EXHIBIT 10.3
DIVERSIFIED PRODUCT INSPECTIONS, INC.
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This offering consists of up to $300,000 of the Company's Convertible
Debentures convertible into the Company's Common Stock.
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SUBSCRIPTION AGREEMENT
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SUBSCRIPTION PROCEDURES
Convertible Debentures of Diversified Product Inspections, Inc. (the
"Company") are being offered (the "Debentures"). This offering is being made in
accordance with the exemptions from registration provided for under Section 4(2)
of the Securities Act of 1933, as amended (the "1933 Act") and Rule 506 of
Regulation D promulgated under the 1933 Act.
In order to purchase Debentures, each subscriber must complete and execute
a questionnaire (the "Questionnaire") and a subscription agreement (the
"Subscription Agreement"). In addition, the subscriber must make a payment to an
escrow account for the amount being purchased. All subscriptions are subject to
acceptance by the Company, which shall not occur until the Company has returned
the signed Company Signature Page.
The Questionnaire is designed to enable the Purchaser to demonstrate
the minimum legal requirements under federal and state securities laws to
purchase the Debentures. The Signature Page for the Questionnaire and the
Subscription Agreement contain representations relating to the subscription and
should be reviewed carefully by each subscriber.
If you are a foreign person or foreign entity, you may be subject to a
withholding tax equal to 30% of any dividends paid by the Company. In order to
eliminate or reduce such withholding tax you must submit a properly executed
I.R.S. Form 4224 (Exemption from Withholding of Tax on Income Effectively
Connected with the Conduct of a Trade or Business in the United States) or
I.R.S. Form 1001 (Ownership Exemption or Reduced Trade Certificate), claiming
exemption from withholding or eligibility for treaty benefits in the form of a
lower rate of withholding tax on interest or dividends.
Payment must be made by wire transfer to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq. (the
"Escrow Agent") per the wire instructions that will be established. In the
event of a termination of the offering or the rejection of a subscription,
subscription funds will be returned by the Escrow Agent without interest or
charges.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. THE
SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
SUBSCRIPTION AGREEMENT
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To: DIVERSIFIED PRODUCT INSPECTIONS, INC.
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This Subscription Agreement is made between Diversified Product
Inspections, Inc., a Florida corporation, (the "Company"), and the undersigned
prospective purchaser ("Purchaser") who is subscribing hereby for the Company's
convertible debentures (the "Debentures"). This subscription is submitted to
you in accordance with and subject to the terms and conditions described in this
Subscription Agreement, together with any Exhibits thereto, relating to an
offering (the "Offering") of up to $300,000 of Debentures. The Offering is
limited to accredited investors and is made in accordance with the exemptions
from registration provided for under Section 4(2) of the 1933 Act and Rule 506
of Regulation D promulgated under the 1933 Act ("Regulation D").
1. SUBSCRIPTION.
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a The Purchaser hereby irrevocably subscribes for and agrees to
purchase $100,000 of the Company's Debentures upon the satisfaction of those
conditions set forth in Section 1(c)(i),(ii) and (iii), an additional $100,000
upon satisfaction of those conditions set forth in Section 1(c)(x),(y) and (z)
and an additional $100,000 upon satisfaction of those conditions set forth in
Section 1(c) (A) and (B). The Debentures shall pay a 6% cumulative interest,
payable in arrears at the time of each conversion, in cash or in common stock of
the Company, $.01 par value ("Common Stock"), at the Company's option. If paid
in Common Stock, the number of shares of the Company's Common Stock to be
received shall be determined pursuant to the conversion terms of the Debenture.
If the dividend is to be paid in cash, the Company shall make such payment
within five (5) business days of the conversion date. If the dividend is to be
paid in Common Stock, said Common Stock shall be delivered to the Purchaser, or
per Purchaser's instructions, within five (5) business days of the conversion
date. The Debentures are subject to automatic conversion at the end of three
(3) years from the date
of issuance at which time all Debentures outstanding will be automatically
converted based upon the terms set forth in the Debenture. The closing shall be
deemed to have occurred on the date funds, less escrow fees and attorney fees,
are received by the Company (the "Closing Date").
b Upon receipt by the Company of the requisite payment for the
Debentures being purchased, the Debentures so purchased will be forwarded by the
Escrow Agent to the Purchaser or its broker, as listed on the signature page,
and the name of such Purchaser will be registered on the Debenture transfer
books of the Company as the record owner of such Debentures. The Escrow Agent
shall not be liable for any action taken or omitted by him in good faith and in
no event shall the Escrow Agent be liable or responsible except for the Escrow
Agent's own gross negligence or willful misconduct. The Escrow Agent has made
no representations or warranties in connection with this transaction and has not
been involved in the negotiation of the terms of this Agreement or any matters
relative thereto. The Company and Purchaser each agree to indemnify and hold
harmless the Escrow Agent from and with respect to any suits, claims, actions or
liabilities arising in any way out of this transaction including the obligation
to defend any legal action brought which in any way arises out of or is related
to this Agreement.
c Conditions Precedent. The following shall be conditions precedent
to closing and release of funds from escrow: The first $100,000 shall be funded
upon (i) the signing of all documentation by the Company and Purchaser for a
$3,000,000 equity credit line financing (ii) the signing of all documentation by
the Company and Purchaser for the $100,000 Debenture financing and (iii)
delivery of original Debentures totaling $100,000 to the Escrow Agent. A second
tranche of $100,000 shall be funded to the Company by the Purchaser upon (x) the
signing of all documentation by the Company and Purchaser for the second tranche
of $100,000 Debenture financing, (y) the filing of a registration statement for
this Offering and the equity credit line financing and (z) delivery of original
Debentures totaling $100,000 to the Escrow Agent. As further conditions to the
funding of the second tranche in the amount of $100,000 it will only be funded
if, during the 20 trading days prior to funding, (i) the closing bid price has
not been less than $0.25, (ii) the daily average dollar trading volume (trading
volume x closing bid price by number of trading days) has not been less than
$20,000 and (iii) the number of shares of Common Stock being registered is not
less than 200% of the number of shares required to effect a conversion of the
totaling $300,000 Debentures, taking into account the number of Warrants issued
and accrued but unpaid interest and liquidated damages, if any. A third tranche
of $100,000 shall be funded to the Company upon (A) the signing of all
documentation by the Company and Purchaser for the third tranche of $100,000
debenture financing and (B) the effectiveness of the registration statement
covering all Common Stock to be registered in this Offering.
d The Purchaser shall receive Warrants (in the form attached hereto as
Exhibit F) to Purchase shares of the Company's Common Stock. Upon funding of
the first tranche, the Company will issue the Investor Warrants to purchase the
resulting number of shares of Common Stock, that equals the total amount being
funded in all three tranches, divided by the share price (5-day average closing
bid price prior to
closing). The corresponding Warrants will be exercisable for four (4) years from
the corresponding closing date of that tranche being funded, at 110% of the
5-day average closing bid price for the 5 trading days prior to the Closing Date
of each funding tranche and will carry a cashless provision only at the option
of the Company. The Common Stock underlying the Warrants shall be registered in
this Offering.
