at the date of this
Agreement.
(b) This Agreement may be terminated by any Purchaser or MAG
by notice to the Company given in the event that the Company shall have failed,
refused or been unable to satisfy all material conditions on its part to be
performed or satisfied hereunder on or prior to the Closing Date, or if after
the execution and delivery of this Agreement and immediately prior to the
Closing Date, trading in securities of the Company on the Over-the-Counter
Bulletin Board shall have been suspended.
(c) This Agreement may be terminated by mutual written consent
of all parties.
9. REGISTRATION. On or before January 15, 2005 (the "Registration
Date"), the Company shall file a Registration Statement on Form SB-2 or S3 with
the SEC registering the maximum number of shares of Common Stock to be issued
upon conversion of the Preferred Stock and exercise of the Warrants
(collectively, the "REGISTRABLE SECURITIES"), as set forth in the Registration
Rights Agreement attached hereto as Exhibit D. The Company shall use its best
efforts to have the Registration Statement declared effective within 80 days
after the initial filing with the SEC.
10. EVENT OF DEFAULT. If an Event of Default (as defined below) occurs
and remains uncured for a period of 5 days, the Purchaser and MAG shall have the
right to exercise any or all of the rights given to the Purchaser and MAG
relating to the Securities, as further described in the Certificate of
Designations. In addition, the price at which the shares of Series A Stock may
be converted into Common Stock shall be reduced from 85% of the Market Price (as
defined in the Certificate of Designations) to 75% of the Market Price, subject
to the Ceiling Price and Floor Price as those terms are defined in the
Certificate of Designations.
The Holder need not provide and the Company hereby waives any
presentment, demand, protest or other notice of any kind, and the Holder may
immediately and without expiration of any grace period enforce any and all of
its rights and remedies hereunder and all other remedies available to it under
applicable law. Such declaration may be rescinded and annulled by Holder at any
time prior to payment hereunder. No such rescission or annulment shall affect
any subsequent Event of Default or impair any right consequent thereon.
-13-
An "EVENT OF DEFAULT" shall include the commencement by the Company of
a voluntary case or proceeding under the bankruptcy laws or the Company's
failure to: (i) discharge or stay a bankruptcy proceeding within 60 days of such
action being taken against the Company, (ii) file the Registration Statement
with the SEC on or before January 15, 2005, (iii) have the Registration
Statement deemed effective by the SEC within 80 days after the date of filing of
the Registration Statement; (iv) maintain trading of the Company's Common Stock
on the Over-the-Counter Bulletin Board except for any periods when the stock is
listed on the NASDAQ Small Stock Market, the NASDAQ National Stock Market, the
AMEX or the NYSE, (v) pay the expenses referred to below or the Due Diligence
Fee within three (3) days after the Closing; or (vi) deliver to Purchaser, or
Purchaser' broker, as directed, Common Stock that Purchaser have converted
within three (3) business days of such conversions.
IN THE EVENT THAT THE COMPANY FAILS TO FILE THE REGISTRATION STATEMENT WITH THE
SEC ON OR BEFORE THE REGISTRATION DATE, AS A REMEDY FOR SUCH AN EVENT OF
DEFAULT, COMPANY SHALL PAY TO PURCHASER, IN CASH, $2,133 EACH DAY THAT THE
REGISTRATION STATEMENT FILING IS DELAYED. PURCHASER AND COMPANY ACKNOWLEDGE AND
AGREE THAT THEY HAVE MUTUALLY DISCUSSED THE IMPRACTICALITY AND EXTREME
DIFFICULTY OF FIXING THE ACTUAL DAMAGES PURCHASER WOULD INCUR IN THE CASE OF
SUCH AN EVENT OF DEFAULT, AND THAT AS A RESULT OF SUCH DISCUSSION THE PARTIES
AGREE THAT $2,133 FOR EACH DAY THAT THE REGISTRATION STATEMENT FILING IS DELAYED
REPRESENTS A REASONABLE ESTIMATE OF THE ACTUAL DAMAGES WHICH PURCHASER WOULD
INCUR IN THE CASE OF SUCH AN EVENT OF DEFAULT. BY SIGNING IN THE SPACES WHICH
FOLLOW, PURCHASER AND COMPANY SPECIFICALLY AND EXPRESSLY AGREE TO ABIDE BY THE
TERMS AND PROVISIONS OF THIS PARAGRAPH CONCERNING LIQUIDATED DAMAGES.
