SUBSCRIPTION AGREEMENT
THE SECURITIES, INCLUDING THE UNDERLYING SECURITIES, WHICH
ARE THE SUBJECT OF THIS SUBSCRIPTION AGREEMENT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1993, AS
AMENDED, (THE "ACT") OR UNDER THE LAWS OF ANY STATE OR
OTHER JURISDICTION. THEY MAY NOT BE OFFERED OR SOLD IN
THE UNITED STATES OR TO U.S. PERSONS (AS THAT TERM IS
DEFINED IN REGULATION S UNDER THE ACT), UNLESS THEY ARE
REGISTERED UNDER THE ACT AND UNDER THE LAWS OF THE STATES
WHERE EACH SALE IS MADE, OR AN EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS IS AVAILABLE IN THE OPINION OF
COUNSEL TO THE HOLDER THEREOF SATISFACTORY TO THE COMPANY
AND ITS COUNSEL.
BALMORE FUNDS ▇.▇.
▇▇▇▇▇▇▇▇ Morax
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
Fax No.: ▇▇▇-▇▇▇-▇▇▇-▇▇▇▇
You (the "Subscriber") hereby agree to purchase, and ▇▇▇▇
Communications, Inc., a Delaware corporation (the "Company") hereby agrees to
issue and to sell to the Subscriber, a convertible subordinated note of the
Company in the principal amount of $500,000.00 and in the form annexed as
Exhibit A (the "Note"), convertible in accordance with the terms thereof into
shares of the Company's common stock (the "Company Shares"). (The Company
Shares are sometimes referred to herein as the "Shares"). (The Note and the
Company Shares are collectively referred to herein as, the "Securities").
Upon acceptance of this Agreement by the Subscriber, the Company shall issue
and deliver to the Subscriber the Note against payment, by federal funds
(U.S.) Wire transfer of the principal amount of the Note.
The following terms and conditions shall apply to this
subscription
1. Subscriber's Representations and Warranties. The
Subscriber hereby represents and warrants to and agrees with the Company that:
(a) Information on Company. The Subscriber has been
furnished with and has read the Company's registration statement on Form SB-2
as filed with the U.S. Securities and Exchange Commission (the "Commission")
on July 23, 1997, and all of its Forms ▇▇-▇▇▇, ▇▇-▇▇▇ and 8-K reports filed
subsequent thereto, (collectively, with exhibits thereto, hereinafter
referred to as the "Reports"). In addition, the Subscriber has received from
the Company such other information concerning its operations, financial
condition and other matters as the Subscriber has requested, and considered
all factors the Subscriber deems material in deciding on the advisability of
investing in the Securities (such information in writing is collectively, the
"Other Written Information").
(b) Information on Subscriber. The Subscriber is an
"accredited investor", as such term is defined in Regulation D promulgated by
the Commission under the Act, is experienced in investments and business
matters, has made investments of a speculative nature and has purchased
securities of United States publicly-owned companies in the past and, with
its representatives, has such knowledge and experience in financial, tax and
other business matters as to enable the Subscriber to utilize the information
made available by the Company to evaluate the merits and risks of and to make
an informed investment decision with respect to the proposed purchase, which
represents a speculative investment. The Subscriber has the authority and is
duly and legally qualified to purchase and own the Securities.
(c) Site and Condition of Sale. The Subscriber is not a
U.S. Person (as that term is defined in Exhibit B attached hereto). At the
time of the buy order and execution of this Agreement by the Subscriber,
Subscriber was outside the U.S. The Subscriber acknowledges that neither the
Subscriber, its affiliates or persons acting on its behalf nor the Company
solicited this offer to purchase the Securities within the United States and
that the sale of the Note and Company Shares will not take place within the
United States (for this purpose, the "United States" means the Unites States
of America, its territories and possessions, and any state of the United
States and the District of Columbia). The Subscriber also acknowledges that
the Securities have not been registered under the laws of any other country
or jurisdiction and that the Company takes no responsibility for complying
with any such laws, the Subscriber agrees to comply with all applicable
securities laws in connection with any subsequent disposition of such
Securities.
(d) Investment Intent. The Subscriber is subscribing
for the Securities for its own account and benefit and not as a nominee or
for the account of any other person or entity or any U.S. Person. To the
best knowledge of the Subscriber, there are no distributors Participating in
this offering. The Subscriber has no present intention of selling or
distributing the Securities or any part thereof. The Subscriber has
sufficient financial resources to hold the Securities for an indefinite
period of time.
(e) No Market Manipulation; Short Sales. The Subscriber
has not taken, and will not take, directly or indirectly, any action
designed to, or that might reasonably be expected to, cause or result in a
manipulation of the price of the Company Shares, including making, or causing
to be made, any short sales of the Company's common stock during the
Restricted Period, as defined in Section 4 hereof, or thereafter more than
two (2) business days prior to a conversion.
(f) No Offer in United States. No offer to buy the
Securities was made to the Company by the Subscriber in the United States.
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(g) No Pre-Arranged Transaction. The transactions
contemplated by this Agreement:
(i) Have not been pre-arranged with a purchaser who
is in the United States or is a U.S. Person; and
(ii)are not part of a plan or scheme to evade the
registration provisions of the Act.
(h) No Directed Selling Efforts in Regard to this
Transaction. Neither the Subscriber, nor to the best knowledge of the
Subscriber, the Company nor any person acting for the Subscriber, the
Company or any distributor has conducted any "directed selling efforts" as
that term is defined in Regulation S. Such activity includes, without
limitation, but is not limited to the mailing of printed material to
investors residing in the United States, the holding of promotional seminars
in the United States, the placement of advertisements with radio or
television stations broadcasting in the United States or in publications with
a general circulation in the United States, which discuss the offering of
Securities.
(i) Correctness of Representations. The Subscriber
represents that the foregoing representations and warranties are true and
correct as of the date hereof and, unless the Subscriber otherwise notifies
the Company prior to the Closing Date, shall be true and correct as of the
Closing Date. The foregoing representations and warranties shall survive the
Closing Date.
2. Company Representations and Warranties. The Company
represents and warrants to and agrees with the Subscriber that:
(a) Due Incorporation. The Company and each of its
subsidiaries has been duly incorporated and is validly existing as a
corporation in good standing under the laws of Delaware.
(b) Outstanding Stock. All issued and outstanding
shares of capital stock of the Company and each of its subsidiaries has been
duly authorized and validly issued and are fully paid and non-assessable.
(c) Authority; Enforceability. This Agreement has been
duly authorized, executed and delivered by the Company and is a valid and
binding agreement enforceable 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; and the Company has
full corporate power and authority necessary to enter into this Agreement and
to perform its obligations hereunder.
(d) Additional Issuances. There are no outstanding
agreements or preemptive or similar rights affecting the Company's common
stock and no outstanding rights, warrants or options to acquire, or
instruments convertible into or exchangeable for, or agreements or
understandings with respect to the sale or issuance of, any shares of common
stock or equity of the Company or other equity interest in any of the
subsidiaries of the Company, except as described in the Reports or Other
Written Information.
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(e) Consents. No consent, approval, authorization or
order of any court, governmental agency or body or arbitrator having
jurisdiction over the Company, or any of its affiliates is required for
execution of this Agreement, including, without limitation, issuance and sale
of the Note and the issuance of the Shares upon any conversion of the Note or
the performance of obligations hereunder.
(f) No Violation or Conflict. Assuming the
representations and warranties of the Subscriber in Paragraph 1 are true and
correct and the Subscriber complies with its obligations under this
Agreement, neither the sale of the Note nor any conversion of the Note, nor
the issuance of the Company Shares upon any conversion of the Note nor the
performance of its obligations under this Agreement by the Company will:
(i) violate, conflict with, result in a breach of,
or constitute a default (or an event which with the giving of notice of the
lapse of time or both would be reasonably likely to constitute a default)
under (A) the articles of incorporation, charter or bylaws of the Company, or
any of its affiliates, (B) any decree, judgment, order, law, treaty, rule,
regulation or determination applicable to the Company, or any of its
affiliates of any court, governmental agency or body, or arbitrator having
jurisdiction over the Company, or any of its affiliates or over the
properties or assets of the Company, or any of its affiliates, (C) the terms
of any bond, debenture, note or any other evidence of indebtedness, or any
agreement, stock option or other similar plan, indenture, lease, mortgage,
deed of trust or other instrument to which the Company, or any of its
affiliates is a party, by which the Company, or any of its affiliates is
bound, or to which any of the properties of the Company, or any of its
affiliates is subject, or (D) the terms of any "lock-up" or similar provision
of any underwriting or similar agreement to which the Company, or any of its
affiliates is a party; or
(ii)result in the creation or imposition of any
lien, charge or encumbrance upon the Securities or any of the assets of the
Company, or any of its affiliates.