2. REPRESENTATIONS AND WARRANTIES.
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The Purchaser hereby represents and warrants to, and agrees with, the
Company as follows:
a. The Purchaser has been furnished with, and has carefully read the
applicable form of Registration Rights Agreement annexed hereto as Exhibit B
(the "Registration Rights Agreement"), and the Debenture annexed hereto as
Exhibit C and is familiar with and understands the terms of the Offering. With
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respect to tax and other economic considerations involved in his investment, the
Purchaser is not relying on the Company. The Purchaser has carefully considered
and has, to the extent the Purchaser believes such discussion necessary,
discussed with the Purchaser 's professional legal, tax, accounting and
financial advisors the suitability of an investment in the Company, by
purchasing the Debentures, for the Purchaser 's particular tax and financial
situation and has determined that the investment being made by the Purchaser is
a suitable investment for the Purchaser.
b. The Purchaser acknowledges that all documents, records, and books
pertaining to this investment which the Purchaser has requested have been made
available for inspection or the Purchaser has had access thereto.
c. The Purchaser has had a reasonable opportunity to ask questions of and
receive answers from a person or persons acting on behalf of the Company
concerning the Offering and if such opportunity was taken, all such questions
have been answered to the full satisfaction of the Purchaser.
d. The Purchaser will not sell or otherwise sell the Debentures or the
Common Stock issued upon conversion of the Debentures without registration under
the 1933 Act or applicable state securities laws or compliance with an exemption
therefrom. The Debentures have not been registered under the 1933 Act or under
the securities laws of any state. Resales of the Common Stock underlying the
Debentures or issued in payment of accrued interest on the Debentures are to be
registered by the Company pursuant to the terms of the Registration Rights
Agreement attached hereto as Exhibit B and incorporated herein and made a part
hereof. The Purchaser represents that the Purchaser is purchasing the
Debentures for the Purchaser's own account, for investment and not with a view
to resale or distribution except in compliance with the 1933 Act. The Purchaser
has not offered or sold any portion of the Debentures being acquired nor does
the Purchaser have any present intention of dividing the Debentures with others
or of selling, distributing or otherwise disposing of any portion of the
Debentures either currently or after the passage of a fixed or determinable
period of time or upon the occurrence or non-occurrence of any predetermined
event or circumstance in violation of
the 1933 Act. Except as provided in the Registration Rights Agreement, the
Company has no obligation to register the Common Stock underlying Debentures and
the Common Stock that may be issued in lieu of cash dividends.
e. The Purchaser recognizes that an investment in the Debentures involves
substantial risks, including loss of the entire amount of such investment.
Further, the Purchaser has carefully read and considered the schedule entitled
Pending Litigation matters attached hereto as Schedule 3(h).
f. The Purchaser acknowledges that each certificate representing the
Debentures (and the shares of Common Stock issued upon conversion of the
Debentures, unless registered) or in payment of dividends on the Debentures
shall be stamped or otherwise imprinted with a legend substantially in the
following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE OFFERED OR SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT (i) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER THE ACT (OR
ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR
(iii) PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER SUCH ACT.
If Purchaser sends a Notice of Conversion and indicates on said notice that the
conversion is for an immediate sale, then in such event the Company shall have
its transfer agent send Purchaser the appropriate number of shares of Common
Stock without restrictive legends and not subject to stop transfer instructions.
g. The Purchaser acknowledges and agrees that it shall not be entitled to
seek any remedies with respect to the Offering from any party other than the
Company.
h. If this Subscription Agreement is executed and delivered on behalf of a
corporation: (i) such corporation has the full legal right and power and all
authority and approval required (a) to execute and deliver, or authorize
execution and delivery of, this Subscription Agreement and all other instruments
(including, without limitation, the Registration Rights Agreement) executed and
delivered by or on behalf of such corporation in connection with the purchase of
the Debentures and (b) to purchase and hold the Debentures; and (ii) the
signature of the party signing on behalf of such corporation is binding upon
such corporation.
i. The Purchaser is not subscribing for the Debentures as a result of,
or pursuant to, any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio or presented at any seminar or meeting.
j. The Purchaser is purchasing the Debentures for its own account for
investment, and not with a view toward the resale or distribution thereof,
except pursuant to sales registered or exempted from registration under the 1933
Act; provided, however, that by making the representations herein, Purchaser
does not agree to hold any of the Debentures for any minimum or other specific
term and reserves the right to dispose of the Debentures at any time in
accordance with or pursuant to a registration statement or an exemption under
the 1933 Act. Purchaser is neither an underwriter of, nor a dealer in, the
Debentures or the Common Stock issuable upon conversion thereof or upon the
payment of dividends thereon and is not participating in the distribution or
resale of the Debentures or the Common Stock issuable upon conversion or
exercise thereof.
k. The Purchaser or the Purchaser's representatives, as the case may be, has
such knowledge and experience in financial, tax and business matters so as to
enable the Purchaser to utilize the information made available to the Purchaser
in connection with the Offering to evaluate the merits and risks of an
investment in the Debentures and to make an informed investment decision with
respect thereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
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Except as set forth in the Schedules attached hereto, the Company
represents and warrants to the Purchaser that:
a. Organization and Qualification. The Company and its "SUBSIDIARIES"
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(which for purposes of this Subscription Agreement means any entity in which the
Company, directly or indirectly, owns capital stock or holds an equity or
similar interest) (a complete list of which is set forth in Schedule 3(a)) are
corporations duly organized and validly existing in good standing under the laws
of the respective jurisdictions of their incorporation, and have the requisite
corporate power and authorization to own their properties and to carry on their
business as now being conducted. Each of the Company and its Subsidiaries is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not have
a Material Adverse Effect. As used in this Subscription Agreement, "MATERIAL
ADVERSE EFFECT" means any material adverse effect on the business, properties,
assets, operations, results of operations, financial condition or prospects of
the Company and its Subsidiaries, if any, taken as a whole, or on the
transactions contemplated hereby or by the agreements and instruments to be
entered into in connection herewith, or on the authority or ability of the
Company to perform its obligations under the Transaction Documents (as defined
in Section 3(b)below).
b. Authorization; Enforcement; Compliance with Other Instruments. (i)
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The Company has the requisite corporate power and authority to enter into and
perform this Subscription Agreement, the Registration Rights Agreement and the
Escrow Agreement, and each of the other agreements entered into by the parties
hereto in connection with the transactions contemplated by this Subscription
Agreement (collectively, the
"TRANSACTION DOCUMENTS"), and to issue the Debentures in accordance with the
terms hereof and thereof, (ii) the execution and delivery of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including without limitation the reservation
for issuance and the issuance of the Debentures pursuant to this Subscription
Agreement, have been duly and validly authorized by the Company's Board of
Directors and no further consent or authorization is required by the Company,
its Board of Directors, or its shareholders, (iii) the Transaction Documents
have been duly and validly executed and delivered by the Company, and (iv) the
Transaction Documents constitute the valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies.
c. Capitalization. As of the date hereof, the authorized capital stock
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of the Company consists of (i) 50,000,000 shares of Common Stock, of which as of
the date hereof, approximately 16,227,252 shares are issued and outstanding, -0-
shares of preferred stock are authorized of which -0- shares of preferred stock
are issued and outstanding and approximately 272,500 (as of April 10, 2002)
shares of Common Stock are issuable upon the exercise of options, warrants and
conversion rights. All of such outstanding shares have been, or upon issuance
will be, validly issued and are fully paid and nonassessable. Except as
disclosed in Schedule 3(c) which is attached hereto and made a part hereof, (i)
no shares of the Company's capital stock are subject to preemptive rights or any
other similar rights or any liens or encumbrances suffered or permitted by the
Company, (ii) there are no outstanding debt securities, (iii) there are no
outstanding shares of capital stock, options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, (iv) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
their securities under the 1933 Act (except the Registration Rights Agreement),
(v) there are no outstanding securities of the Company or any of its
Subsidiaries which contain any redemption or similar provisions, and there are
no contracts, commitments, understandings or arrangements by which the Company
or any of its Subsidiaries is or may become bound to redeem a security of the
Company or any of its Subsidiaries, (vi) there are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Securities as described in this Subscription Agreement, (vii)
the Company does not have any stock appreciation rights or "phantom stock" plans
or agreements or any similar plan or agreement and (viii) there is no dispute as
to the class of any shares of the Company's capital stock. The Company has
furnished to the Purchaser, or the Purchaser has had access through ▇▇▇▇▇ to,
true and correct copies of the Company's Articles of
Incorporation, as in effect on the date hereof (the "ARTICLES OF
INCORPORATION"), and the Company's By-laws, as in effect on the date hereof (the
"BY-LAWS '), and the terms of all securities convertible into or exercisable for
Common Stock and the material rights of the holders thereof in respect thereto.
d. Issuance of Debentures. A sufficient number of Debentures
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issuable pursuant to this Subscription Agreement, but not more than 19.99% of
the shares of Common Stock outstanding as of the date hereof (if the Company
becomes listed on Nasdaq or the American Stock Exchange), has been duly
authorized and reserved for issuance pursuant to this Subscription Agreement.