Purchaser: Company:
▇▇▇▇▇▇▇▇ ▇▇▇▇, Inc., International Card Establishment, Inc.
a British Virgin Islands Company a Delaware corporation
______________________________ By: __________________________
By: ▇▇▇▇▇▇▇▇ ▇▇▇▇ Magistrate Name: __________________________
Its: Director Title: _________________________
Mercator Momentum Fund, L.P. Mercator Momentum Fund III, L.P.
By: Mercator Advisory Group, LLC By: Mercator Advisory Group, LLC
Its: General Partner Its: General Partner
By: ______________________ By: ______________________
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Its: Managing Member Its: Managing Member
-14-
11. NOTICES. All communications hereunder shall be in writing and shall
be hand delivered, mailed by first-class mail, couriered by next-day air courier
or by facsimile and confirmed in writing (i) if to the Company, at the addresses
set forth below, or (ii) if to a Purchaser or MAG, to the address set forth for
such party on the signature page hereto.
If to the Company:
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Inc.
A Law Corporation
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
All such notices and communications shall be deemed to have been duly
given: (i) when delivered by hand, if personally delivered; (ii) five business
days after being deposited in the mail, postage prepaid, if mailed certified
mail, return receipt requested; (iii) one business day after being timely
delivered to a next-day air courier guaranteeing overnight delivery; (iv) the
date of transmission if sent via facsimile to the facsimile number as set forth
in this Section or the signature page hereof prior to 6:00 p.m. on a business
day, or (v) the business day following the date of transmission if sent via
facsimile at a facsimile number set forth in this Section or on the signature
page hereof after 6:00 p.m. or on a date that is not a business day. Change of a
party's address or facsimile number may be designated hereunder by giving notice
to all of the other parties hereto in accordance with this Section.
12. SURVIVAL CLAUSE. The respective representations, warranties,
agreements and covenants of the Company and the Purchaser set forth in this
Agreement shall survive until the first anniversary of the Closing.
13. FEES AND EXPENSES. Within three (3) days of Closing, the Company
agrees to pay Purchaser' legal expenses incurred in connection with the
preparation and negotiation of the Transaction Documents up to $12,000. Any sums
-15-
paid by Company upon execution of the Term Sheet will be credited against this
amount.
14. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the Warrants or the Certificate of
Designations, the prevailing party or parties shall be entitled to receive from
the other party or parties reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which the prevailing party or
parties may be entitled.
15. SUCCESSORS. This Agreement shall inure to the benefit of and be
binding upon Purchaser, MAG and the Company and their respective successors and
legal representatives, and nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any other person any legal or equitable
right, remedy or claim under or in respect of this Agreement, or any provisions
herein contained; this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person. Neither the Company nor any Purchaser may
assign this Agreement or any rights or obligation hereunder without the prior
written consent of the other party.
16. NO WAIVER; MODIFICATIONS IN WRITING. No failure or delay on the
part of the Company, MAG or any Purchaser in exercising any right, power or
remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
The remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to the Company, MAG or any Purchaser at law or in
equity or otherwise. No waiver of or consent to any departure by the Company,
MAG or any Purchaser from any provision of this Agreement shall be effective
unless signed in writing by the party entitled to the benefit thereof, provided
that notice of any such waiver shall be given to each party hereto as set forth
below. Except as otherwise provided herein, no amendment, modification or
termination of any provision of this Agreement shall be effective unless signed
in writing by or on behalf of each of the Company, MAG and the Purchaser. Any
amendment, supplement or modification of or to any provision of this Agreement,
any waiver of any provision of this Agreement, and any consent to any departure
by the Company, MAG or any Purchaser from the terms of any provision of this
Agreement shall be effective only in the specific instance and for the specific
purpose for which made or given. Except where notice is specifically required by
this Agreement, no notice to or demand on the Company in any case shall entitle
the Company to any other or further notice or demand in similar or other
circumstances.
17. ENTIRE AGREEMENT. This Agreement, together with Transaction
Documents, constitutes the entire agreement among the parties hereto and
supersedes all prior agreements, understandings and arrangements, oral or
written, among the parties hereto with respect to the subject matter hereof and
thereof.
18. SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby.
-16-
19. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT,
AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING EFFECT TO
PROVISIONS RELATING TO CONFLICTS OF LAW TO THE EXTENT THE APPLICATION OF THE
LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. THE PARTIES HEREBY
IRREVOCABLY AND UNCONDITIONALLY AGREE THAT ACTIONS, SUITS OR PROCEEDINGS ARISING
OUT OF OR RELATING TO THIS AGREEMENT MAY BE BROUGHT ONLY IN STATE OR FEDERAL
COURTS LOCATED IN THE CITY OF LOS ANGELES, CALIFORNIA AND HEREBY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF SUCH COURTS FOR SUCH PURPOSE.
20. COUNTERPARTS. This Agreement may be executed in two or more
counterparts and may be delivered by facsimile transmission, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument.
21. If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this Agreement shall constitute a binding agreement among the Company,
the Purchaser and MAG.
Very truly yours,
International Card Establishment, Inc.
By: ___________________________
Name: ____________________
Title: ____________________
-17-
ACCEPTED AND AGREED:
MERCATOR ADVISORY GROUP, LLC ▇▇▇▇▇▇▇▇ ▇▇▇▇, INC.
By: __________________________ ______________________________
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Managing Member By: ▇▇▇▇▇▇▇▇ ▇▇▇▇ Magistrate
Its: Director
MERCATOR MOMENTUM FUND, L.P. MERCATOR MOMENTUM FUND III, L.P.
By: Mercator Advisory Group, LLC By: Mercator Advisory Group, LLC
Its: General Partner Its: General Partner
By: ______________________ By: ______________________
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Its: Managing Member Its: Managing Member
Address for Notice to ▇▇▇▇▇▇▇▇ ▇▇▇▇, Inc.: Addresses for Notice to Mercator
Momentum Fund, Mercator Momentum
Fund III, MAG:
▇▇▇▇▇▇▇▇ ▇▇▇▇, Inc. Mercator Advisory Group, LLC
Road Town, Tortola ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Islands ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇ ▇▇▇▇ Magistrate, Director Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Facsimile: 357-2533-9316 Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with copy to:
▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Sheppard, Mullin, ▇▇▇▇▇▇▇ & Hampton
LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
-------------------------- ----------------- ----------------- ----------------- ----------------- -----------------
MERCATOR MERCATOR ▇▇▇▇▇▇▇▇ ▇▇▇▇, MERCATOR TOTAL
MOMENTUM FUND, MOMENTUM FUND INC. ADVISORY GROUP,
LP III, LP LLC
-------------------------- ----------------- ----------------- ----------------- ----------------- -----------------
PURCHASE PRICE $ 1,300,000 $ 900,000 $ 1,000,000 -- $ 3,200,000
-------------------------- ----------------- ----------------- ----------------- ----------------- -----------------
PREFERRED SHARES 13,000 9,000 10,000 -- 32,000
-------------------------- ----------------- ----------------- ----------------- ----------------- -----------------
WARRANTS @ $0.75 813,517 563,204 938,673 1,689,612 4,005,006
-------------------------- ----------------- ----------------- ----------------- ----------------- -----------------
WARRANTS @ $0.47 4,005,006
813,517 563,204 938,673 1,689,612
-------------------------- ----------------- ----------------- ----------------- ----------------- -----------------
-18-
SCHEDULE A
Direct and Indirect Subsidiaries of International Card Establishment, Inc.
GlobalTech Leasing, Inc., a California International Card Establishment, Inc.,
corporation a Nevada corporation
NEOS Merchant Solutions, Inc., a Nevada iNetEvents, Inc., a
Nevada corporation corporation
-1-
SCHEDULE B
Company Capitalization
Common Stock:
Authorized: 100 million shares, $0.0005 par value
Issued and Outstanding: 28,396,324 shares
Preferred Stock:
Authorized: 10 million shares, $0.01 par value
Issued and Outstanding: 30,000 shares of Series A Preferred
Stock
Common Stock Equivalents:
Warrants: Approximately 9.5 million at an
average exercise price of $0.62 per
share.
-1-
SCHEDULE C
Other Arrangements
Pursuant to a Proxy Agreement by and between the Company, NEOS Merchant
Solutions, Inc. and NEOS Liquidating Trust, LLC, Company shareholders holding
approximately 5 million shares of Common Stock have agreed to vote in any
election of directors for a nominee designated by the NEOS Liquidating Trust,
LLC.