(g) The Securities. The Securities upon issuance:
(i) are, or will be, free and clear of any security
interests, liens, claims or other encumbrances;
(ii)have been, or will be, duly and validly
authorized and on the date of issuance and on the date payment for the Note
is transmitted to the Company (hereinafter the "Closing Date") or the
Conversion Date as such term is defined in the Note (hereinafter the
"Conversion Date"), as the case may be, the Note and Shares issuable upon
conversion of the Note, will be duly and validly issued, fully paid and
nonassessable;
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(iii) will not have been issued or sold in
violation of any preemptive or other similar rights of the holders of any
securities of the Company;
(iv) will not subject the holders thereof to
personal liability by reason of being such holders; and
(v) the Company Shares, are quoted on, and to the
best knowledge of Company will be, at the completion of the Restricted
Period, eligible for trading on, the National Association of Securities
Dealers Automated Quotations Systems ("NASDAQ") SmallCap Market.
(h) Litigation. There is no pending or, to the best
knowledge of the Company, threatened action, suit, proceeding or
investigation before any court, governmental agency or body, or arbitrator
having jurisdiction over the Company, or any of its affiliates that would
materially affect the execution by the Company or the performance by the
Company of its obligations under this Agreement.
(i) No Directed Selling Efforts in Regard to this
Transaction. Neither the Company nor any distributor, if any, participating
in the offering of the Securities nor any person acting for the Company or
any such distributor has conducted any "directed selling efforts" as that
term is defined in Regulation S. Such activity includes, without limitation,
the mailing of printed material to investors residing in the United States,
the holding of promotional seminars in the United States, the placement of
advertisements with radio or television stations broadcasting in the United
States or in publications with a general circulation in the United States,
which discuss the offering of the Securities.
(j) No Market Manipulation. The Company has not taken,
and will not take, directly or indirectly, any action designed to, or that
might reasonably be expected to, cause or result in stabilization or
manipulation of the price of the common stock of the Company to facilitate
the sale or resale of the Company Shares or affect the price at which the
Company Shares are purchasable upon conversion of the Note.
(k) Reporting Company. The Company is a publicly held
company whose common stock is (and has been for the past 90 days) registered
pursuant to Section 12(g) of the Securities Exchange Act of 1934 (the "1934
Act") and is duly listed for trading on The NASDAQ SmallCap Market. Pursuant
to the provisions of the 1934 Act, the Company has filed all reports and
other materials required to be filed thereunder with the Securities and
Exchange Commission during the preceding twelve months.
(1) Information Concerning Company. The Reports and
Other Written Information contain all material information relating to the
Company and its operations and financial condition as of their respective
dates which information is required to be disclosed therein. Since the date
of the financial statements set forth in the Reports, there has been no
material adverse change in the Company's business, financial condition or
affairs not disclosed in the Reports. The Reports and Other Written
5
Information do not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
(m) Offer to Buy. No offer to buy the Note was made to
the Company by any person in the United States.
(n) Pre-Arranged Transaction. The transactions
contemplated by this Agreement:
(i) have not been pre-arranged with a purchaser who
is in the United States or is a U.S. Person; and
(ii) are not part of a plan or scheme to evade the
registration provisions of the Act.
(o) Stop Transfer. The Company has not issued, and will
not issue any stop transfer order or other order impeding the sale and
delivery of the Securities, or any underlying shares except as may be
required by Regulation S, as same may be amended. No restrictive legend will
be imprinted on the Company Shares except as may be required by Regulation S,
as amended. Such legend will be a self-liquidating legend printed on a
separate sheet of paper and stapled to the Company Shares but not imprinted
directly on the share certificates. The Company's transfer agent will be
instructed by the Company to deem the legend removed from the Company Shares
on the 41st day after the Closing Date. The self-liquidating legend shall be
as follows:
"The Securities represented hereby have not been
registered under the United States Securities Act of
1933, as amended (the "Act"), and until December 2,
1997 (41 days from the issue date of the Convertible
Note, which such securities underlie) may not be
offered or sold in the United States (as defined in
Regulation S under the Act) or to, or for the
account or benefit of U.S. Persons (as defined in
Regulation S under the Act), and only then pursuant
to registration under the Act or an exemption from
the registration requirements of the Act and
applicable state securities laws."
(p) Use of Funds. The proceeds of this subscription
and an additional subscription accepted by the Company on or about the date
hereof in the aggregate principal amount of $1,000,000 will be employed by
the Company approximately as follows: calling card machine parts -$24,000;
Debitlink Terminals - $472,500; EBT Development -$25,000; Taxes -$100,000;
Payables -$137,000; Working Capital and Miscellaneous - $241,500.
(q) Correctness of Representations. The Company
represents that the foregoing representations and warranties are true and
correct as of the date hereof and, unless the Company otherwise notifies the
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Subscriber prior to the Closing Date, shall be true and correct as of the
Closing Date. The foregoing representations and warranties shall survive the
Closing Date.
3. Regulation S Offering. The sale of Securities hereby is
being made pursuant to Rule 903(c)(2) of Regulation S, and is intended to
comply with the provisions of Regulation S. The Securities have not been and
will not be registered under the Act or under the securities laws of any
state or jurisdiction of the United States ("State Laws"). On the Closing
Date, the Company will provide an opinion acceptable to Subscriber from the
Company's legal counsel opining on the availability of the Regulation S
exemption as it relates to the offer and issuance of the Note, and conversion
of the Note. A form of the legal opinion is annexed hereto as Exhibit C.
Upon conversion of the Note, the Company Shares will be freely transferable
on the books and records of the Company, except as may be required by
Regulation S as same may be amended.
4. Conversion of Note; Transfer of Securities. The Note will
not be converted by Subscriber until at least the 41st day from the date the
Subscriber purchases the Note. Neither the Note nor the Shares may be
transferred or resold to any U.S. Person until the 41st day from the date the
Subscriber purchases the Note (the "Restriction Period") and then only in
accordance with the Act and applicable State Laws in the opinion of counsel
of the holder thereof satisfactory to the Company and its counsel which will
not be unreasonably withheld. The Subscriber agrees that it is solely
responsible for compliance therewith with respect to any such transfer or
resale. On the Closing Date, the Company will provide the opinion of its
counsel described in Section 3 above, which opinion is acceptable to Company
and its counsel.
5. Reverse Split. The Company shall give the
Subscriber not less than twenty (20) days' prior written notice of any
proposed combination of shares or other reclassification or recapitalization
of the common stock resulting in a reduction of the number of Shares issuable
upon conversion of the Note, and the Subscriber shall have the right to
consult with the Company with respect to such proposed combination or
recapitalization.
6. Legal Fees. The Subscriber shall be responsible for its
own legal fees in connection with the review of this Subscription Agreement
and Exhibits.
7. Covenants of the Company. The Company covenants and agrees
with the Subscriber to:
(a) use its best efforts to continue to comply with all
applicable reporting requirements of the Exchange Act;
(b) refrain form engaging, and insure that none of its
affiliates will engage, in any Directed Selling Efforts, as defined in
Regulation S, with respect to the Securities;
(c) advise the Subscriber, promptly after it
receives notice of issuance by the Commission, any state securities
commission or any other regulatory authority of any stop order or of any
7
order preventing or suspending the use of any offering of any securities of
the Company, or of the suspension of the qualification of the common stock
of the Company for offering or sale in any jurisdiction, or the initiation of
any proceeding for any such purpose.
8. Covenants of the Company and Subscriber Regarding
Indemnifications.
(i) The Company agrees to indemnify, hold
harmless, reimburse and defend Subscriber against any claim, costs, expense,
liability, obligation, loss or damage (including reasonable legal fees) of
any nature, incurred by or imposed upon Subscriber which results, arises out
of or is based upon (a) any misrepresentation by Company or breach of any
warranty by Company in this Agreement or in any Exhibits or Schedules
attached hereto, or Reports or other Written Information; or (b) any
breach or default in performance by Company of any covenant or undertaking to
be performed by Company hereunder.
(ii) Subscriber agrees to indemnify, hold harmless,
reimburse and defend the Company at all times against any claim, costs,
expense, liability, obligation, loss or damage (including reasonable legal
fees) of any nature, incurred by or imposed upon the Company which results,
arises out of or is based upon (a) any misrepresentation by Subscriber in
this Agreement or in any Exhibits or Schedules attached hereto; or (b) any
breach or default in performance by Subscriber of any covenant or undertaking
to be performed by Subscriber hereunder.
9. Escrow of Shares. In order to fulfill the Company's
obligation to deliver the Company Shares upon conversion of the Note, the
Company shall, deliver to Grushko & ▇▇▇▇▇▇▇ (the "Escrow Agent"), prior to
the Closing Date 1,150,000 shares of Common Stock of the Company (the
"Escrowed Shares") as described in Section 2(o) of this Subscription
Agreement to be held in escrow, While held in escrow, the Escrowed Shares and
any additional shares of Common Stock which may be later deliver by the
Company to be held in escrow as set forth below shall not be deemed
issued and outstanding for any purpose nor shall any holder of the Note have
any voting or dispositive rights thereto. The certificate representing the
Escrowed Shares shall not bear a restrictive legend or have a stop transfer
order placed against it on the books of the Company's transfer agent except
as may be required by Regulation S, as same may be amended. The terms and
conditions of escrow shall be set forth in an escrow agreement in the form
annexed as Exhibit D hereto (the "Escrow Agreement"). The Company shall
deliver to the Escrow Agent, from time to time, at the request of the
Subscriber within three (3) business days after notice to the Company of such
request, such additional Company Shares in the form described in Section 2(o)
of this Subscription Agreement, as would be necessary to allow conversion of
the entire principal and interest of the Note at the then applicable
Conversion Price, as defined in Section 2 of the Convertible Note, and
further subject to the terms of Section 2.1(b) of the Convertible Note.