Upon issuance in accordance with this Subscription Agreement, the Debentures
will be validly issued, fully paid and nonassessable and free from all taxes,
liens and charges with respect to the issue thereof. In the event the Company
cannot register a sufficient number of shares of Common Stock, due to the
remaining number of authorized shares of Common Stock being insufficient, the
Company will use its best efforts to register the maximum number of shares it
can based on the remaining balance of authorized shares and will use its best
efforts to increase the number of its authorized shares as soon as reasonably
practicable.
e. No Conflicts. The execution, delivery and performance of the
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Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby will not (i) result in a violation
of the Articles of Incorporation, any Certificate of Designations, Preferences
and Rights of any outstanding series of preferred stock of the Company or the
By-laws or (ii) conflict with, or constitute a material default (or an event
which with notice or lapse of time or both would become a material default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, contract, indenture mortgage,
indebtedness or instrument to which the Company or any of its Subsidiaries is a
party, or result in a violation of any law, rule, regulation, order, judgment or
decree, including United States federal and state securities laws and
regulations and the rules and regulations of the principal securities exchange
or trading market on which the Common Stock is traded or listed (the "Principal
Market"), applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound or
affected. Except as disclosed in Schedule 3(e), neither the Company nor its
Subsidiaries is in violation of any term of, or in default under, the Articles
of Incorporation, any Certificate of Designations, Preferences and Rights of any
outstanding series of preferred stock of the Company or the By-laws or their
organizational charter or by-laws, respectively, or any contract, agreement,
mortgage, indebtedness, indenture, instrument, judgment, decree or order or any
statute, rule or regulation applicable to the Company or its Subsidiaries,
except for possible conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations that would not individually or in
the aggregate have a Material Adverse Effect. The business of the Company and
its Subsidiaries is not being conducted, and shall not be conducted, in
violation of any law, statute, ordinance, rule, order or regulation of any
governmental authority or agency, regulatory or self-regulatory agency, or
court, except for possible violations the sanctions for which either
individually or in the aggregate would not have a Material Adverse Effect.
Except as specifically contemplated by this Subscription Agreement and as
required under the 1933 Act, the Company is not required to obtain any consent,
authorization, permit or order of, or make any filing or registration (except
the filing of a registration statement) with, any court, governmental authority
or agency, regulatory or self-regulatory agency or other third party in order
for it to execute, deliver or perform any of its obligations under, or
contemplated by, the Transaction Documents in accordance with the terms hereof
or thereof. All consents, authorizations, permits, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof and are
in full force and effect as of the date hereof. Except as disclosed in Schedule
3(e), the Company and its Subsidiaries are unaware of any facts or circumstances
which might give rise to any of the foregoing. The Company is not, and will not
be, in violation of the listing requirements of the Principal Market as in
effect on the date hereof and on each of the Closing Dates and is not aware of
any facts which would reasonably lead to delisting of the Common Stock by the
Principal Market in the foreseeable future.
f. SEC Documents; Financial Statements. Since January 1, 2001, the
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Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the Securities and Exchange Commission ("SEC")
pursuant to the reporting requirements of the Securities and Exchange Act of
1934 ("1934 Act") (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the
"SEC DOCUMENTS"). The Company has delivered to the Purchaser or its
representatives, or they have had access through ▇▇▇▇▇, to true and complete
copies of the SEC Documents. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the 1934 Act and the
rules and regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, at the time they were filed with the
SEC, contained any untrue statement of a material fact or omitted 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. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other written information provided by or on behalf of the
Company to the Purchaser which is not included in the SEC Documents, including,
without limitation, information referred to in Section 3(d) of this Subscription
Agreement, contains any untrue statement of a material fact or omits to state
any material fact necessary to make the statements therein, in the light of the
circumstance under which they are or were made, not misleading. Neither the
Company nor any of its Subsidiaries or any of their officers,
directors, employees or agents have provided the Purchaser with any material,
nonpublic information which was not publicly disclosed prior to the date hereof
and any material, nonpublic information provided to the Purchaser by the Company
or its Subsidiaries or any of their officers, directors, employees or agents
prior to any Closing Date shall be publicly disclosed by the Company prior to
such Closing Date.
g. Absence of Certain Changes. Except as disclosed in Schedule 3(g) or
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the SEC Documents filed at least five (5) days prior to the date hereof, since
March 30, 2002, there has been no change or development in the business,
properties, assets, operations, financial condition, results of operations or
prospects of the Company or its Subsidiaries which has had or reasonably could
have a Material Adverse Effect. The Company has not taken any steps, and does
not currently expect to take any steps, to seek protection pursuant to any
bankruptcy law nor does the Company or its Subsidiaries have any knowledge or
reason to believe that its creditors intend to initiate involuntary bankruptcy
proceedings.
h. Absence of Litigation. Except as set forth in Schedule 3(h), there
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is no action, suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or body pending
or, to the knowledge of the executive officers of Company or any of its
Subsidiaries, threatened against or affecting the Company, the Common Stock or
any of the Company's Subsidiaries or any of the Company's or the Company's
Subsidiaries' officers or directors in their capacities as such, in which an
adverse decision could have a Material Adverse Effect.
i. Acknowledgment Regarding the Purchase of Debentures. The Company
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acknowledges and agrees that the Purchaser is acting solely in the capacity of
arm's length investor with respect to the Transaction Documents and the
transactions contemplated hereby and thereby. The Company further acknowledges
that the Purchaser is not acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to the Transaction Documents
and the transactions contemplated hereby and thereby and any advice given by the
Purchaser or any of its respective representatives or agents in connection with
the Transaction Documents and the transactions contemplated hereby and thereby
is merely incidental to the Purchaser's purchase of the Debentures. The Company
further represents to the Purchaser that the Company's decision to enter into
the Transaction Documents has been based solely on the independent evaluation by
the Company and its representatives.
j. No Undisclosed Events, Liabilities, Developments or Circumstances.