-1-
SCHEDULE D
Violations
NA
-1-
SCHEDULE E
Use of Proceeds
Acquisition of Lease Portfolio: $1 million
Acquisition of SCP Bankcard Portfolio: $700,000
Bankcard Processing Center Joint Venture: $1.5 million
Total: $3.2 million
-2-
EXHIBIT A
Warrant
-3-
EXHIBIT B
Certificate of Designations of
Series A Convertible Preferred Stock
of
International Card Establishment, Inc.
-4-
EXHIBIT C
Form of Legal Opinion
1. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware, with corporate power
to own its properties and to conduct its business.
2. The Company has the corporate power to execute, deliver and perform
the Transaction Documents, including the Exhibits, thereto. The Transaction
Documents have been duly authorized by all requisite corporate action by the
Company and constitute the valid and binding obligations of the Company,
enforceable in accordance with their terms (subject to bankruptcy, equitable
principles and other customary exceptions).
(a) The authorized capital stock of the Company consists of
____________ shares of Preferred Stock, and ____________ shares of Common Stock.
(b) The shares of the Company's Series A Stock have been duly
authorized and, upon issuance, delivery, and payment therefor as described in
the Subscription Agreement, will be validly issued, fully paid and
non-assessable.
(c) The shares of the Company's Common Stock initially
issuable upon conversion of the shares of Series A Stock sold have been duly
authorized and reserved for issuance and, upon issuance and delivery upon
conversion of the Series A Stock as described in the Certificate of
Designations, will be validly issued, fully paid and non-assessable.
(d) The shares of the Company's Common Stock issuable upon
exercise of the Warrants have been duly authorized and reserved for issuance,
and upon issuance, delivery, and payment therefor in accordance with the
Warrants, will be validly issued, fully paid and non-assessable.
3. The Company's execution and delivery of the Transaction Documents
and the issue and sale of the Series A Stock and the Warrants, on the terms and
conditions set forth in the Subscription Agreement, will not violate any law of
the United States or the State of Delaware, any rule or regulation of any
governmental authority or regulatory body of the United States or the State of
Delaware or any provision of the Company's Articles of Incorporation or Bylaws.
4. No consent, approval, order or authorization of, and no notice to or
filing with, any governmental agency or body or any court is required to be
obtained or made by the Company for the issuance and sale of the Series A Stock
and the Warrants pursuant to the Transaction Documents, except such as have been
obtained or made and such as may be required under applicable securities laws.
-1-
5. On the assumption that the representations of the Purchaser and MAG
in the Subscription Agreement are correct and complete, the offer and sale of
the Series A Stock and the Warrants pursuant to the terms of the Subscription
Agreement are exempt from the registration requirements of Section 5 of the
Securities Act of 1933, as amended, and from the qualification requirements of
California securities statutes and regulations, and, under such securities laws
as they presently exist, the issuance of the Company's Common Stock upon
conversion of the Series A Stock and exercise of the Warrants would also be
exempt from such registration and qualification requirements.
6. We know of no pending or overtly threatened action, proceeding or
governmental investigation with respect to the Company's sale of Series A Stock
and Warrants pursuant to the Transaction Documents.
-2-
EXHIBIT D
TO SUBSCRIPTION AGREEMENT
REGISTRATION RIGHTS AGREEMENT
AGREEMENT dated as of December 6, 2004, between Mercator Momentum Fund,
L.P., Mercator Momentum Fund III, L.P., ▇▇▇▇▇▇▇▇ ▇▇▇▇, INC. (the "FUND") and
MERCATOR ADVISORY GROUP, LLC ("MAG") (the Fund and MAG are --- referred to
individually as a "Holder" and collectively as the "HOLDERS"), and International
Card Establishment, Inc., a Delaware corporation (the "COMPANY").