10. Registration Rights: Procedure; Indemnification.
10.1. Registration Rights.
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(a) If available under the securities laws in effect on
the date of conversion, the shares of Common Stock issuable upon full or
partial conversion of the Note shall be issued pursuant to Regulation S of
the Act and shall be transferable and assignable pursuant to Regulation S.
Provided the shares issued upon the conversion of the Note so then qualify,
the Company acknowledges its obligation to issue the shares without any
restrictive or other legend. The Company acknowledges that it is the
Company's obligation to issue the Company Shares upon conversion of the Note,
without any restrictive legend, as freely transferable shares on the books
and records of the Company except as may be required by Regulation S, as same
may be amended. Notwithstanding the foregoing, if in the reasonable judgment
of the holder of the Note the Company Shares that may be acquired upon
conversion of the Note cannot upon issuance, be resold in the United States
without any holding period, restrictive legend or unless registered under the
Act:
(i) On one occasion, for a period commencing 41
days after the date hereof, but not later than two years from the date
hereof, the Company, upon a written request therefor from any record holder
or holders of more than 50% of the aggregate of the Company's shares issuable
or issued on the conversion of the Notes which are still held by the
Subscribers on the day the Shares are no longer transferable without any
restrictive legend (the common stock of the Company issued and issuable on
conversion of the Note being, the "Registrable Securities"), shall prepare
and file with the SEC a registration statement under the Act covering the
Registrable Securities which are the subject of such request. In addition,
upon the receipt of such request, the Company shall promptly give written
notice to all other record holders of the Registrable Securities that such
registration statement is to be filed and shall include in such registration
statement Registrable Securities for which it has received written requests
within 20 days after the Company gives such written notice. Such other
requesting record holders shall be deemed to have exercised their demand
registration right under this Section 10.1. As a condition precedent to the
inclusion of Registrable Securities, the holder thereof shall provide the
Company with such information as the Company reasonably requests and the
Holder shall enter into an appropriate underwriting agreement with the
underwriter(s), if any, of the Registrable Securities. The obligation of the
Company under this Section 10.1(a) (i) shall be limited to one registration
statement.
(ii) If the Company at any time proposes to register
any of its securities under the Act for sale to the public, whether for its
own account or for the account of other security holders or both, except with
respect to registration statements on Forms ▇-▇, ▇-▇ or another form not
available for registering the Registrable Securities that may be acquired
upon exercise of the Note for sale to the public, provided the Registrable
Securities are not otherwise registered for resale by the Subscriber pursuant
to an effective registration statement, each such time it will give at least
30 days' prior written notice to the record holder of the Registrable
Securities of its intention so to do. Upon the written request of the holder,
received by the Company within 30 days after the giving of any such notice by
the Company, to register any of the Registrable Securities, the Company will
cause such Registrable Securities as to which registration shall have been so
requested to be included in the securities to be covered by the registration
statement proposed to be filed by the Company, all to the extent required to
permit the sale or other disposition of the Registrable Securities so
9
registered by the holder of such Registrable Securities (the "Seller"). In
the event that any registration pursuant to this Section 10.1 shall be, in
whole or in part, an underwritten public offering of common stock of the
Company, the number of shares of Registrable Securities to be included in
such an underwriting may be reduced by the managing underwriter if and to the
extent that the Company and the underwriter shall be of the opinion that such
inclusion would adversely affect the marketing of the securities to be sold
by the Company therein; provided, however, that the Company shall notify the
Seller in writing of any such reduction. Notwithstanding the forgoing
provisions, the Company may withdraw any registration statement referred to
in this Section 10.1 without thereby incurring any liability to the Seller.
(iii) If, at the time any written request for
registration is received by the Company pursuant to Section 10.l(a)(i), the
Company has determined to proceed with the actual preparation and filing of a
registration statement under the Act in connection with the proposed offer
and sale for cash of any of its securities for the Company's own account,
such written request shall be deemed to have been given pursuant to Section
10.1(a) (ii) rather than Section 10.1(a)(i), and the rights of the holders of
Registrable Securities covered by such written request shall be governed by
Section 10.l(a)(ii).
(iv) The Company will include for registration all
of the Registrable Securities in the Company's pending registration statement
filed with the Commission on Form SB-2. The Company will use its best efforts
to keep such registration statement current until the later of the
Convertible Note being fully paid or sale by the Subscriber of the
Registrable Securities without restriction on further resale.
10.2. Registration Procedures. If and whenever the Company is
required by the provisions hereof to effect the registration of any shares of
Registrable Securities under the Act, the Company will, as expeditiously as
possible:
(a) prepare and file with the Commission a
registration statement with respect to such securities and use its best
efforts to cause such registration statement to become and remain effective
for the period of the distribution contemplated thereby (determined as
hereinafter provided):
(b) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for the period specified in paragraph (a) above and comply with the
provisions of the Act with respect to the disposition of all of the
Registrable Securities covered by such registration statement in accordance
with the Seller's intended method of disposition set forth in such
registration statement for such period;
(c) furnish to the Seller, and to each underwriter if
any, such number of copies of the registration statement and the prospectus
included therein (including each preliminary prospectus) as such persons
reasonably may request in order to facilitate the public sale or their
disposition of the securities covered by such registration statement;
10
(d) use its best efforts to register or qualify the
Seller's Registrable Securities covered by such registration statement under
the securities or "blue sky" laws of such jurisdictions as the Seller or, in
the case of an underwritten public offering, the managing underwriter shall
reasonably request, provided, however, that the Company shall not for any
such purpose be required to qualify generally to transact business as a
foreign corporation in any jurisdiction where it is not so qualified or to
consent to general service of process in any such jurisdiction;
(e) list the Registrable Securities covered by such
registration statement with any securities exchange on which the Registrable
Securities of the Company is then listed;
(f) immediately notify the Seller and each
underwriter under such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Act, of the happening
of any event of which the Company has knowledge as a result of which the
prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing;
(g) make available for inspection by the Seller, any
underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by the Seller
or underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors and employees to supply all information reasonably requested by the
seller, underwriter, attorney, accountant or agent in connection with such
registration statement.
(h) at the request of the Holder, provided a demand for
registration has been made pursuant to Section 10.1(a) (i) or a request for
registration has been made pursuant to Section 10.1(a) (ii), the shares
issuable upon the conversion of the unpaid note will be included in a
registration statement filed pursuant to this Section 10.
In the event of a firm commitment underwritten public offering in
which the Registrable Securities are so included, the Company will use its
best efforts to insure that any lockup, if any, requested by the managing
underwriter of such Registrable Securities, not exceed 120 days after the
effective date thereof.
In connection with each registration hereunder, the Seller will
furnish to the Company in writing such information with respect to itself and
the proposed distribution by it as reasonably shall be necessary in order to
assure compliance with federal and applicable state securities laws. In
connection with each registration pursuant to this Section 10 covering an
underwritten public offering, the Company and the Seller agree to enter into
a written agreement with the managing underwriter in such form and containing
such provisions as are customary in the securities business for such an
arrangement between such underwriter and companies of the Company's size and
investment stature.
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10.3. Expenses. All expense's incurred by the Company in
complying with Section 10, including, without limitation, all registration
and filing fees, printing expenses, fees and disbursements of counsel
and independent public accountants for the Company, fees and expenses
(including counsel fees) incurred in connection with complying with state
securities or "blue sky" laws, fees of the National Association of Securities
Dealers, Inc., transfer taxes, fees of transfer agents and registrars and
costs of insurance are called "Registration Expenses". All underwriting
discounts and selling commissions applicable to the sale of Registrable
Securities, including any fees and disbursements of any special counsel to
the Seller, are called "Selling Expenses". The Seller shall pay the fees of
its own counsel, if any.
The Company will pay all Registration Expenses in connection with
each registration statement under Section 10. All Selling Expenses in
connection with each registration statement under Section 10 shall be borne
by the Seller in proportion to the number of shares sold by the Seller
relative to the number of shares sold under such registration statement or as
all sellers thereunder may agree.
10.4. Indemnification and Contribution.
(a) In the event of a registration of any Registrable
Securities under the Act pursuant to Section 10, the Company will indemnify
and hold harmless the Seller, each officer of the Seller, each director of
the Seller, each underwriter of such Registrable Securities thereunder and
each other person, if any, who controls such Seller or underwriter within the
meaning of the Act, against any losses, claims, damages or liabilities, joint
or several, to which the Seller, or such underwriter or controlling person
may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such
Registrable Securities was registered under the Act pursuant to Section 10,
any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
and will reimburse the Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any such case if and to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by any such Seller, the underwriter or
any such controlling person in writing specifically for use in such
registration statement or prospectus.