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No event, liability, development or circumstance has occurred or exists, or to
its knowledge is contemplated to occur, with respect to the Company or its
Subsidiaries or their respective business, properties, assets, prospects,
operations or financial condition, that would be required to be disclosed by the
Company under applicable securities laws on a registration statement filed with
the SEC relating to an issuance and sale by the Company of its Common Stock and
which has not been publicly announced.
k. Employee Relations. Neither the Company nor any of its Subsidiaries
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is involved in any union labor dispute nor, to the knowledge of the Company or
any of its Subsidiaries, is any such dispute threatened. Neither the Company nor
any of its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that relations with their employees are
good. No executive officer (as defined in Rule 501(f) of the ▇▇▇▇ ▇▇▇) has
notified the Company that such officer intends to leave the Company's employ or
otherwise terminate such officer's employment with the Company.
l. Intellectual Property Rights. The Company and its Subsidiaries own
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or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service ▇▇▇▇ registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. Except as set forth on Schedule 3(l), none of the
Company's trademarks, trade names, service marks, service ▇▇▇▇ registrations,
service names, patents, patent rights, copyrights, inventions, licenses,
approvals, government authorizations, trade secrets or other intellectual
property rights necessary to conduct its business as now or as proposed to be
conducted have expired or terminated, or are expected to expire or terminate
within two years from the date of this Subscription Agreement. The Company and
its Subsidiaries do not have any knowledge of any infringement by the Company or
its Subsidiaries of trademark, trade name rights, patents, patent rights,
copyrights, inventions, licenses, service names, service marks, service ▇▇▇▇
registrations, trade secret or other similar rights of others, or of any such
development of similar or identical trade secrets or technical information by
others and, except as set forth on Schedule 3(l), there is no claim, action or
proceeding being made or brought against, or to the Company's knowledge, being
threatened against, the Company or its Subsidiaries regarding trademark, trade
name, patents, patent rights, invention, copyright, license, service names,
service marks, service ▇▇▇▇ registrations, trade secret or other infringement;
and the Company and its Subsidiaries are unaware of any facts or circumstances
which might give rise to any of the foregoing. The Company and its Subsidiaries
have taken reasonable security measures to protect the secrecy, confidentiality
and value of all of their intellectual properties.
m. Environmental Laws. The Company and its Subsidiaries (i) are in
-------------------
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval where, in each of the three
foregoing cases, the failure to so comply would have, individually or in the
aggregate, a Material Adverse Effect.
n. Title. The Company and its Subsidiaries have good and marketable
-----
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its Subsidiaries, in
each case free and clear of all liens, encumbrances and defects except such as
are described in Schedule 3(n) or such as do not materially affect the value of
such property and do not interfere with the use made and proposed to be made of
such property by the Company or any of its Subsidiaries. Any real property and
facilities held under lease by the Company or any of its Subsidiaries are held
by them under valid, subsisting and enforceable leases with such exceptions as
are not material and do not interfere with the use made and proposed to be made
of such property and buildings by the Company and its Subsidiaries.
o. Insurance. The Company and each of its Subsidiaries are insured by
---------
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.
p. Regulatory Permits. The Company and its Subsidiaries have in full
-------------------
force and effect all certificates, approvals, authorizations and permits from
the appropriate federal, state, local or foreign regulatory authorities and
comparable foreign regulatory agencies, necessary to own, lease or operate their
respective properties and assets and conduct their respective businesses, and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
approval, authorization or permit, except for such certificates, approvals,
authorizations or permits which if not obtained, or such revocations or
modifications which, would not have a Material Adverse Effect.
q. Internal Accounting Controls. The Company and each of its
------------------------------
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
r. No Materially Adverse Contracts, Etc. Neither the Company nor any
--------------------------------------
of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement which in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.
s. Tax Status. The Company and each of its Subsidiaries has made or
-----------
filed all United States federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject
(unless and only to the extent that the Company and each of its Subsidiaries has
set aside on its books provisions reasonably adequate for the payment of all
unpaid and unreported taxes) and has paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be
due on such returns, reports and declarations, except those being contested in
good faith and has set aside on its books provision reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company know of no basis for any such claim.
t. Certain Transactions. Except as set forth on Schedule 3(t) and in
---------------------
the SEC Documents filed at least ten days prior to the date hereof and except
for arm's length transactions pursuant to which the Company makes payments in
the ordinary course of business upon terms no less favorable than the Company
could obtain from third parties and other than the grant of stock options
disclosed on Schedule 3(c), none of the officers, directors, or employees of the
Company is presently a party to any transaction with the Company or any of its
Subsidiaries (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
u. Dilutive Effect. The Company understands and acknowledges that the
----------------
number of shares of Common Stock issuable upon purchases pursuant to this
Subscription Agreement will increase in certain circumstances including, but not
necessarily limited to, the circumstance wherein the trading price of the Common
Stock declines following the effective date of the registration statement
covering the Common Stock underlying the Debentures (the "Effective Date"). The
Company's executive officers and directors have studied and fully understand the
nature of the transactions contemplated by this Subscription Agreement and
recognize that they have a potential dilutive effect. The board of directors of
the Company has concluded, in its good faith business judgment, that such
issuance is in the best interests of the Company. The Company specifically
acknowledges that, subject to such limitations as are expressly set forth in the
Transaction Documents, its obligation to issue shares of Common Stock upon
purchases pursuant to this Subscription Agreement is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other shareholders of the Company.
v. Right of First Refusal. During the two (2) year period following the
------------------------
first funding tranche of $100,000, the Company shall not, directly or
indirectly, without the prior written consent of the Purchasers in this
Offering, offer, sell, grant any option to
purchase, or otherwise dispose of (or announce any offer, sale, grant or any
option to purchase or other disposition) any of its Common Stock or securities
convertible into Common Stock at a price that is less than the market price of
the Common Stock at the time of issuance of such security or investment (a
"SUBSEQUENT FINANCING") for a period of one year after the Effective Date,
except (i) the granting of options or warrants to employees, officers, directors
and consultants, and the issuance of shares upon exercise of options granted,
under any stock option plan heretofore or hereinafter duly adopted by the
Company, (ii) shares issued upon exercise of any currently outstanding warrants
or options and upon conversion of any currently outstanding convertible
debenture or convertible preferred stock, in each case disclosed pursuant to
Section 3(c), (iii) securities issued in connection with the capitalization or
creation of a joint venture with a strategic partner, (iv) shares issued to pay
part or all of the purchase price for the acquisition by the Company of another
entity (which, for purposes of this clause (iv), shall not include an individual
or group of individuals), and (v) shares issued in a bona fide public offering
by the Company of its securities, and (vi) shares that may be issued as a result
of any outstanding rights offering between the Company and its current
stockholders, unless (A) the Company delivers to Purchaser a
------
written notice (the "SUBSEQUENT FINANCING NOTICE") of its intention to effect
such Subsequent Financing, which Subsequent Financing Notice shall describe in
reasonable detail the proposed terms of such Subsequent Financing, the amount of
proceeds intended to be raised thereunder, the person with whom such Subsequent
Financing shall be effected, and attached to which shall be a term sheet or
similar document relating thereto and (B) Purchaser shall not have notified the
Company by 5:00 p.m. (New York time) on the fifth (5th) business day after its
receipt of the Subsequent Financing Notice of its willingness to provide,
subject to completion of mutually acceptable documentation, financing to the
Company on substantially the terms set forth in the Subsequent Financing Notice.
