Exhibit 4.1 Form of Subscription Agreement
VELOCITY ASSET MANAGEMENT, INC.
SUBSCRIPTION AGREEMENT
The undersigned (hereinafter "Subscriber") hereby confirms his/her/its
subscription for the purchase of Units (the "Units" or "Securities"), each Unit
consists of (i) one share of common stock, par value $.001 per share (the
"Common Stock") of Velocity Asset Management, Inc., a Delaware corporation (the
"Company") and (ii) a warrant to purchase one-fifth of one share of Common Stock
(the "Warrant"), on the terms described below. Capitalized terms used and not
otherwise defined herein shall have the meanings set forth for such terms in the
Company's Confidential Term Sheet, dated as of August 23, 2004 (as amended or
supplemented, and together with all documents and filings attached thereto, the
"Memorandum").
In connection with this subscription, Subscriber and the Company agree
as follows:
1. Purchase and Sale of the Securities.
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(a) The Company hereby agrees to issue and to sell to Subscriber,
and Subscriber hereby agrees to purchase from the Company, the number of Units
at a price equal to $1.50 per Unit and for the aggregate subscription amount set
forth on the signature page hereto. Upon the acceptance of this Subscription
Agreement by the Company, the Company shall issue and deliver to Subscriber (or
the Escrow Agent if the Minimum Offering has not yet been satisfied) the
following: (i) a share certificate for shares of Common Stock and (ii) a Warrant
Agreement evidencing the right to purchase shares of Common Stock (each
evidencing the number of shares of Common Stock corresponding to the number of
Units subscribed for), against payment in U.S. Dollars of the Purchase Price (as
defined below) to the Company or if the Minimum Offering has not yet been
satisfied, to the Escrow Agent.
(b) Subscriber has hereby delivered and paid concurrently herewith
the purchase price (the "Purchase Price") set forth on the signature page hereof
required to purchase the Securities subscribed for hereunder which amount has
been paid in U.S. Dollars by cash, wire transfer or check, subject to
collection, to the order of "Xxxxx Xxxxxxx Xxxxxxx Israels LLP as Escrow Agent."
(c) Subscriber understands and acknowledges that this subscription
is part of a proposed placement by the Company of up to 3,500,000 Units or such
greater number as will result in net proceeds of $5,250,000, which offering is
being made on a "best efforts - all or none" basis for a minimum of 350,000
Units or such lesser number as will result in net proceeds of $525,000 (the
"Minimum Offering") and a maximum of 3,500,000 Units or such greater number as
will result in net proceeds of $5,250,000 (the "Maximum Offering"). Subscriber
understands that payments hereunder as to the Minimum Offering will be held in
an escrow account established by the Company, and released to the Company if the
Minimum Offering is reached within the Offering Period (as described in the
Memorandum) or any extended period. If the Minimum Offering is not obtained
within the Offering Period or any extended period, the funds held therein will
be returned to the investors without interest or deduction. Subscriber also
understands that all funds received hereunder after the Minimum Offering is
reached will be made immediately available to the Company.
2. Representations and Warranties of Subscriber. Subscriber represents and
warrants to the Company as follows:
(a) Subscriber is an "accredited investor" as defined by Rule 501
under the Securities Act of 1933, as amended (the "Act"), and Subscriber is
capable of evaluating the merits and risks of Subscriber's investment in the
Company and has the capacity to protect Subscriber's own interests.
(b) Subscriber understands that the Securities are not presently
registered, but Subscriber is entitled to certain rights with respect to the
registration of the Units (see Section 5 below).
(c) Subscriber acknowledges and understands that the Securities
are being purchased for investment purposes and not with a view to distribution
or resale, nor with the intention of selling, transferring or otherwise
disposing of all or any part thereof for any particular price, or at any
particular time, or upon the happening of any particular event or circumstances,
except selling, transferring, or disposing the Securities made in full
compliance with all applicable provisions of the Act, the rules and regulations
promulgated by the Securities and Exchange Commission ("SEC") thereunder, and
applicable state securities laws; and that an investment in the Securities is
not a liquid investment.