(b) In the event of a registration of any of the
Registrable Securities under the Act pursuant to Section 10, the Seller will
indemnify and hold harmless the Company, each person, if any, who controls
the Company within the meaning of the Act, each officer of the Company who
signs the registration statement, each director of the Company, each
underwriter and each person who controls any underwriter within the meaning
12
of the Act, against all losses, claims, damages or liabilities, joint or
several, to which the Company or such officer, director, underwriter or
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement under
which such Registrable Securities were registered under the Act pursuant to
Section 10, any preliminary prospectus or final prospectus contained therein,
or any amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
and will reimburse the Company and each such officer, director, underwriter
and controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
damage, liability or action, provided, however, that the Seller will be
liable hereunder in any such case if and only to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with information pertaining to such Seller,
as such, furnished in writing to the Company by such Seller specifically for
use in such registration statement or prospectus, and provided, further,
however, that the liability of the Seller hereunder shall be limited to the
proportion of any such loss, claim, damage, liability or expense which is
equal to the proportion that the public offering price of the Registrable
Securities sold by the Seller under such registration statement bears to the
total public offering price of all securities sold thereunder, but not in any
event to exceed the gross proceeds received by the Seller from the sale of
Registrable Securities covered by such registration statement.
(c) Promptly after receipt by an indemnified party
hereunder of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the
indemnifying party hereunder, notify the indemnifying party in writing
thereof, but the omission so to notify the indemnifying party shall not
relieve it from any liability which it may have to such indemnified party
other than under this Section 10.4(c) and shall only relieve it from any
liability which it may have to such indemnified party under this Section
10.4(c) if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in and, to the extent
it shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 10.4(c) for any legal expenses
subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation and of liaison
with counsel so selected, provided, however, that, if the defendants
in any such action include both the indemnified party and the indemnifying
party and the indemnified party shall have reasonably concluded that there
may be reasonable defenses available to it which are different from or
additional to those available to the indemnifying party or if the interests
of the indemnified party reasonably may be deemed to conflict with the
interests of the indemnifying party, the indemnified parties shall have the
right to select one separate counsel and to assume such legal defenses and
13
otherwise to participate in the defense of such action, with the reasonable
expenses and fees of such separate counsel and other expenses related to such
participation to be reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable
contribution in the event of joint liability under the Act in any case in
which either (i) the Seller, or any controlling person of the Seller, makes a
claim for indemnification pursuant to this Section 10.4 but it is judicially
determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of
the last right of appeal) that such indemnification may not be enforced in
such case notwithstanding the fact that this Section 10.4 provides for
indemnification in such case, or (ii) contribution under the Act may be
required on the part of the Seller or controlling person of the Seller in
circumstances for which indemnification is provided under this Section 10.4;
then, and in each such case, the Company and the Seller will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so that the
Seller is responsible only for the portion represented by the percentage that
the public offering price of its securities offered by the registration
statement bears to the public offering price of all securities offered by
such registration statement, provided, however, that, in any such case, (A)
the Seller will not be required to contribute any amount in excess of the
public offering price of all such securities offered by it pursuant to such
registration statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 10(f) of the Act) will be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
11. (a) For a period of 120 days from the Closing Date, the
Company will not issue any equity, or convertible debt or other securities or
conduct any public or private offering (other than to proceed with the
current Form SB-2 registration statement) without the consent of the
Subscriber, which shall not be unreasonably withheld.
(b) Right of First Refusal. Subject to the provisions
of Section 11(a) hereof, and in any event, until six months from the Closing
Date and for so long as any principal or interest of the Note are
outstanding, the Subscriber shall be given not less than ten (10) business
days prior written notice of any proposed sale by the Company of its common
stock or other securities in offerings made pursuant to the provisions of
Regulation D or Regulation S under the Act, or any other exemption from
registration, whether state or federal. The Subscriber shall have the right
during the ten (10) business days following the notice to purchase an amount
of securities in the same proportion as being purchased in the aggregate
offering to which this Subscription Agreement relates, of those securities
proposed to be issued and sold, in accordance with the terms and conditions
set forth in the notice of sale, provided that, in the case of securities
offered pursuant to Regulation D, the Subscriber may purchase such securities
pursuant to Regulation S if it is then not a U.S. Person, and such regulation
is then available to the Company. In the event such terms and conditions
are modified during the notice period, the Subscriber shall be given prompt
notice of such modification and shall have the right during the original
notice period or for a period of ten (10) business days following the notice
of modification, whichever is longer, to exercise such right.
14
(c) Right of Participation. The Subscriber shall be
given not less than thirty (30) days' prior written notice of any proposed
public offering by the Company of its common stock. The Subscriber shall have
the right during such thirty (30) day period to irrevocably subscribe for up
to that percentage of the total number of Shares being offered by the Company
in such public offering as equals the percentage obtained by dividing by the
number of the Company Shares owned by the Subscriber immediately prior to
such public offering together with such Common Shares issuable upon
conversion of the Note, by the number of shares of the Company's outstanding
common stock immediately prior to such public offering. This right of
participation shall expire six months from the Closing Date, with respect to
any public offering by the Company that has not commenced prior to such date.
12. Miscellaneous.
(a) Notices. All notices or other communications given
or made hereunder shall be in writing and shall be personally delivered or
deemed delivered the day telecopied (with copy mailed by regular, certified
or registered mail, or overnight courier) to the party to receive the same at
its address set forth below or to such other address as either party shall
hereafter give to the other by notice duly made under this Section: (i) if
to the Company, to ▇▇▇▇ Communications, Inc., ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇, President,
telecopier number (▇▇▇) ▇▇▇-▇▇▇▇; and (ii) if to the Subscriber, to the name,
address and telecopy number set forth on the first page hereof.
(b) Entire Agreement; Assignment. This Agreement
represents 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. No right or obligation of either party shall be assigned by
that party without prior notice to and the written consent of the other party.
(c) Execution. This Agreement may be executed by
facsimile transmission, followed by delivery of an executed original copy.
(d) Law Governing this Agreement. This Agreement shall
be governed by and construed in accordance with the laws of the United States
of America and the State of Delaware. Any action brought by either party
against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of Delaware or in the
federal courts located in the state of Delaware. Both parties agree to
submit to the jurisdiction of such courts. The prevailing party shall be
entitled to recover from the other party its reasonable attorney's fees and
costs.
15
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it
shall become a binding agreement between us.
Very truly yours,
▇▇▇▇ COMMUNICATIONS, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇, President & CEO
Dated: October 22, 1997
Accepted:
BALMORE FUNDS S.A.
By: /s/ .
Dated as of October 22, 1997
16
EXHIBIT B
U.S. PERSON
1. "U.S. Person" means:
(i) Any natural person resident in the United States;
(ii) Any partnership or corporation organized or incorporated
under the laws of the United States;
(iii) Any estate of which any executor or administrator is a U.S.
person;
(iv) Any trust of which any trustee is a U.S. person;
(v) Any agency or branch of a foreign entity located in the United
States;
(vi) Any non-discretionary account or similar account (other than an
estate or trust) held by a dealer or other fiduciary for the benefit or
account of a U.S. person;
(vii) Any discretionary account or similar account (other than an
estate or trust) held by a dealer or other fiduciary organized, incorporated,
or (if an individual) resident in the United States; and
(viii) Any partnership or corporation if: (A) organized or
incorporated under the laws of any foreign jurisdiction; and (B) formed by a
U.S. person principally for the purpose of investing in securities not
registered under the Act, unless it is organized or incorporated, and owned,
by accredited investors (as defined in Rule 501(a)) who are not natural
persons, estates or trusts.
2. Notwithstanding paragraph 1 of this rule, any discretionary account or
similar account (other than an estate or trust) held for the benefit or
account of a non-U.S. person by a dealer or other professional fiduciary
organized, incorporated, or (if an individual) resident in the United
States shall not be deemed a "U.S. person."
3. Notwithstanding paragraph 1, any estate of which any
professional fiduciary acting as executor or administrator is a U.S. person
shall not be deemed a U.S. person if:
(i) An executor or administrator of the estate who is not a U.S.
person has sole or shared investment discretion with respect to the assets of
the estate; and
(ii) The estate is governed by a foreign law.
4. Notwithstanding paragraph 1, any trust of which any professional
fiduciary acting as trustee is a U.S. person shall not be deemed a U.S.
17
person if a trustee who is not a U.S. person has sole or shared investment
discretion with respect to the trust assets, and no beneficiary of the trust
(and no settlor if the trust is revocable) is a U.S. person.
5. Notwithstanding paragraph 1, an employee benefit plan established
and administered in accordance with the law of a country other than the
United States and customary practices and documentation of such country shall
not be deemed a U.S. person.
6. Notwithstanding paragraph 1, any agency or branch of a U.S. person
located outside the United States shall not be deemed a "U.S. person" if:
(i) The agency or branch operates for valid business reasons; and
(ii) The agency or branch is engaged in the business of insurance or
banking and is subject to substantive insurance or banking regulation,
respectively, in the jurisdiction where located.
7. The International Monetary Fund, the International Bank for
Reconstruction and Development, the Inter-American Development Bank, the
Asian Development Bank, the African Development Bank, the United Nations, and
their agencies, affiliates and pension plans, and any other similar
international organizations, their agencies, affiliates and pension plans
shall not be deemed "U.S. persons."