The Purchaser shall also have the option of switching the terms of this Offering
to the terms of any new financing during this period. If Purchaser shall fail
to notify the Company of its intention to enter into such negotiations within
such time period, then the Company may effect the Subsequent Financing
substantially upon the terms set forth in the Subsequent Financing Notice;
PROVIDED THAT the Company shall provide Purchaser with a second Subsequent
Financing Notice, and Purchaser shall again have the right of first refusal set
forth above in this Section, if the Subsequent Financing subject to the initial
Subsequent Financing Notice shall not have been consummated for any reason on
the terms set forth in such Subsequent Financing Notice within thirty (30)
business days after the date of the initial Subsequent Financing Notice. The
rights granted to Purchaser in this Section are not subject to any prior right
of first refusal given to any other person except as disclosed on Schedule 3(c).
w. Other Financing. For a period of 180 days from the CLOSING DATE,
----------------
the Company may not enter into any discounted stock or floating convertible
transaction requiring a registration without written approval of the Investor,
other than Common Stock to be issued in an underwritten public offering or
pursuant to the agreed upon equity line of credit.
x. Secured Debenture. The Company represents and warrants that it is
------------------
aware of the security agreement being entered into between ▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇
▇▇▇▇▇ and ▇▇▇ ▇▇▇▇▇▇▇, as a pledgors of 4,000,000 shares of the Company's common
stock and the Purchaser, ____________ as the secured party. The Company
understands that the Purchaser is relying on the security agreement and the
stock being pledged in the event the Company defaults in the terms of the
Subscription Agreement, Registration Rights Agreement or Debentures being
entered into between the Company and Purchaser. Furthermore, the Company
understands that were it not for this accommodation pledge being made by ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇ ▇▇▇▇▇▇▇, the Purchaser would not be subscribing
for the Debentures. Therefore, the Company represents and warrants that in the
event it defaults by failing to (i) have the registration statement covering
this Offering filed within ninety (90) calendar days of the Closing Date of the
first tranche of $100,000 or (ii) have declared effective within one hundred
eighty (180) calendar days of the Closing Date of the first tranche of $100,000,
or (iii) respond within thirty (30) calendar days of receipt of comments from
the SEC, that it will cooperate with the Purchaser and do everything necessary
to have the legend removed from the pledged shares to facilitate their sale
pursuant to the terms of the security agreement. The Company also represents
and acknowledges that the Debenture is a full recourse loan being made by the
Company and that in the event the 4,000,000 shares are not sufficient to cover
130% of principal plus liquidated damages that the Company shall be completely
liable and responsible to pay any deficiency to the Purchaser including
liquidated damages as stated in this Subscription Agreement or the Debentures,
and reasonable attorney's fees and costs.
4. COVENANTS OF THE COMPANY
---------------------------
a. Best Efforts. The Company shall use its best efforts timely to
-------------
satisfy each of the conditions to be satisfied by it as provided in this
Subscription Agreement.
b. Blue Sky. The Company shall, at its sole cost and expense take such
--------
action as the Company shall reasonably determine is necessary to qualify the
Common Stock underlying the shares for, or obtain exemption for the same for,
sale to the Purchaser under applicable securities or "Blue Sky" laws of such
states of the United States, as specified by Purchaser. The Company shall, at
its sole cost and expense, make all filings and reports relating to the offer
and sale of the Common Stock underlying the Debentures as required under the
applicable securities or "Blue Sky" laws of such states of the United States as
specified by the Purchaser.
c. Reporting Status. Until the earlier of (i) the date that the
-----------------
Purchaser may sell all of the Common Stock underlying the shares acquired
pursuant to this Subscription Agreement without restriction pursuant to Rule
144(k) promulgated under the 1933 Act (or successor thereto), or (ii) the date
on which the Purchaser shall have sold all the Common Stock underlying the
Debentures, the Company shall file all reports required to be filed with the SEC
pursuant to the 1934 Act, and the Company shall not terminate its status as a
reporting company under the 1934 Act.
d. Use of Proceeds. The Company will use the proceeds from the sale of
---------------
the Debentures (excluding amounts paid by the Company for fees as set forth in
the Transaction Documents) for general corporate and working capital purposes.
The Company may pay ▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇ ▇▇▇▇▇▇▇, up to $7,500
each in back wages out of the second and third funding tranches of $100,000.
e. Financial Information. The Company agrees to make available to the
----------------------
Purchaser via ▇▇▇▇▇ or other electronic means the following: (i) within five (5)
business days after the filing thereof with the SEC, a copy of its Annual
Reports on Form 10-KSB, its Quarterly Reports on Form 10-QSB, any Current
Reports on Form 8-K and any Registration Statements or amendments filed pursuant
to the 1933 Act; (ii) on the same day as the release thereof, facsimile copies
of all press releases issued by the Company or any of its Subsidiaries, (iii)
copies of any notices and other information made available or given to the
shareholders of the Company generally, contemporaneously with the making
available or giving thereof to the shareholders and (iv) within two (2) calendar
days of filing or delivery thereof, copies of all documents filed with, and all
correspondence sent to, the Principal Market, any securities exchange or market,
or the National Association of Securities Dealers, Inc.
f. Reservation of Common Stock. Subject to the following sentence, the
---------------------------
Company shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance, a sufficient number of shares of Common
Stock to provide for the issuance of the Common Stock underlying the Debentures.
In the event that the Company determines that it does not have a sufficient
number of authorized shares of Common Stock to reserve and keep available for
issuance, the Company shall use its best efforts to increase the number of
authorized shares of Common Stock by seeking shareholder approval for the
authorization of such additional shares.
g. Listing. The Company shall promptly secure the listing of all of
-------
the Common Stock underlying the Debentures upon the Principal Market and each
other national securities exchange and automated quotation system, if any, upon
which shares of Common Stock are then listed (subject to official notice of
issuance) and shall maintain, such listing. The Company shall maintain the
Common Stock's authorization for quotation on the Principal Market, unless the
Purchaser and the Company agree otherwise. Neither the Company nor any of its
Subsidiaries shall take any action which would be reasonably expected to result
in the delisting or suspension of the Common Stock on the Principal Market
(excluding suspensions of not more than one trading day resulting from business
announcements by the Company). The Company shall promptly provide to the
Purchaser copies of any notices it receives from the Principal Market regarding
the continued eligibility of the Common Stock for listing on such automated
quotation system or securities exchange. The Company shall pay all fees and
expenses in connection with satisfying its obligations under this Section.
h. Transactions With Affiliates. The Company shall not, and shall
------------------------------
cause each of its Subsidiaries not to, enter into, amend, modify or supplement,
or permit any Subsidiary to enter into, amend, modify or supplement, any
agreement, transaction,
commitment or arrangement with any of its or any Subsidiary's officers,
directors, persons who were officers or directors at any time during the
previous two years, shareholders who beneficially own 5% or more of the Common
Stock, or affiliates or with any individual related by blood, marriage or
adoption to any such individual or with any entity in which any such entity or
individual owns a 5% or more beneficial interest (each a "RELATED PARTY"),
except for (i) customary employment arrangements and benefit programs on
reasonable terms, (ii) any agreement, transaction, commitment or arrangement on
an arms-length basis on terms no less favorable than terms which would have been
obtainable from a person other than such Related Party, or (iii) any agreement,
transaction, commitment or arrangement which is approved by a majority of the
disinterested directors of the Company. For purposes hereof, any director who is
also an officer of the Company or any Subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment or arrangement. "AFFILIATE" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or indirectly,
(i) has a 5% or more equity interest in that person or entity, (ii) has 5% or
more common ownership with that person or entity, (iii) Controls that person or
entity, or (iv) shares common control with that person or entity. "CONTROL" or
"CONTROLS" for purposes hereof means that a person or entity has the power,
direct or indirect, to conduct or govern the policies of another person or
entity.
i. Intentionally deleted.