(d) Subscriber acknowledges that the Securities must be held
indefinitely unless subsequently registered under the Act or unless an exemption
from such registration is available. Subscriber is aware of the provisions of
Rule 144 promulgated under the Act which permit limited resale of common stock
purchased in a private placement subject to the satisfaction of certain
conditions, including, among other things, the existence of a public market for
the common stock, the availability of certain current public information about
the Company, the resale occurring not less than one year after a party has
purchased and paid for the security to be sold, the sale being effected through
a "broker's transaction" or in transactions directly with a "market maker" and
the number of shares of common stock being sold during any three-month period
not exceeding specified limitations.
(e) Subscriber acknowledges that Subscriber has had the
opportunity to ask questions of, and receive answers from the Company or any
person acting on its behalf concerning the Company and its business and to
obtain any additional information, to the extent possessed by the Company (or to
the extent it could have been acquired by the Company without unreasonable
effort or expense) necessary to verify the accuracy of the information received
by Subscriber. In connection therewith, Subscriber acknowledges that Subscriber
has had the opportunity to discuss the Company's business, management and
financial affairs with the Company's management or any person acting on its
behalf. Subscriber has received and reviewed the Memorandum, and all the
information, both written and oral, that it desires. Without limiting the
generality of the foregoing, Subscriber has been furnished with or has had the
opportunity to acquire, and to review, (i) copies of all of the Company's
publicly available documents, including but not limited to, those attached to
the Memorandum, and (ii) all information, both written and oral, that it desires
with respect to the Company's business, management, financial affairs and
prospects. In determining whether to make this investment, Subscriber has relied
solely on Subscriber's own knowledge and understanding of the Company and its
business based upon Subscriber's own due diligence investigations and the
information furnished pursuant to this paragraph. Subscriber understands that no
person has been authorized to give any information or to make any
representations which were not furnished pursuant to this paragraph and
Subscriber has not relied on any other representations or information.
(f) Subscriber has all requisite legal and other power and
authority to execute and deliver this Subscription Agreement and to carry out
and perform Subscriber's obligations under the terms of this Subscription
Agreement. This Subscription Agreement constitutes a valid and legally binding
obligation of Subscriber, enforceable in accordance with its terms, and subject
to laws of general application relating to bankruptcy, insolvency and the relief
of debtors and rules of law governing specific performance, injunctive relief or
other general principals of equity, whether such enforcement is considered in a
proceeding in equity or law.
(g) Subscriber has carefully considered and has discussed with the
Subscriber's professional legal, tax, accounting and financial advisors, to the
extent the Subscriber has deemed necessary, the suitability of this investment
and the transactions contemplated by this Subscription Agreement for the
Subscriber's particular federal, state, local and foreign tax and financial
situation and has determined that this investment and the transactions
contemplated by this Subscription Agreement are a suitable investment for the
Subscriber. Subscriber relies solely on such advisors and not on any statements
or representations of the Company or any of its agents. Subscriber understands
that Subscriber (and not the Company) shall be responsible for Subscriber's own
tax liability that may arise as a result of this investment or the transactions
contemplated by this Subscription Agreement.
(h) This Subscription Agreement does not contain any untrue
statement of a material fact concerning Subscriber.
(i) There are no actions, suits, proceedings or investigations
pending against Subscriber or Subscriber's properties before any court or
governmental agency (nor, to Subscriber's knowledge, is there any threat
thereof) which would impair in any way Subscriber's ability to enter into and
fully perform Subscriber's commitments and obligations under this Subscription
Agreement or the transactions contemplated hereby.
(j) The execution, delivery and performance of and compliance with
this Subscription Agreement, and the issuance of the Securities will not result
in any material violation of, or conflict with, or constitute a material default
under, any of Subscriber's articles of incorporation or bylaws, if applicable,
or any of Subscriber's material agreements nor result in the creation of any
mortgage, pledge, lien, encumbrance or charge against any of the assets or
properties of Subscriber or the Securities.
(k) Subscriber acknowledges that the Securities are speculative
and involve a high degree of risk and that Subscriber can bear the economic risk
of the purchase of the Securities, including a total loss of his/her/its
investment.
(l) Subscriber acknowledges that he/she/it has carefully reviewed
and considered the risk factors discussed in the "Risk Factors" section of the
Memorandum.
(m) Subscriber recognizes that no federal, state or foreign agency
has recommended or endorsed the purchase of the Securities.
(n) Subscriber is aware that the Securities are and will be, when
issued, "restricted securities" as that term is defined in Rule 144 of the
general rules and regulations under the Act.