WHEREAS, the Fund have purchased, for an aggregate of $3,200,000, an
aggregate of 32,000 shares of Series A Convertible Preferred Stock (the "SERIES
A STOCK") from the Company, and have the right to cause their Series A Stock to
be converted into shares of Common Stock, $0.001 par value (the "COMMON STOCK"),
of the Company, pursuant to the conversion formula set forth in the Certificate
of Determination;
WHEREAS, each Fund and MAG have acquired Warrants (together, the
"WARRANTS") from the Company, pursuant to which the Holders have the right to
purchase in the aggregate up to 8,010,012 shares of the Common Stock through the
exercise of the Warrants;
WHEREAS, the Company desires to grant to the Holders the registration
rights set forth herein with respect to the shares of Common Stock issuable upon
the conversion of the Series A Stock and the exercise of the Warrants.
NOW, THEREFORE, the parties hereto mutually agree as follows:
I. REGISTRABLE SECURITIES. As used herein the terms "REGISTRABLE
SECURITY" means each of the shares of Common Stock (i) issued upon the
conversion of the Series A Stock (the "CONVERSION SHARES") or (ii) upon exercise
of the Warrants (the "WARRANT SHARES"), provided, however, that with respect to
any particular Registrable Security, such security shall cease to be a
Registrable Security when, as of the date of determination that (a) it has been
effectively registered under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), and disposed of pursuant thereto, or (b) registration under
the Securities Act is no longer required for the immediate public distribution
of such security. The term "REGISTRABLE SECURITIES" means any and/or all of the
securities falling within the foregoing definition of a "Registrable Security."
In the event of any merger, reorganization, consolidation, recapitalization or
other change in corporate structure affecting the Common Stock, such adjustment
shall be made in the definition of "Registrable Security" as is appropriate in
order to prevent any dilution or enlargement of the rights granted pursuant to
this Section 1.
II. REGISTRATION.
A. On or before January 15, 2005 (the "Registration Date"), the Company
shall file a registration statement (the "Registration Statement") on Form SB-2
or S3 with the SEC registering the maximum number of shares of Common Stock to
be issued upon conversion of the Preferred Stock and exercise of the Warrants.
The Company shall use its best efforts to have the Registration Statement
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declared effective within 80 days after the initial filing with the SEC. Once
effective, the Company shall maintain the effectiveness of the Registration
Statement until the earlier of (i) the date that all of the Registrable
Securities have been sold, or (ii) the date that the Company receives an opinion
of counsel to the Company that all of the Registrable Securities may be freely
traded without registration under the Securities Act, under Rule 144 promulgated
under the Securities Act or otherwise.
B. The Company will initially include in the Registration Statement as
Registrable Securities 16,543,346 shares of Common Stock.
III. COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION.
The Company covenants and agrees as follows:
A. The Company shall use best efforts to cause the Registration
Statement to become effective with the SEC as promptly as possible and in no
event more than 80 days after it is filed with the SEC. If any stop order shall
be issued by the SEC in connection therewith, the Company shall use best efforts
to obtain promptly the removal of such order. Following the effective date of
the Registration Statement, the Company shall, upon the request of any Holder,
forthwith supply such reasonable number of copies of the Registration Statement,
preliminary prospectus and prospectus meeting the requirements of the Securities
Act, and any other documents necessary or incidental to the public offering of
the Registrable Securities, as shall be reasonably requested by the Holder to
permit the Holder to make a public distribution of the Holder's Registrable
Securities. The obligations of the Company hereunder with respect to the
Holder's Registrable Securities are subject to the Holder's furnishing to the
Company such appropriate information concerning the Holder, the Holder's
Registrable Securities and the terms of the Holder's offering of such
Registrable Securities as the Company may reasonably request in writing.
B. The Company shall pay all costs, fees and expenses in connection
with the Registration Statement filed pursuant to Section 2 hereof including,
without limitation, the Company's legal and accounting fees, printing expenses,
and blue sky fees and expenses; provided, however, that each Holder shall be
solely responsible for the fees of any counsel retained by the Holder in
connection with such registration and any transfer taxes or underwriting
discounts, commissions or fees applicable to the Registrable Securities sold by
the Holder pursuant thereto.
C. The Company will take all actions which may be required to qualify
or register the Registrable Securities included in the Registration Statement
for the offer and sale under the securities or blue sky laws of such states as
are reasonably requested by each Holder of such securities, provided that the
Company shall not be obligated to execute or file any general consent to service
of process or to qualify as a foreign corporation to do business under the laws
of any such jurisdiction.
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IV. ADDITIONAL TERMS.