-----------------------
j. Corporate Existence. The Company shall use its best efforts to
--------------------
preserve and continue the corporate existence of the Company.
k. Notice of Certain Events Affecting Registration. The Company shall
------------------------------------------------
promptly notify Purchaser upon the occurrence of any of the following events in
respect of a registration statement or related prospectus covering the Common
Stock underlying the Debentures: (i) receipt of any request for additional
information by the SEC or any other federal or state governmental authority
during the period of effectiveness of the registration statement for amendments
or supplements to the registration statement or related prospectus; (ii) the
issuance by the SEC or any other federal or state governmental authority of any
stop order suspending the effectiveness of any registration statement or the
initiation of any proceedings for that purpose; (iii) receipt of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Common Stock underlying the Debentures for sale
in any jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in such
registration statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the registration statement, related
prospectus or documents so that, in the case of a registration statement, 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 not misleading, and that in the case of the related prospectus, 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 the light of the circumstances under which they were made, not
misleading; and (v) the Company's reasonable determination that a post-effective
amendment to the registration statement would be appropriate, and the Company
shall promptly make available to Purchaser any such supplement or amendment to
the related prospectus.
l. Indemnification. In consideration of the Purchaser's execution and
----------------
delivery of the this Agreement and the Registration Rights Agreement and
acquiring the Debentures hereunder and in addition to all of the Company's other
obligations under the Transaction Documents, the Company shall defend, protect,
indemnify and hold harmless the Purchaser and all of their shareholders,
officers, directors, employees and direct or indirect investors and any of the
foregoing person's agents or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "Indemnitees") from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys' fees and disbursements
(the "Indemnified Liabilities"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (i) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(ii) any breach of any covenant, agreement or obligation of the Company
contained in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (iii) any cause of action, suit or
claim brought or made against such Indemnitee by a third party and arising out
of or resulting from the execution, delivery, performance or enforcement of the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (iv) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of the issuance
of the Debentures or (v) the status of the Purchaser as an investor in the
Company, except insofar as any such untrue statement, alleged untrue statement,
omission or alleged omission is made in reliance upon and in conformity with
written information furnished to the Company by the Purchaser which is
specifically intended by the Purchaser for use in the preparation of any such
Registration Statement, preliminary prospectus or prospectus. To the extent that
the foregoing undertaking by the Company may be unenforceable for any reason,
the Company shall make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities which is permissible under applicable
law. The indemnity provisions contained herein shall be in addition to any cause
of action or similar rights the Purchaser may have, and any liabilities to which
the Purchaser may be subject.
m. Reimbursement. If (i) Purchaser, other than by reason of its gross
-------------
negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by any shareholder of the Company,
in connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if Purchaser is impleaded in any
such action, proceeding or investigation by any person, or (ii) Purchaser, other
than by reason of its gross negligence or willful misconduct or by reason of its
trading of the Common Stock in a manner that is
illegal under the federal securities laws, becomes involved in any capacity in
any action, proceeding or investigation brought by the SEC against or involving
the Company or in connection with or as a result of the consummation of the
transactions contemplated by the Transaction Documents, or if Purchaser is
impleaded in any such action, proceeding or investigation by any person, then in
any such case, the Company will reimburse Purchaser for its reasonable legal and
other expenses (including the cost of any investigation and preparation)
incurred in connection therewith, as such expenses are incurred. In addition,
other than with respect to any matter in which Purchaser is a named party, the
Company will pay to Purchaser the charges, as reasonably determined by
Purchaser, for the time of any officers or employees of Purchaser 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 this
Subscription Agreement. The reimbursement obligations of the Company under this
section shall be in addition to any liability which the Company may otherwise
have, shall extend upon the same terms and conditions to any affiliates of
Purchaser that are actually named in such action, proceeding or investigation,
and partners, directors, agents, employees, attorneys, accountants, auditors and
controlling persons (if any), as the case may be, of Purchaser and any such
affiliate, and shall be binding upon and inure to the benefit of any successors
of the Company, Purchaser and any such affiliate and any such person.
5. LIMITATION ON AMOUNT OF CONVERSION AND OWNERSHIP.
------------------------------------------------------
Notwithstanding anything to the contrary in this Agreement, in no
event shall the Purchaser be entitled to convert any of the Debentures to the
extent that, after such conversion, that number of shares of Common Stock, which
when added to the sum of the number of Debentures beneficially owned, (as such
term is defined under Section 13(d) and Rule 13d-3 of the Securities Exchange
Act of 1934 (the "1934 ACT")), by the Purchaser, would exceed 4.99% of the
number of shares of Common Stock outstanding on the Conversion Date (as that
term is defined in the Debenture), as determined in accordance with Rule
13d-1(j) of the 1934 Act. In no event shall the Purchaser purchase shares of the
Common Stock other than pursuant to this Subscription Agreement and the
Debenture until such date as the Purchaser has fully converted the Debentures
into Common Stock.
6. OPINION LETTER/BOARD RESOLUTION
---------------------------------
Prior to or on the Closing Date the Company shall deliver to the Escrow
Agent an opinion letter signed by counsel for the Company in the form attached
hereto as Exhibit D. Also, prior to or on the Closing Date the Company shall
deliver to the Escrow Agent a signed Board Resolution authorizing this Offering,
which shall be attached hereto as Exhibit E.
7. DELIVERY INSTRUCTIONS; FEES
-----------------------------
The Debentures being purchased hereunder shall be delivered to ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇ as Escrow Agent, who will hold them in escrow until the Closing Date at
which time funds (less escrow fees and attorneys fees) will be wired to the
Company and the Debentures will be delivered to the Purchaser, per the
Purchaser's instructions.
Upon closing ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq. shall receive 222,222 shares of the
Company's Common Stock which shall be registered along with the Common Stock
underlying the Debentures for document preparation.
The Company at its sole option may redeem the shares for $20,000 within 90
days following the Closing Date.
8. UNDERSTANDINGS.
--------------
The undersigned understands, acknowledges and agrees with the Company as
follows:
FOR ALL SUBSCRIBERS:
a. This Subscription may be rejected, in whole or in part, by the
Company in its sole and absolute discretion at any time before the date set for
closing unless the Company has given notice of acceptance of the undersigned's
subscription by signing this Subscription Agreement and delivering it to
Purchaser.
b. No U.S. federal or state agency or any agency of any other
jurisdiction has made any finding or determination as to the fairness of the
terms of the Offering for investment nor any recommendation or endorsement of
the Debentures or the Company.
c. The representations, warranties and agreements of the undersigned
and the Company contained herein shall be true and correct in all material
respects on and as of the date of the sale of the Debentures as if made on and
as of such date and shall survive the execution and delivery of this
Subscription Agreement and the purchase of the Debentures.
d. In making an investment decision, purchasers must rely on their own
examination of the company and the terms of the offering, including the merits
and risks involved. The shares have not been recommended by any federal or
state securities commission or regulatory authority. Furthermore, the foregoing
authorities have not confirmed the accuracy or determined the adequacy of this
document. Any representation to the contrary is a criminal offense.
e. The Offering is intended to be exempt from registration by virtue of
Section 4(2) of the 1933 Act and the provisions of Regulation D thereunder,
which is in part dependent upon the truth, completeness and accuracy of the
statements made by the undersigned herein and in the Questionnaire.
f. It is understood that in order not to jeopardize the Offering's
exempt status under Section 4(2) of the 1933 Act and Regulation D, any purchaser
may, at a minimum, be required to fulfill the investor suitability requirements
thereunder.
g. The shares may not be resold except as permitted under the
securities act and applicable state securities laws, pursuant to registration or
exemption therefrom. Purchasers should be aware that they will be required to
bear the financial risks of this investment for an indefinite period of time.