(o) Subscriber understands that any and all certificates
representing the Securities and any and all securities issued in replacement
thereof or in exchange therefor shall bear the following legend or one
substantially similar thereto, which Subscriber has read and understands:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND
NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS WHICH, IN THE
OPINION OF COUNSEL FOR THIS CORPORATION, IS AVAILABLE."
(p) In addition, the certificates representing the Securities, and
any and all securities issued in replacement thereof or in exchange therefor,
shall bear such legend as may be required by the securities laws of the
jurisdiction in which Subscriber resides.
(q) Because of the restrictions imposed on resale, Subscriber
understands that the Company shall have the right to note stop-transfer
instructions in its stock transfer records, and Subscriber has been informed of
the Company's intention to do so. Any sales, transfers, or any other
dispositions of the Securities by Subscriber, if any, will be in compliance with
the Act.
(r) Subscriber acknowledges that Subscriber has such knowledge and
experience in financial and business matters that he is capable of evaluating
the merits and risks of an investment in the Securities and of making an
informed investment decision.
(s) Subscriber represents that (i) Subscriber is able to bear the
economic risks of an investment in the Securities and to afford the complete
loss of the investment; and (ii) (A) Subscriber could be reasonably assumed to
have the capacity to protect his/her/its own interests in connection with this
subscription; or (B) Subscriber has a pre-existing personal or business
relationship with either the Company or any affiliate thereof of such duration
and nature as would enable a reasonably prudent purchaser to be aware of the
character, business acumen and general business and financial circumstances of
the Company or such affiliate and is otherwise personally qualified to evaluate
and assess the risks, nature and other aspects of this subscription.
(t) Subscriber further represents that the address set forth below
is his/her principal residence (or, if Subscriber is a company, partnership or
other entity, the address of its principal place of business); that Subscriber
is purchasing the Securities for Subscriber's own account and not, in whole or
in part, for the account of any other person; Subscriber is purchasing the
Securities for investment and not with a view to resale or distribution; and
that Subscriber has not formed any entity for the purpose of purchasing the
Securities.
(u) Subscriber understands that the Company shall have the
unconditional right to accept or reject this subscription, in whole or in part,
for any reason or without a specific reason, in the sole and absolute discretion
of the Company (even after receipt and clearance of Subscriber's funds). This
Subscription Agreement is not binding upon the Company until accepted by an
authorized officer of the Company. In the event that the subscription is
rejected, then Subscriber's subscription funds will be returned without interest
thereon or deduction therefrom.
(v) Subscriber has not been furnished with any oral representation
or oral information in connection with the offering of the Securities that is
not contained in the Memorandum and this Subscription Agreement.
(w) Subscriber represents that Subscriber is not subscribing for
Securities as a result of or subsequent to any advertisement, article, notice or
other communication published in any newspaper, magazine or similar media or
broadcast over the Internet, television or radio or presented at any seminar or
meeting.
(x) Subscriber has carefully read this Subscription Agreement and
the Memorandum, and Subscriber has accurately completed the Purchaser
Questionnaire which accompanies this Subscription Agreement.
(y) No representations or warranties have been made to Subscriber
by the Company, or any officer, employee, agent, affiliate or subsidiary of the
Company, other than the representations of the Company contained herein, and in
subscribing for the Securities the Subscriber is not relying upon any
representations other than those contained in the Memorandum or in this
Subscription Agreement.
(z) Subscriber represents and warrants, to the best of its
knowledge, that other than the Placement Agent, no finder, broker, agent,
financial advisor or other intermediary, nor any purchaser representative or any
broker-dealer acting as a broker, is entitled to any compensation in connection
with the transactions contemplated by this Subscription Agreement.
3. Representations, Warranties and Covenants of the Company. The Company
represents, warrants and covenants to Subscriber as follows:
(a) The Company is duly organized and validly exists as a
corporation in good standing under the laws of the State of Delaware.
(b) The Company has all such corporate power and authority to
enter into, deliver and perform this Subscription Agreement.
(c) All necessary corporate action has been duly and validly taken
by the Company to authorize the execution, delivery and performance of this
Subscription Agreement by the Company, and the issuance and sale of the
Securities to be sold by the Company pursuant to this Subscription Agreement.
This Subscription Agreement has been duly and validly authorized, executed and
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company enforceable against the Company in accordance with its terms,
except as the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles.