A. The Company shall indemnify and hold harmless the Holders
and each underwriter, within the meaning of the Securities Act, who may purchase
from or sell for any Holder, any Registrable Securities, from and against any
and all losses, claims, damages and liabilities caused by any untrue statement
of a material fact contained in the Registration Statement, any other
registration statement filed by the Company under the Securities Act with
respect to the registration of the Registrable Securities, any post-effective
amendment to such registration statements, or any prospectus included therein or
caused by any omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages or liabilities are caused by any such
untrue statement or omission based upon information furnished or required to be
furnished in writing to the Company by the Holders or underwriter expressly for
use therein, which indemnification shall include each person, if any, who
controls any Holder or underwriter within the meaning of the Securities Act and
each officer, director, employee and agent of each Holder and underwriter;
provided, however, that the indemnification in this Section 4(a) with respect to
any prospectus shall not inure to the benefit of any Holder or underwriter (or
to the benefit of any person controlling any Holder or underwriter) on account
of any such loss, claim, damage or liability arising from the sale of
Registrable Securities by the Holder or underwriter, if a copy of a subsequent
prospectus correcting the untrue statement or omission in such earlier
prospectus was provided to such Holder or underwriter by the Company prior to
the subject sale and the subsequent prospectus was not delivered or sent by the
Holder or underwriter to the purchaser prior to such sale and provided further,
that the Company shall not be obligated to so indemnify any Holder or any such
underwriter or other person referred to above unless the Holder or underwriter
or other person, as the case may be, shall at the same time indemnify the
Company, its directors, each officer signing the Registration Statement and each
person, if any, who controls the Company within the meaning of the Securities
Act, from and against any and all losses, claims, damages and liabilities caused
by any untrue statement of a material fact contained in the Registration
Statement, any registration statement or any prospectus required to be filed or
furnished by reason of this Agreement or caused by any omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, insofar as such losses, claims, damages or
liabilities are caused by any untrue statement or omission based upon
information furnished in writing to the Company by the Holder or underwriter
expressly for use therein.
B. If for any reason the indemnification provided for in the
preceding section is held by a court of competent jurisdiction to be unavailable
to an indemnified party with respect to any loss, claim, damage, liability or
expense referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the amount
paid or payable by the indemnified party as a result of such loss, claim, damage
or liability in such proportion as is appropriate to reflect the relative fault
of the indemnified party and the indemnifying party, as well as any other
relevant equitable considerations.
C. Neither the filing of a Registration Statement by the
Company pursuant to this Agreement nor the making of any request for
prospectuses by the Holder shall impose upon any Holder any obligation to sell
the Holder's Registrable Securities.
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D. Each Holder, upon receipt of notice from the Company that
an event has occurred which requires a Post-Effective Amendment to the
Registration Statement or a supplement to the prospectus included therein, shall
promptly discontinue the sale of Registrable Securities until the Holder
receives a copy of a supplemented or amended prospectus from the Company, which
the Company shall provide as soon as practicable after such notice.
E. If the Company fails to keep the Registration Statement
referred to above continuously effective during the requisite period, then the
Company shall, promptly upon the request of any Holder, use best efforts to
update the Registration Statement or file a new registration statement covering
the Registrable Securities remaining unsold, subject to the terms and provisions
hereof.
F. Each Holder agrees to provide the Company with any
information or undertakings reasonably requested by the Company in order for the
Company to include any appropriate information concerning the Holder in the
Registration Statement or in order to promote compliance by the Company or the
Holder with the Securities Act.
(g) The Company agrees that it shall cause each of its
directors, officers and shareholders owning ten percent (10%) or more of the
Company's outstanding Common Stock to refrain from selling any shares of the
Company's Common Stock until the Registration Statement has been declared
effective.
7. (h) Each Holder, on behalf of itself and its affiliates,
hereby covenants and agrees not to, directly or indirectly, offer to "short
sell", contract to "short sell" or otherwise "short sell" any securities of the
Company, including, without limitation, shares of Common Stock that will be
received as a result of the conversion of the Series A Stock or the exercise of
the Warrants.
8.
V. GOVERNING LAW. The Registrable Securities will be, if and when
issued, delivered in California. This Agreement shall be deemed to have been
made and delivered in the State of California and shall be governed as to
validity, interpretation, construction, effect and in all other respects by the
internal substantive laws of the State of California, without giving effect to
the choice of law rules thereof.