18
SUBSCRIPTION AGREEMENT
THE SECURITIES, INCLUDING THE UNDERLYING SECURITIES, WHICH
ARE THE SUBJECT OF THIS SUBSCRIPTION AGREEMENT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1993, AS
AMENDED, (THE "ACT") OR UNDER THE LAWS OF ANY STATE OR
OTHER JURISDICTION. THEY MAY NOT BE OFFERED OR SOLD IN THE
UNITED STATES OR TO U.S. PERSONS (AS THAT TERM IS DEFINED
IN REGULATION S UNDER THE ACT), UNLESS THEY ARE REGISTERED
UNDER THE ACT AND UNDER THE LAWS OF THE STATES WHERE EACH
SALE IS MADE, OR AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS IS AVAILABLE IN THE OPINION OF COUNSEL TO THE
HOLDER THEREOF SATISFACTORY TO THE COMPANY AND ITS COUNSEL.
AUSTOST ANSTALT ▇▇▇▇▇▇
7440 Fuerstentum
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇
Fax No.: ▇▇▇-▇▇▇-▇▇▇▇▇▇▇▇▇
You (the "Subscriber") hereby agree to purchase, and ▇▇▇▇
Communications, Inc., a Delaware corporation (the "Company") hereby agrees to
issue and to sell to the Subscriber, a convertible subordinated note of the
Company in the principal amount of $500,000.00 and in the form annexed as
Exhibit A (the "Note"), convertible in accordance with the terms thereof into
shares of the Company's common stock (the "Company Shares"). (The Company
Shares are sometimes referred to herein as the "Shares"). (The Note and the
Company Shares are collectively referred to herein as, the "Securities").
Upon acceptance of this Agreement by the Subscriber, the Company shall issue
and deliver to the Subscriber the Note against payment, by federal funds
(U.S.) wire transfer of the principal amount of the Note.
The following terms and conditions shall apply to this
subscription.
1. Subscriber's Representations and Warranties. The
Subscriber hereby represents and warrants to and agrees with the Company that:
(a) Information on Company. The Subscriber has been
furnished with and has read the Company's registration statement on Form SB-2
as filed with the U.S. Securities and Exchange Commission (the "Commission")
on July 23, 1997, and all of its Forms l0-KSB, 10-QSB and 8-K reports filed
subsequent thereto, (collectively, with exhibits thereto, hereinafter
referred to as the "Reports"). In addition, the Subscriber has received from
the Company such other information concerning its operations, financial
condition and other matters as the Subscriber has requested, and considered
all factors the Subscriber deems material in deciding on the advisability of
investing in the Securities (such information in writing is collectively, the
"Other Written Information").
(b) Information on Subscriber. The Subscriber is an
"accredited investor", as such term is defined in Regulation D promulgated by
the Commission under the Act, is experienced in investments and business
matters, has made investments of a speculative nature and has purchased
securities of United States publicly-owned companies in the past and, with
its representatives, has such knowledge and experience in financial, tax and
other business matters as to enable the Subscriber to utilize the information
made available by the Company to evaluate the merits and risks of and to make
an informed investment decision with respect to the proposed purchase, which
represents a speculative investment. The Subscriber has the authority and
is duly and legally qualified to purchase and own the Securities.
(c) Site and Condition of Sale. The Subscriber is not a
U.S. Person (as that term is defined in Exhibit B attached hereto). At the
time of the buy order and execution of this Agreement by the Subscriber,
Subscriber was outside the U.S. The Subscriber acknowledges that neither the
Subscriber, its affiliates or persons acting on its behalf nor the Company
solicited this offer to purchase the Securities within the United States and
that the sale of the Note and Company Shares will not take place within the
United States (for this purpose, the "United States" means the Unites States
of America, its territories and possessions, and any state of the United
States and the District of Columbia). The Subscriber also acknowledges that
the Securities have not been registered under the laws of any other country
or jurisdiction and that the Company takes no responsibility for complying
with any such laws, the Subscriber agrees to comply with all applicable
securities laws in connection with any subsequent disposition of such
Securities.
(d) Investment Intent. The Subscriber is subscribing
for the Securities for its own account and benefit and not as a nominee or
for the account of any other person or entity or any U.S. Person. To the
best knowledge of the Subscriber, there are no distributors participating in
this offering. The Subscriber has no present intention of selling or
distributing the Securities or any part thereof. The Subscriber has
sufficient financial resources to hold the Securities for an indefinite
period of time.
(e) No Market Manipulation; Short Sales. The Subscriber
has not taken, and will not take, directly or indirectly, any action designed
to, or that might reasonably be expected to, cause or result in a
manipulation of the price of the Company Shares, including making, or causing
to be made, any short sales of the Company's common stock during the
Restricted Period, as defined in Section 4 hereof, or thereafter more than
two (2) business days prior to a conversion.
2
(f) No Offer in United States. No offer to buy the
Securities was made to the Company by the Subscriber in the United States.
(g) No Pre-Arranged Transaction. The transactions
contemplated by this Agreement:
(i) Have not been pre-arranged with a purchaser
who is in the United States or is a U.S. Person; and
(ii) are not part of a plan or scheme to evade the
registration provisions of the Act.
(h) No Directed Selling Efforts in Regard to this
Transaction. Neither the Subscriber, nor to the best knowledge of the
Subscriber, the Company nor any person acting for the Subscriber, the
Company or any distributor has conducted any "directed selling efforts" as
that term is defined in Regulation S. Such activity includes, without
limitation, but is not limited to the mailing of printed material to
investors residing in the United States, the holding of promotional seminars
in the United States, the placement of advertisements with radio or
television stations broadcasting in the United States or in publications with
a general circulation in the United States, which discuss the offering of
Securities.
(i) Correctness of Representations. The Subscriber
represents that the foregoing representations and warranties are true and
correct as of the date hereof and, unless the Subscriber otherwise notifies
the Company prior to the Closing Date, shall be true and correct as of the
Closing Date. The foregoing representations and warranties shall survive the
Closing Date.
2. Company Representations and Warranties. The Company
represents and warrants to and agrees with the Subscriber that:
(a) Due Incorporation. The Company and each of its
subsidiaries has been duly incorporated and is validly existing as a
corporation in good standing under the laws of Delaware.
(b) Outstanding Stock. All issued and outstanding shares
of capital stock of the Company and each of its subsidiaries has been duly
authorized and validly issued and are fully paid and non-assessable.
(c) Authority; Enforceability. This Agreement has been
duly authorized, executed and delivered by the Company and is a valid and
binding agreement enforceable 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; and the Company has
full corporate
3
power and authority necessary to enter into this Agreement and to perform its
obligations hereunder.
(d) Additional Issuances. There are no outstanding
agreements or preemptive or similar rights affecting the Company's common
stock and no outstanding rights, warrants or options to acquire, or
instruments convertible into or exchangeable for, or agreements or
understandings with respect to the sale or issuance of, any shares of common
stock or equity of the Company or other equity interest in any of the
subsidiaries of the Company, except as described in the Reports or Other
Written Information.
(e) Consents. No consent, approval, authorization or
order of any court, governmental agency or body or arbitrator having
jurisdiction over the Company, or any of its affiliates is required for
execution of this Agreement, including, without limitation, issuance and
sale of the Note and the issuance of the Shares upon any conversion of the
Note or the performance of obligations hereunder.
(f) No Violation or Conflict. Assuming the
representations and warranties of the Subscriber in Paragraph 1 are true and
correct and the Subscriber complies with its obligations under this
Agreement, neither the sale of the Note nor any conversion of the Note, nor
the issuance of the Company Shares upon any conversion of the Note nor the
performance of its obligations under this Agreement by the Company will:
(i) violate, conflict with, result in a breach of,
or constitute a default (or an event which with the giving of notice of the
lapse of time or both would be reasonably likely to constitute a default)
under (A) the articles of incorporation, charter or bylaws of the Company, or
any of its affiliates, (B) any decree, judgment, order, law, treaty,
rule, regulation or determination applicable to the Company, or any of its
affiliates of any court, governmental agency or body, or arbitrator having
jurisdiction over the Company, or any of its affiliates or over the
properties or assets of the Company, or any of its affiliates, (C) the terms
of any bond, debenture, note or any other evidence of indebtedness, or any
agreement, stock option or other similar plan, indenture, lease, mortgage,
deed of trust or other instrument to which the Company, or any of its
affiliates is a party, by which the Company, or any of its affiliates is
bound, or to which any of the properties of the Company, or any of its
affiliates is subject, or (D) the terms of any "lock-up" or similar provision
of any underwriting or similar agreement to which the Company, or any of its
affiliates is a party; or
(ii) result in the creation or imposition of any
lien, charge or encumbrance upon the Securities or any of the assets of the
Company, or any of its affiliates.