9. SUBMISSION TO JURISDICTION
----------------------------
a. Forum Selection and Consent to Jurisdiction. Any litigation
based thereon, or arising out of, under, or in connection with, this Agreement
or any course of conduct, course of dealing, statements (whether oral or
written) or actions of the Company or Purchaser shall be brought and maintained
exclusively in the courts of the state of New York. The Company hereby
expressly and irrevocably submits to the jurisdiction of the state and federal
Courts of the state of New York for the purpose of any such litigation as set
forth above and irrevocably agrees to be bound by any final judgment rendered
thereby in connection with such litigation. The Company further irrevocably
consents to the service of process by registered mail, postage prepaid, or by
personal service within or without the State of New York. The Company hereby
expressly and irrevocably waives, to the fullest extent permitted by law, any
objection which it may have or hereafter may have to the laying of venue of any
such litigation brought in any such court referred to above and any claim that
any such litigation has been brought in any inconvenient forum. To the extent
that the Company has or hereafter may acquire any immunity from jurisdiction of
any court or from any legal process (whether through service or notice,
attachment prior to judgment, attachment in aid of execution or otherwise) with
respect to itself or its property. The Company hereby irrevocably waives such
immunity in respect of its obligations under this agreement and the other loan
documents.
b. Waiver of Jury Trial. The Purchaser and the Company hereby
knowingly, voluntarily and intentionally waive any rights they may have to a
trial by jury in respect of any litigation based hereon, or arising out of,
under, or in connection with, this agreement, or any course of conduct, course
of dealing, statements (whether oral or written) or actions of the Purchaser or
the Company. The Company acknowledges and agrees that it has received full and
sufficient consideration for this provision and that this provision is a
material inducement for the Purchaser entering into this agreement.
c. Submission To Jurisdiction. Any legal action or proceeding in
connection with this Agreement or the performance hereof may be brought in the
state and federal courts located in New York, and the parties hereby irrevocably
submit to the non-exclusive jurisdiction of such courts for the purpose of any
such action or proceeding.
10. MISCELLANEOUS.
-------------
a. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Subscription Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided a
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) day after deposit with a
nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
Diversified Product Inspections, Inc.
▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇ ▇▇▇▇, CEO
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇ ▇▇▇▇▇▇, Esq.
▇▇▇▇, ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
If to the Investor:
At the address listed in the Questionnaire.
With a copy to:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Each party shall provide five (5) business days prior notice to the other
party of any change in address, phone number or facsimile number.
b. All pronouns and any variations thereof used herein shall be deemed
to refer to the masculine, feminine, impersonal, singular or plural, as the
identity of the person or persons may require.
c. Neither this Subscription Agreement nor any provision hereof shall
be waived, modified, changed, discharged, terminated, revoked or canceled,
except by an instrument in writing signed by the party effecting the same
against whom any change, discharge or termination is sought.
d. Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
or sent by facsimile transmission: (i) if to the Company, at it's executive
offices or (ii) if to the Purchaser, at the address for correspondence set forth
in the Questionnaire, or at such other address as may have been specified by
written notice given in accordance with this paragraph.
e. This Subscription Agreement shall be enforced, governed and
construed in all respects in accordance with the laws of the State of Florida,
as such laws are applied by Florida courts to agreements entered into, and to be
performed in, Florida by and between residents of Florida, and shall be binding
upon the undersigned, the undersigned's heirs, estate and legal representatives
and shall inure to the benefit of the Company and its successors. If any
provision of this Subscription Agreement is invalid or unenforceable under any
applicable statue or rule of law, then such provisions shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any provision hereof that
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision hereof.
f. This Agreement shall not be assignable.
g. This Subscription Agreement, together with Exhibits A, B, C, D, E
and F attached hereto and made a part hereof, constitute the entire agreement
between the parties hereto with respect to the subject matter hereof and may be
amended only by a writing executed by both parties hereto.
h. This Subscription Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
Execution and delivery of this Subscription Agreement by exchange of facsimile
copies bearing the facsimile signature of a party shall constitute a valid and
binding execution and delivery of this Subscription Agreement by such party.
Such facsimile copies shall constitute enforceable original documents.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK)
DIVERSIFIED PRODUCT INSPECTIONS, INC.
QUESTIONNAIRE
The information contained in this Questionnaire is being furnished in order
to determine whether the undersigned's subscription to purchase the Debentures
described in the Subscription Agreement may be accepted.
ALL INFORMATION CONTAINED IN THIS QUESTIONNAIRE WILL BE TREATED
CONFIDENTIALLY. The undersigned understands, however, that the Company may
present this Questionnaire to such parties as it deems appropriate if called
upon to establish that the proposed offer and sale of the Securities is exempt
from registration under the 1933 Act, as amended. Further, the undersigned
understands that the offering is required to be reported to the Securities and
Exchange Commission, NASDAQ and to various state securities and "blue sky"
regulators.
IN ADDITION TO SIGNING THE SIGNATURE PAGE, IF REQUESTED BY THE COMPANY, THE
UNDERSIGNED MUST COMPLETE FORM W-9.
I. PLEASE CHECK EACH OF THE STATEMENTS BELOW THAT APPLIES.
1. The undersigned: (a) has total assets in excess of $5,000,000; (b) was not
formed for the specific purpose of acquiring the securities and (c) has its
principal place of business in ___________.
2. The undersigned is a natural person whose individual net worth* or joint net
worth with his or her spouse exceeds $1,000,000.
3. The undersigned is a natural person who had an individual income* in excess
of $200,000 in each of the two most recent years and who reasonably expects an
individual income in excess of $200,000 in the current year. Such income is
solely that of the undersigned and excludes the income of the undersigned's
spouse.
4. The undersigned is a natural person who, together with his or her spouse, has
had a joint income* in excess of $300,000 in each of of the two most recent
years and who reasonably expects a joint income in excess of $300,000 in the
current year.
* For purposes of this Questionnaire, the term "net worth" means the excess
of total assets over total liabilities. In determining "income", an investor
should add to his or her adjusted gross income any amounts attributable to
tax-exempt income received, losses claimed as a limited partner in any limited
partnership, deductions claimed for depletion, contributions to ▇▇▇ or ▇▇▇▇▇
retirement plan, alimony payments and any amount by which income from long-term
capital gains has been reduced in arriving at adjusted gross income.
5. The undersigned is:
(a) a bank as defined in Section 3(a)(2) of the 1933 Act; or
(b) a savings and loan association or other institution as defined in
Section 3(a)(5)(A) of the 1933 Act whether acting in its individual or
fiduciary capacity; or
(c) a broker or dealer registered pursuant to Section 15 of the 1934
Act; or
(d) an insurance company as defined in Section 2(13) of the 1933 Act;
or
(e) An investment company registered under the Investment Company Act
of 1940 or a business development company as defined in Section 2(a)(48)of
the Investment Company Act of 1940; or
(f) a small business investment company licensed by the U.S. Small
Business Administration under Section 301 (c) or (d) of the Small Business
Investment Act of 1958; or
X 6. The undersigned is an entity in which all of the equity owners are
accredited investors.
II. INVESTOR INFORMATION.
(A) IF THE UNDERSIGNED IS AN INDIVIDUAL:
Name
_____________________________________________
Street Address __________________________________
City, State, Zip Code _________________________
Phone ____________________ Fax _________________
Social Security Number _________________________
Send Correspondence to:
_______________________________________________
_______________________________________________
_______________________________________________
(B) IF THE UNDERSIGNED IS NOT AN INDIVIDUAL:
Name of Entity SOFCON LIMITED
__________________________________
Person's Name ▇▇▇ ▇▇▇▇▇▇▇▇ Title Director
State of Organization Belize
Principal Business Address ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇, Zip Code Belize City, Belize
Taxpayer Identification Number __________________
Phone ▇▇▇▇▇▇▇▇▇▇▇ Fax ▇▇▇▇▇▇▇▇▇▇▇
Send Correspondence to:
_______________________________________________
▇/▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇
Edipicio ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇
DIVERSIFIED PRODUCT INSPECTIONS, INC.
SIGNATURE PAGE
--------------
Your signature on this Signature Page evidences your agreement to be bound
by the Questionnaire, Subscription Agreement and Registration Rights Agreement.
1. The undersigned hereby represents that (a) the information contained
in the Questionnaire is complete and accurate and (b) the undersigned will
notify DIVERSIFIED PRODUCT INSPECTIONS, INC. immediately if any material change
in any of the information occurs prior to the acceptance of the undersigned's
subscription and will promptly send DIVERSIFIED PRODUCT INSPECTIONS, INC.
written confirmation of such change.