VI. AMENDMENT. This Agreement may only be amended by a written
instrument executed by the Company and the Holders.
VII. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of the parties hereto with respect to the subject matter hereof, and supersedes
all prior agreements and understandings of the parties, oral and written, with
respect to the subject matter hereof.
VIII. EXECUTION IN COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same document.
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IX. NOTICES. All communications hereunder shall be in writing and shall
be hand delivered, mailed by first-class mail, couriered by next-day air courier
or by facsimile at the addresses set forth below.
If to the Holders, Mercator Advisory Group, LLC
Mercator Momentum Fund, Ltd.
Mercator Momentum Fund, III, Ltd.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, Inc.
Road Town, Tortola
British Virgin Islands
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇ Magistrate,
Director
Facsimile: 357-2533-9316
With a copy to ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Hampton LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇
If to the Company, International Card Establishment, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
With a copy to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Inc.
A Law Corporation
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone No.: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
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All such notices and communications shall be deemed to have been duly given: (i)
when delivered by hand, if personally delivered; (ii) five business days after
being deposited in the mail, postage prepaid, if mailed certified mail, return
receipt requested; (iii) one business day after being timely delivered to a
next-day air courier guaranteeing overnight delivery; (iv) the date of
transmission if sent via facsimile to the facsimile number as set forth in this
Section or the signature page hereof prior to 4:00 p.m. on a business day, or
(v) the business day following the date of transmission if sent via facsimile at
a facsimile number set forth in this Section or on the signature page hereof
after 4:00 p.m. or on a date that is not a business day. Change of a party's
address or facsimile number may be designated hereunder by giving notice to all
of the other parties hereto in accordance with this Section.
X. BINDING EFFECT; BENEFITS. Any Holder may assign its rights
hereunder. This Agreement shall inure to the benefit of, and be binding upon,
the parties hereto and their respective heirs, legal representatives, successors
and assigns. Nothing herein contained, express or implied, is intended to confer
upon any person other than the parties hereto and their respective heirs, legal
representatives and successors, any rights or remedies under or by reason of
this Agreement.
XI. HEADINGS. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.
XII. SEVERABILITY. Any provision of this Agreement which is held by a
court of competent jurisdiction to be prohibited or unenforceable in any
jurisdiction(s) shall be, as to such jurisdiction(s), ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
XIII. JURISDICTION. Each of the parties irrevocably agrees that any and
all suits or proceedings based on or arising under this Agreement may be brought
only in and shall be resolved in the federal or state courts located in the City
of Los Angeles, California and consents to the jurisdiction of such courts for
such purpose. Each of the parties irrevocably waives the defense of an
inconvenient forum to the maintenance of such suit or proceeding in any such
court. Each of the parties further agrees that service of process upon such
party mailed by first class mail to the address set forth in Section 9 shall be
deemed in every respect effective service of process upon such party in any such
suit or proceeding. Nothing herein shall affect the right of either party to
serve process in any other manner permitted by law. Each of the parties agrees
that a final non-appealable judgment in any such suit or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on such judgment
or in any other lawful manner.
XIV. ATTORNEYS' FEES AND DISBURSEMENTS. If any action at law or in
equity is necessary to enforce or interpret the terms of this Agreement, the
prevailing party or parties shall be entitled to receive from the other party or
parties reasonable attorneys' fees and disbursements in addition to any other
relief to which the prevailing party or parties may be entitled.
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IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto as of the date first above written.
INTERNATIONAL CARD ESTABLISHMENT, INC.
By: _________________________________
Name: _________________________________
Its: Chief Executive Officer
ADDITIONAL SIGNATURES TO FOLLOW
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HOLDERS:
MERCATOR MOMENTUM FUND, L.P.
By: MERCATOR ADVISORY GROUP, LLC
Its: General Partner
By:_________________________________
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Its: Managing Member
MERCATOR MOMENTUM FUND III, L.P.
By: MERCATOR ADVISORY GROUP, LLC
Its: General Partner
By: ________________________________
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Its: Managing Member
▇▇▇▇▇▇▇▇ ▇▇▇▇, INC.
By: ________________________________
Name: ▇▇▇▇▇▇▇▇ ▇▇▇▇ Magistrate
Its: Director
MERCATOR ADVISORY GROUP, LLC
By: ________________________________
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Its: Managing Member
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