(g) The Securities. The Securities upon issuance:
4
(i) are, or will be, free and clear of any
security interests, liens, claims or other encumbrances;
(ii) have been, or will be, duly and validly
authorized and on the date of issuance and on the date payment for the Note
is transmitted to the Company (hereinafter the "Closing Date") or the
Conversion Date as such term is defined in the Note (hereinafter the
"Conversion Date"), as the case may be, the Note and Shares issuable upon
conversion of the Note, will be duly and validly issued, fully paid and
nonassessable;
(iii) will not have been issued or sold in
violation of any preemptive or other similar rights of the holders of any
securities of the Company;
(iv) will not subject the holders thereof to
personal liability by reason of being such holders; and
(v) the Company Shares, are quoted on, and to the
best knowledge of Company will be, at the completion of the Restricted
Period, eligible for trading on, the National Association of Securities
Dealers Automated Quotations Systems ("NASDAQ") SmallCap Market.
(h) Litigation. There is no pending or, to the best
knowledge of the Company, threatened action, suit, proceeding or
investigation before any court, governmental agency or body, or arbitrator
having jurisdiction over the Company, or any of its affiliates that would
materially affect the execution by the Company or the performance by the
Company of its obligations under this Agreement.
(i) No Directed Selling Efforts in Regard to this
Transaction. Neither the Company nor any distributor, if any, participating
in the offering of the Securities nor any person acting for the Company or
any such distributor has conducted any "directed selling efforts" as that
term is defined in Regulation S. Such activity includes, without limitation,
the mailing of printed material to investors residing in the United States,
the holding of promotional seminars in the United States, the placement of
advertisements with radio or television stations broadcasting in the United
States or in publications with a general circulation in the United States,
which discuss the offering of the Securities.
(j) No Market Manipulation. The Company has not taken,
and will not take, directly or indirectly, any action designed to, or that
might reasonably be expected to, cause or result in stabilization or
manipulation of the price of the common stock of the Company to facilitate
the sale or resale of the Company Shares or affect the price at which the
Company Shares are purchasable upon conversion of the Note.
5
(k) Reporting Company. The Company is a publicly-held
company whose common stock is (and has been for the past 90 days) registered
pursuant to Section 12(g) of the Securities Exchange Act of 1934 (the "1934
Act") and is duly listed for trading on The NASDAQ SmallCap Market. Pursuant
to the provisions of the 1934 Act, the Company has filed all reports and
other materials required to be filed thereunder with the Securities and
Exchange Commission during the preceding twelve months.
(1) Information Concerning Company. The Reports and
Other Written Information contain all material information relating to the
Company and its operations and financial condition as of their respective
dates which information is required to be disclosed therein. Since the date
of the financial statements set forth in the Reports, there has been no
material adverse change in the Company's business, financial condition or
affairs not disclosed in the Reports. The Reports and Other Written
Information do not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
(m) Offer to Buy. No offer to buy the Note was made to
the Company by any person in the United States.
(n) Pre-Arranged Transaction. The transactions
contemplated by this Agreement:
(i) have not been pre-arranged with a purchaser who
is in the United States or is a U.S. Person; and
(ii)are not part of a plan or scheme to evade the
registration provisions of the Act.
(o) Stop Transfer. The Company has not issued, and will
not issue any stop transfer order or other order impeding the sale and
delivery of the Securities, or any underlying shares except as may be
required by Regulation S, as same may be amended. No restrictive legend will
be imprinted on the Company Shares except as may be required by Regulation S,
as amended. Such legend will be a self-liquidating legend printed on a
separate sheet of paper and stapled to the Company Shares but not imprinted
directly on the share certificates. The Company's transfer agent will be
instructed by the Company to deem the legend removed from the Company Shares
on the 41st day after the Closing Date. The self-liquidating legend shall be
as follows:
6
"The Securities represented hereby have not been registered
under the United States Securities Act of 1933, as
amended (the "Act"), and until December 2, 1997 (41 days from
the issue date of the Convertible Note, which such securities
underlie) may not be offered or sold in the United States (as
defined in Regulation S under the Act) or to, or for the account
or benefit of U.S. Persons (as defined in Regulation S under the
Act), and only then pursuant to registration under the Act or an
exemption from the registration requirements of the Act and
applicable state securities laws."
(p) Use of Funds. The proceeds of this subscription and
an additional subscription accepted by the Company on or about the date
hereof in the aggregate principal amount of $1,000,000 will be employed by
the Company approximately as follows: calling card machine parts - $24,000;
Debitlink Terminals - $472,500; EBT Development - $25,000; Taxes - $100,000;
Payables -$137,000; Working Capital and Miscellaneous - $241,500.
(q) Correctness of Representations. The Company
represents that the foregoing representations and warranties are true and
correct as of the date hereof and, unless the Company otherwise notifies the
Subscriber prior to the Closing Date, shall be true and correct as of the
Closing Date. The foregoing representations and warranties shall survive
the Closing Date.
3. Regulation S Offering. The sale of Securities hereby is
being made pursuant to Rule 903(c)(2) of Regulation S, and is intended to
comply with the provisions of Regulation S. The Securities have not been and
will not be registered under the Act or under the securities laws of any
state or jurisdiction of the United States ("State Laws"). On the Closing
Date, the Company will provide an opinion acceptable to Subscriber from the
Company's legal counsel opining on the availability of the Regulation S
exemption as it relates to the offer and issuance of the Note, and conversion
of the Note. A form of the legal opinion is annexed hereto as Exhibit C.
Upon conversion of the Note, the Company Shares will be freely transferable
on the books and records of the Company, except as may be required by
Regulation S as same may be amended.
4. Conversion of Note; Transfer of Securities. The Note will
not be converted by Subscriber until at least the 41st day from the date the
Subscriber purchases the Note. Neither the Note nor the Shares may be
transferred or resold to any U.S. Person until the 41st day from the date the
Subscriber purchases the Note (the "Restriction Period") and then only in
accordance with the Act and applicable State Laws in the opinion of counsel
of the holder thereof satisfactory to the Company and its counsel which will
not be unreasonably withheld. The Subscriber agrees that it is solely
responsible for compliance therewith with respect to any such transfer or
resale. On the Closing Date, the Company will provide the opinion of its
counsel described in Section 3 above, which opinion is acceptable to Company
and its counsel.
7
5. Reverse Split. The Company shall give the Subscriber not
less than twenty (20) days' prior written notice of any proposed combination
of shares or other reclassification or recapitalization of the common stock
resulting in a reduction of the number of Shares issuable upon conversion of
the Note, and the Subscriber shall have the right to consult with the Company
with respect to such proposed combination or recapitalization.
6. Legal Fees. The Subscriber shall be responsible for its
own legal fees in connection with the review of this Subscription
Agreement and Exhibits.
7. Covenants of the Company. The Company covenants and agrees
with the Subscriber to:
(a) use its best efforts to continue to comply with all
applicable reporting requirements of the Exchange Act;
(b) refrain form engaging, and insure that none of its
affiliates will engage, in any Directed Selling Efforts, as defined in
Regulation S, with respect to the Securities;
(c) advise the Subscriber, promptly after it receives
notice of issuance by the Commission, any state securities commission or any
other regulatory authority of any stop order or of any order preventing or
suspending the use of any offering of any securities of the Company, or of
the suspension of the qualification of the common stock of the Company for
offering or sale in any jurisdiction, or the initiation of any proceeding for
any such purpose.
8. Covenants of the Company and Subscriber Regarding
Indemnifications.
(i) The Company agrees to indemnify, hold harmless,
reimburse and defend Subscriber against any claim, costs, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon Subscriber which results, arises out of or is
based upon (a) any misrepresentation by Company or breach of any warranty by
Company in this Agreement or in any Exhibits or Schedules attached hereto, or
Reports or other Written Information; or (b) any breach or default in
performance by Company of any covenant or undertaking to be performed by
Company hereunder.
(ii) Subscriber agrees to indemnify, hold harmless,
reimburse and defend the Company at all times against any claim, costs,
expense, liability, obligation, loss or damage (including reasonable legal
fees) of any nature, incurred by or imposed upon the Company which results,
arises out of or is based upon (a) any misrepresentation by Subscriber in
this Agreement or in any Exhibits or Schedules attached hereto; or (b) any
breach or default in performance by Subscriber of any covenant or undertaking
to be performed by Subscriber hereunder.
8
9. Escrow of Shares. In order to fulfill the Company's
obligation to deliver the Company Shares upon conversion of the Note, the
Company shall, deliver to Grushko & ▇▇▇▇▇▇▇ (the "Escrow Agent"), prior to
the Closing Date 1,150,000 shares of Common Stock of the Company (the
"Escrowed Shares") as described in Section 2(0) of this Subscription
Agreement to be held in escrow. While held in escrow, the Escrowed Shares and
any additional shares of Common Stock which may be later deliver by the
Company to be held in escrow as set forth below shall not be deemed issued
and outstanding for any purpose nor shall any holder of the Note have any
voting or dispositive rights thereto. The certificate representing the
Escrowed Shares shall not bear a restrictive legend or have a stop transfer
order placed against it on the books of the Company's transfer agent except
as may be required by Regulation S, as same may be amended. The terms and
conditions of escrow shall be set forth in an escrow agreement in the form
annexed as Exhibit D hereto (the "Escrow Agreement"). The Company shall
deliver to the Escrow Agent, from time to time, at the request of the
Subscriber within three (3) business days after notice to the Company of such
request, such additional Company Shares in the form described in Section 2(0)
of this Subscription Agreement, as would be necessary to allow conversion of
the entire principal and interest of the Note at the then applicable
Conversion Price, as defined in Section 2 of the Convertible Note, and
further subject to the terms of Section 2.1(b) of the Convertible Note.