2. The undersigned signatory hereby certifies that he/she has read and
understands the Subscription Agreement and Questionnaire, and the
representations made by the undersigned in the Subscription Agreement and
Questionnaire are true and accurate.
$100,000 April 25, 2002
______________________________ ________________________
Amount of Debentures being purchased Date
By: /s/ ▇▇▇ ▇▇▇▇▇▇▇▇
________________________
(Signature)
Name: ▇▇▇ ▇▇▇▇▇▇▇▇
________________________
(Please Type or Print)
Title: Director
________________________
(Please Type or Print)
COMPANY ACCEPTANCE PAGE
-----------------------
This Subscription Agreement accepted and agreed
to this 25th day of April, 2002.
DIVERSIFIED PRODUCT INSPECTIONS, INC.
By /s/ ▇▇▇▇ ▇▇▇ ▇▇▇▇
__________________________________
▇▇▇▇ ▇▇▇ ▇▇▇▇, CEO
Exhibit A
NOTICE OF CONVERSION
--------------------
(To be Executed by the Registered Owner in order to Convert Debenture)
The undersigned hereby irrevocably elects, as of ________________, to
convert $________________ of its convertible debenture (the "Debenture") into
Common Stock of DIVERSIFIED PRODUCT INSPECTIONS, INC. (the "Company") according
to the conditions set forth in the Debenture issued by the Company. This
conversion is being made for an immediate sale.
Date of Conversion________________________________________________
Applicable Conversion Price________________________________________
Number of Shares Issuable upon this Conversion_______________________
Name (Print)_____________________________________________________
Address________________________________________________________
_________________________________________________________
Phone_________________________ Fax______________________________
By:_______________________________________
------
EXHIBIT D
---------
Purchasers of [Company] [Describe Securities] _______________, 2002
Re: [Company]
Ladies and Gentlemen:
We have acted as counsel to [Company], a corporation incorporated under the
laws of the State of _________ (the "Company"), in connection with the proposed
issuance and sale of convertible debentures (the "Securities") pursuant to the
related Subscription Agreement (including all Exhibits and Appendices thereto)
(collectively the "Agreements").
In connection with rendering the opinions set forth herein, we have
examined drafts of the Agreement, the Company's Certificate of Incorporation,
and its Bylaws, as amended to date [other documents - describe], 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.
In conducting our examination, we have assumed the following: (i) that
each of the Agreements has been executed by each of the parties thereto in the
same form as the forms which we have examined, (ii) the genuineness of all
signatures, the legal capacity of natural persons, the authenticity and accuracy
of all documents submitted to us as originals, and the conformity to originals
of all documents submitted to us as copies, (iii) that each of the Agreements
has been duly and validly authorized, executed and delivered by the party or
parties thereto other than the Company, and (iv) that each of the Agreements
constitutes the valid and binding agreement of the party or parties thereto
other than the Company, enforceable against such party or parties in accordance
with the Agreements' terms.
Based upon the subject to the foregoing, we are of the opinion that:
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of __________, is duly
qualified to do business as a foreign corporation and is in good standing in all
jurisdictions where the Company owns or leases properties, maintains employees
or conducts business, except for jurisdictions in which the failure to so
qualify would not have a material adverse effect on the Company, and has all
requisite corporate power and authority to own its properties and conduct its
business.
2. The authorized capital stock of the Company consists of -_______
shares of Common Stock, ________ par value per share, ("Common Stock") and
______________ Preferred Stock, par value $________ per share; [describe classes
if applicable]
3. The Common Stock is registered pursuant to Section 12(b) or Section
12(g) of the Securities Exchange Act of 1934, as amended and the Company has
timely filed all the material required to be filed pursuant to Sections 13(a) or
15(d) of such Act for a period of at least twelve months preceding the date
hereof;
4. When duly countersigned by the Company's transfer agent and
registrar, and delivered to you or upon your order against payment of the agreed
consideration therefor in accordance with the provisions of the Agreements, the
Securities [and any Common Stock to be issued upon the conversion of the
Securities] as described in the Agreements represented thereby will be duly
authorized and validly issued, fully paid and nonassessable;
5 The Company has the requisite corporate power and authority to enter
into the Subscription Agreement and to sell and deliver the Securities and the
Common Stock to be issued upon the conversion of the Securities as described in
the Agreements; each of the Agreements has been duly and validly authorized by
all necessary corporate action by the Company to our knowledge, no approval of
any governmental or other body is required for the execution and delivery of
each of the Agreements by the Company or the consummation of the transactions
contemplated thereby; 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, except as
enforceability may be limited by general equitable principles, bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other laws
affecting creditors rights generally, and except as to compliance with federal,
state, and foreign securities laws, as to which no opinion is expressed;
6. To the best of our knowledge, after due inquiry, the execution,
delivery and performance of the Subscription Agreement and Securities by the
Company and the performance of its obligations thereunder 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 (i) the
Company's Certificate of Incorporation or By-Laws, (ii) any indenture, mortgage,
deed of trust, agreement or other instrument to which the Company is party or by
which it or any of its property is bound, (iii) any applicable statute or
regulation or as other, (iv) or any judgment, decree or order of any court or
governmental body having jurisdiction over the Company or any of its property.
7. The issuance of Common Stock upon conversion of the Securities in
accordance with the terms and conditions of the Securities and the Subscription
Agreement, will not violate the applicable listing agreement between the Company
and any securities exchange or market on which the Company's securities are
listed.
8. To the best of our knowledge, after due inquiry, there is no pending
or threatened litigation, investigation or other proceedings against the Company
[except as described in Exhibit A hereto].
9. The Company complies with the eligibility requirements for the use
of [Form SB-3] [Form SB-2], under the Securities Act of 1933, as amended.
This opinion is rendered only with regard to the matters set out in the
numbered paragraphs above. No other opinions are intended nor should they be
inferred. This opinion is based solely upon the laws of the United States and
the State of _____________ and does not include an interpretation or statement
concerning the laws of any other state or jurisdiction. Insofar as the
enforceability of the Subscription Agreement and Securities may be governed by
the laws of other states, we have assumed that such laws are identical in all
respects to the laws of the State of ___________.
The opinions expressed herein are given to you solely for your use in
connection with the transaction contemplated by the Subscription Agreement and
Securities and may not be relied upon by any other person or entity or for any
other purpose without our prior consent.
Very truly yours,
By: _____________________
LIST OF EXHIBITS
-----------------
EXHIBIT A Notice of Conversion
EXHIBIT B Registration Rights Agreement
EXHIBIT C Debenture
EXHIBIT D Opinion of Company's Counsel
EXHIBIT E Board Resolution
EXHIBIT F Warrant
LIST OF SCHEDULES
-----------------
Schedule 3(a) Subsidiaries
Schedule 3(c) Capitalization
Schedule 3(e) Conflicts
Schedule 3(g) Material Changes
Schedule 3(h) Litigation
Schedule 3(l) Intellectual Property
Schedule 3(n) Liens
Schedule 3(t) Certain Transactions
SCHEDULE 3(a) SUBSIDIARIES
NONE.
SCHEDULE 3(c) CAPITALIZATION
None other than as disclosed in the Company's last 10-QSB.
SCHEDULE 3(e) CONFLICTS
NONE.
SCHEDULE 3(g) MATERIAL CHANGES
NONE.
SCHEDULE 3(h) LITIGATION
NONE.
SCHEDULE 3(l) INTELLECTUAL PROPERTY
NONE.
SCHEDULE 3(n) LIENS
NONE
SCHEDULE 3(t) CERTAIN TRANSACTIONS
NONE.