10. Registration Rights; Procedure; Indemnification.
10.1. Registration Rights.
(a) If available under the securities laws in effect on
the date of conversion, the shares of Common Stock issuable upon full or
partial conversion of the Note shall be issued pursuant to Regulation S of
the Act and shall be transferable and assignable pursuant to Regulation S.
Provided the shares issued upon the conversion of the Note so then qualify,
the Company acknowledges its obligation to issue the shares without any
restrictive or other legend. The Company acknowledges that it is the
Company's obligation to issue the Company Shares upon conversion of the Note,
without any restrictive legend, as freely transferable shares on the books
and records of the Company except as may be required by Regulation S, as same
may be amended, Notwithstanding the foregoing, if in the reasonable judgment
of the holder of the Note the Company Shares that may be acquired upon
conversion of the Note cannot upon issuance, be resold in the United States
without any holding period, restrictive legend or unless registered under the
Act:
(i) On one occasion, for a period commencing 41
days after the date hereof, but not later than two years from the date
hereof, the Company, upon a written request therefor from any record holder
or holders of more than 50% of the aggregate of the Company's shares issuable
or issued on the conversion of the Notes which are still held by the
Subscribers on the day the Shares are no longer transferable without any
restrictive legend (the common stock of the Company issued and issuable on
conversion of the Note being, the "Registrable Securities"), shall prepare
and file with the SEC a registration statement under the
9
ct covering the Registrable Securities which are the subject of such
request. In addition, upon the receipt of such request, the Company shall
promptly give written notice to all other record holders of the Registrable
Securities that such registration statement is to be filed and shall include
in such registration statement Registrable Securities for which it has
received written requests within 20 days after the Company gives such written
notice. Such other requesting record holders shall be deemed to have
exercised their demand registration right under this Section 10.1. As a
condition precedent to the inclusion of Registrable Securities, the holder
thereof shall provide the Company with such information as the Company
reasonably requests and the Holder shall enter into an appropriate
underwriting agreement with the underwriter(s), if any, of the Registrable
Securities. The obligation of the Company under this Section 10.1(a)(i) shall
be limited to one registration statement.
(ii)If the Company at any time proposes to register
any of its securities under the Act for sale to the public, whether for its
own account or for the account of other security holders or both, except with
respect to registration statements on Forms ▇-▇, ▇-▇ or another form not
available for registering the Registrable Securities that may be acquired
upon exercise of the Note for sale to the public, provided the Registrable
Securities are not otherwise registered for resale by the Subscriber pursuant
to an effective registration statement, each such time it will give at least
30 days' prior written notice to the record holder of the Registrable
Securities of its intention so to do. Upon the written request of the holder,
received by the Company within 30 days after the giving of any such notice by
the Company, to register any of the Registrable Securities, the Company will
cause such Registrable Securities as to which registration shall have been so
requested to be included in the securities to be covered by the registration
statement proposed to be filed by the Company, all to the extent required to
permit the sale or other disposition of the Registrable Securities so
registered by the holder of such Registrable Securities (the "Seller"). In
the event that any registration pursuant to this Section 10.1 shall be, in
whole or in part, an underwritten public offering of common stock of the
Company, the number of shares of Registrable Securities to be included in
such an underwriting may be reduced by the managing underwriter if and to the
extent that the Company and the underwriter shall be of the opinion that such
inclusion would adversely affect the marketing of the securities to be sold
by the Company therein; provided, however, that the Company shall notify the
Seller in writing of any such reduction. Notwithstanding the forgoing
provisions, the Company may withdraw any registration statement referred to
in this Section 10.1 without thereby incurring any liability to the Seller.
(iii) If, at the time any written request for
registration is received by the Company pursuant to Section 10.1(a)(i), the
Company has determined to proceed with the actual preparation and filing of a
registration statement under the Act in connection with the proposed offer
and sale for cash of any of its securities for the Company's own account,
such written request shall be deemed to have been given pursuant to Section
10.1(a) (ii) rather than Section 10.1(a)(i), and the rights of the holders of
Registrable Securities covered by such written request shall be governed by
Section 10.1(a)(ii).
10
(iv) The Company will include for registration all
of the Registrable Securities in the Company's pending registration statement
filed with the Commission on Form SB-2. The Company will use its best efforts
to keep such registration statement current until the later of the
Convertible Note being fully paid or sale by the Subscriber of the
Registrable Securities without restriction on further resale.
10.2. Registration Procedures. If and whenever the Company is
required by the provisions hereof to effect the registration of any shares of
Registrable Securities under the Act, the Company will, as expeditiously as
possible:
(a) prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause
such registration statement to become and remain effective for the period of
the distribution contemplated thereby (determined as hereinafter provided):
(b) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for the period specified in paragraph (a) above and comply with the
provisions of the Act with respect to the disposition of all of the
Registrable Securities covered by such registration statement in accordance
with the Seller's intended method of disposition set forth in such
registration statement for such period;
(c) furnish to the Seller, and to each underwriter if
any, such number of copies of the registration statement and the prospectus
included therein (including each preliminary prospectus) as such persons
reasonably may request in order to facilitate the public sale or their
disposition of the securities covered by such registration statement;
(d) use its best efforts to register or qualify the
Seller's Registrable Securities covered by such registration statement under
the securities or "blue sky" laws of such jurisdictions as the Seller or, in
the case of an underwritten public offering, the managing underwriter shall
reasonably request, provided, however, that the Company shall not for any
such purpose be required to qualify generally to transact business as a
foreign corporation in any jurisdiction where it is not so qualified or to
consent to general service of process in any such jurisdiction;
(e) list the Registrable Securities covered by such
registration statement with any securities exchange on which the Registrable
Securities of the Company is then listed;
(f) immediately notify the Seller and each underwriter
under such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Act, of the happening of any
event of which the Company has knowledge as a result of which the prospectus
contained in such registration statement, as then in effect, includes an
11
untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing;
(g) make available for inspection by the Seller, any
underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by the Seller
or underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors and employees to supply all information reasonably requested by the
seller, underwriter, attorney, accountant or agent in connection with such
registration statement.
(h) at the request of the Holder, provided a demand for
registration has been made pursuant to Section 10.1(a) (i) or a request for
registration has been made pursuant to Section 10.1(a) (ii), the shares
issuable upon the conversion of the unpaid note will be included in a
registration statement filed pursuant to this Section 10.
In the event of a firm commitment underwritten public
offering in which the Registrable Securities are so included, the Company
will use its best efforts to insure that any lockup, if any, requested by the
managing underwriter of such Registrable Securities, not exceed 120 days
after the effective date thereof.
In connection with each registration hereunder, the
Seller will furnish to the Company in writing such information with respect
to itself and the proposed distribution by it as reasonably shall be
necessary in order to assure compliance with federal and applicable state
securities laws. In connection with each registration pursuant to this
Section 10 covering an underwritten public offering, the Company and the
Seller agree to enter into a written agreement with the managing underwriter
in such form and containing such provisions as are customary in the
securities business for such an arrangement between such underwriter and
companies of the Company's size and investment stature.
10.3. Expenses. All expense's incurred by the Company in
complying with Section 10, including, without limitation, all registration
and filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
counsel fees) incurred in connection with complying with state securities or
"blue sky" laws, fees of the National Association of Securities Dealers,
Inc., transfer taxes, fees of transfer agents and registrars and costs of
insurance are called "Registration Expenses". All underwriting discounts and
selling commissions applicable to the sale of Registrable Securities,
including any fees and disbursements of any special counsel to the Seller,
are called "Selling Expenses". The Seller shall pay the fees of its own
counsel, if any.
The Company will pay all Registration Expenses in connection with
each registration statement under Section 10. All Selling Expenses in
connection with each registration statement under Section 10 shall be borne
by the Seller in proportion to the number
12
of shares sold by the Seller relative to the number of shares sold under such
registration statement or as all sellers thereunder may agree.
10.4. Indemnification and Contribution.
(a) In the event of a registration of any Registrable
Securities under the Act pursuant to Section 10, the Company will indemnify
and hold harmless the Seller, each officer of the Seller, each director of
the Seller, each underwriter of such Registrable Securities thereunder and
each other person, if any, who controls such Seller or underwriter within the
meaning of the Act, against any losses, claims, damages or liabilities, joint
or several, to which the Seller, or such underwriter or controlling person
may become subject under the Act or otherwise, insofar as such losses claims,
damages or liabilities (or actions in respect thereof arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in any registration statement under which such Registrable
Securities was registered under the Act pursuant to Section 10, any
preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
and will reimburse the Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any such case if and to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by any such Seller, the underwriter or
any such controlling person in writing specifically for use in such
registration statement or prospectus.
(b) In the event of a registration of any of the
Registrable Securities under the Act pursuant to Section 10, the Seller will
indemnify and hold harmless the Company, each person, if any, who controls
the Company within the meaning of the Act, each officer of the Company who
signs the registration statement, each director of the Company, each
underwriter and each person who controls any underwriter within the meaning
of the Act, against all losses, claims, damages or liabilities, joint or
several, to which the Company or such officer, director, underwriter or
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement under
which such Registrable Securities were registered under the Act pursuant to
Section 10, any preliminary prospectus or final prospectus contained therein,
or any amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
and will reimburse the Company and each such officer, director, underwriter
and controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
damage, liability or action, provided, however, that the Seller will be
liable hereunder in any such case if and only to the extent that
13
any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with information pertaining to such
Seller, as such, furnished in writing to the Company by such Seller
specifically for use in such registration statement or prospectus, and
provided, further, however, that the liability of the Seller hereunder shall
be limited to the proportion of any such loss, claim, damage, liability or
expense which is equal to the proportion that the public offering price of
the Registrable Securities sold by the Seller under such registration
statement bears to the total public offering price of all securities sold
thereunder, but not in any event to exceed the gross proceeds received by the
Seller from the sale of Registrable Securities covered by such registration
statement.
(c) Promptly after receipt by an indemnified party
hereunder of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party hereunder, notify the indemnifying party in writing
thereof, but the omission so to notify the indemnifying party shall not
relieve it from any liability which it may have to such indemnified party
other than under this Section 10.4(c) and shall only relieve it from any
liability which it may have to such indemnified party under this Section
10.4(c) if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in and, to the extent
it shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 10.4(c) for any legal expenses
subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation and of liaison
with counsel so selected, provided, however, that, if the defendants in
any such action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that there may be
reasonable defenses available to it which are different from or additional to
those available to the indemnifying party or if the interests of the
indemnified party reasonably may be deemed to conflict with the interests of
the indemnifying party, the indemnified parties shall have the right to
select one separate counsel and to assume such legal defenses and otherwise
to participate in the defense of such action, with the reasonable expenses
and fees of such separate counsel and other expenses related to such
participation to be reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable
contribution in the event of joint liability under the Act in any case in
which either (i) the Seller, or any controlling person of the Seller, makes a
claim for indemnification pursuant to this Section 10.4 but it is judicially
determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of
the last right of appeal) that such indemnification may not be enforced in
such case notwithstanding the fact that this Section 10.4 provides for
indemnification in such case, or (ii) contribution under the Act may be
required on the part of the
14
Seller or controlling person of the Seller in circumstances for which
indemnification is provided under this Section 10.4; then, and in each such
case, the Company and the Seller will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after
contribution from others) in such proportion so that the Seller is
responsible only for the portion represented by the percentage that the
public offering price of its securities offered by the registration statement
bears to the public offering price of all securities offered by such
registration statement, provided, however, that, in any such case, (A) the
Seller will not be required to contribute any amount in excess of the public
offering price of all such securities offered by it pursuant to such
registration statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 10(f) of the Act) will be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
11. (a) For a period of 120 days from the Closing Date, the
Company will not issue any equity, or convertible debt or other securities or
conduct any public or private offering (other than to proceed with the
current Form SB-2 registration statement) without the consent of the
Subscriber, which shall not be unreasonably withheld.
(b) Right of First Refusal. Subject to the provisions
of Section 11(a) hereof, and in any event, until six months from the Closing
Date and for so long as any principal or interest of the Note are
outstanding, the Subscriber shall be given not less than ten (10) business
days prior written notice of any proposed sale by the Company of its common
stock or other securities in offerings made pursuant to the provisions of
Regulation D or Regulation S under the Act, or any other exemption from
registration, whether state or federal. The Subscriber shall have the right
during the ten (10) business days following the notice to purchase an amount
of securities in the same proportion as being purchased in the aggregate
offering to which this Subscription Agreement relates, of those securities
proposed to be issued and sold, in accordance with the terms and conditions
set forth in the notice of sale, provided that, in the case of securities
offered pursuant to Regulation D, the Subscriber may purchase such securities
pursuant to Regulation S if it is then not a U.S. Person, and such regulation
is then available to the Company. In the event such terms and conditions
are modified during the notice period, the Subscriber shall be given prompt
notice of such modification and shall have the right during the original
notice period or for a period of ten (10) business days following the notice
of modification, whichever is longer, to exercise such right.
(c) Right of Participation. The Subscriber shall be
given not less than thirty (30) days' prior written notice of any proposed
public offering by the Company of its common stock. The Subscriber shall have
the right during such thirty (30) day period to irrevocably subscribe for up
to that percentage of the total number of Shares being offered by the Company
in such public offering as equals the percentage obtained by dividing by the
number of the Company Shares owned by the Subscriber immediately prior to
such public offering together with such Common Shares issuable upon
conversion of the Note, by the number of shares of the Company's outstanding
common stock immediately prior to such public offering. This right of
participation shall expire six months from the Closing Date, with respect to
any public offering
15
by the Company that has not commenced prior to such date.
12. Miscellaneous.
(a) Notices. All notices or other communications given
or made hereunder shall be in writing and shall be personally delivered or
deemed delivered the day telecopied (with copy mailed by regular, certified
or registered mail, or overnight courier) to the party to receive the same at
its address set forth below or to such other address as either party shall
hereafter give to the other by notice duly made under this Section: (i) if
to the Company, to ▇▇▇▇ Communications, Inc., ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇, President,
telecopier number (▇▇▇) ▇▇▇-▇▇▇▇; and (ii) if to the Subscriber, to the name,
address and telecopy number set forth on the first page hereof.
(b) Entire Agreement; Assignment. This Agreement
represents 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. No right or obligation of either party shall be assigned by
that party without prior notice to and the written consent of the other party.
(c) Execution. This Agreement may be executed by
facsimile transmission, followed by delivery of an executed original copy.
(d) Law Governing this Agreement. This Agreement shall
be governed by and construed in accordance with the laws of the United States
of America and the State of Delaware. Any action brought by either party
against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of Delaware or in the
federal courts located in the state of Delaware. Both parties agree to
submit to the jurisdiction of such courts. The prevailing party shall be
entitled to recover from the other party its reasonable attorney's fees and
costs.
16
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it
shall become a binding agreement between us.
Very truly yours,
▇▇▇▇ COMMUNICATIONS, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇, President and CEO
Dated: October 22, 1997
Accepted:
AUSTOST ANSTALT ▇▇▇▇▇▇
By: /s/
Dated as of October 22, 1997
17
EXHIBIT B
U.S. PERSON
1. "U.S. Person" means:
(i) Any natural person resident in the United States;
(ii) Any partnership or corporation organized or
incorporated under the laws of the United States;
(iii) Any estate of which any executor or administrator is a
U.S. person;
(iv) Any trust of which any trustee is a U.S. person;
(v) Any agency or branch of a foreign entity located in the
United States;
(vi) Any non-discretionary account or similar account (other
than an estate or trust) held by a dealer or other fiduciary for the benefit
or account of a U.S. person;
(vii) Any discretionary account or similar account (other than an
estate or trust) held by a dealer or other fiduciary organized, incorporated,
or (if an individual) resident in the United States; and
(viii) Any partnership or corporation if: (A) organized or
incorporated under the laws of any foreign jurisdiction; and (B) formed by a
U.S. person principally for the purpose of investing in securities not
registered under the Act, unless it is organized or incorporated, and owned,
by accredited investors (as defined in Rule 501(a)) who are not natural
persons, estates or trusts.
2. Notwithstanding paragraph 1 of this rule, any discretionary account or
similar account (other than an estate or trust) held for the benefit or
account of a non-U.S. person by a dealer or other professional fiduciary
organized, incorporated, or (if an individual) resident in the United
States shall not be deemed a "U.S. person."
3. Notwithstanding paragraph 1, any estate of which any
professional fiduciary acting as executor or administrator is a U.S. person
shall not be deemed a U.S. person if:
(i) An executor or administrator of the estate who is not a
U.S. person has sole or shared investment discretion with respect to the
assets of the estate; and
(ii) The estate is governed by a foreign law.
18
4. Notwithstanding paragraph 1, any trust of which any professional
fiduciary acting as trustee is a U.S. person shall not be deemed a U.S.
person if a trustee who is not a U.S. person has sole or shared investment
discretion with respect to the trust assets, and no beneficiary of the trust
(and no settlor if the trust is revocable) is a U.S. person.
5. Notwithstanding paragraph 1, an employee benefit plan established
and administered in accordance with the law of a country other than the
United States and customary practices and documentation of such country shall
not be deemed a U.S. person.
6. Notwithstanding paragraph 1, any agency or branch of a U.S. person
located outside the United States shall not be deemed a "U.S. person" if:
(i) The agency or branch operates for valid business reasons;
and
(ii) The agency or branch is engaged in the business of
insurance or banking and is subject to substantive insurance or banking
regulation, respectively, in the jurisdiction where located.
7. The International Monetary Fund, the International Bank for
Reconstruction and Development, the Inter-American Development Bank, the
Asian Development Bank, the African Development Bank, the United Nations, and
their agencies, affiliates and pension plans, and any other similar
international organizations, their agencies, affiliates and pension plans
shall not be deemed "U.S. persons."
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