4. Indemnification. Subscriber agrees to indemnify and hold harmless the
Company, its officers, directors, employees, shareholders and affiliates, and
any person acting on behalf of the Company, from and against any and all damage,
loss, liability, cost and expense (including reasonable attorneys' fees) which
any of them may incur by reason of the failure by Subscriber to fulfill any of
the terms and conditions of this Subscription Agreement, or by reason of any
breach of the representations and warranties made by Subscriber herein, or in
any other document provided by Subscriber to the Company. All representations,
warranties and covenants of each of Subscriber and the Company contained herein
shall survive the acceptance of this subscription.
5. Registration Rights. In consideration of the investment in the Company
described in this Agreement and the Memorandum, the Company hereby grants to the
Subscriber the registration rights set forth on Annex A attached hereto.
6. Miscellaneous.
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(a) Subscriber agrees not to transfer or assign this Subscription
Agreement or any of Subscriber's interest herein and further agrees that the
transfer or assignment of the Securities acquired pursuant hereto shall be made
only in accordance with all applicable laws.
(b) Subscriber agrees that Subscriber cannot cancel, terminate, or
revoke this Subscription Agreement or any agreement of Subscriber made
hereunder, and this Subscription Agreement shall survive the death or legal
disability of Subscriber and shall be binding upon Subscriber's heirs,
executors, administrators, successors, and permitted assigns.
(c) Subscriber has read and has accurately completed this entire
Subscription Agreement.
(d) This Subscription Agreement constitutes the entire agreement
among the parties hereto with respect to the subject matter hereof and may be
amended only by a written execution by all parties.
(f) Subscriber acknowledges that it has been advised to consult
with his/her/its own attorney regarding this subscription and Subscriber has
done so to the extent that Subscriber deems appropriate.
(g) Any notice or other document required or permitted to be given
or delivered to the Subscriber shall be in writing and sent (i) by fax if the
sender on the same day sends a confirming copy of such notice by a recognized
overnight delivery service (charges prepaid), or (b) by registered or certified
mail with return receipt requested (postage prepaid) or (c) by a recognized
overnight delivery service (with charges prepaid).
If to the Company, at:
00 X. Xxxxxxxx Xxxxxxxx
Xxxxxx, XX 00000
Attn: Xxxx X. Xxxxxxxx
Tel: (000) 000-0000; Fax: ____-____________
or such other address as it shall have specified to the Subscriber in
writing, with a copy (which shall not constitute notice) to:
Xxxxx Xxxxxxx Berlack Israels LLP
000 X. 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxx Xxxxx, Esq.
Tel: (000) 000-0000, Fax: (000) 000-0000
IF TO THE SUBSCRIBER, AT SUBSCRIBER'S ADDRESS SET FORTH ON THE SIGNATURE
PAGE TO THIS SUBSCRIPTION AGREEMENT, OR SUCH OTHER ADDRESS AS SUBSCRIBER
SHALL HAVE SPECIFIED TO THE COMPANY IN WRITING, WITH A COPY (WHICH SHALL
NOT CONSTITUTE NOTICE) TO EACH OF THE FOLLOWING:
(h) Failure of the Company to exercise any right or remedy under
this Subscription Agreement or any other agreement between the Company and the
Subscriber, or otherwise, or delay by the Company in exercising such right or
remedy, will not operate as a waiver thereof. No waiver by the Company will be
effective unless and until it is in writing and signed by the Company.
(i) This Subscription Agreement shall be enforced, governed and
construed in all respects in accordance with the laws of the State of New York,
as such laws are applied by the New York courts to agreements entered into and
to be performed in New York by and between residents of New York, and shall be
binding upon the Subscriber, the Subscriber's heirs, estate, legal
representatives, successors and assigns and shall inure to the benefit of the
Company, its successors and assigns.
(j) If any provision of this Subscription Agreement is held to be
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed modified to conform with such statute or rule of law.
Any provision hereof that may prove invalid or unenforceable under any law shall
not affect the validity or enforceability of any other provisions hereof.
(k) The parties understand and agree that money damages would not
be a sufficient remedy for any breach of the Subscription Agreement by the
Company or the Subscriber and that the party against which such breach is
committed shall be entitled to equitable relief, including injunction and
specific performance, as a remedy for any such breach. Such remedies shall not
be deemed to be the exclusive remedies for a breach by either party of the
Subscription Agreement but shall be in addition to all other remedies available
at law or equity to the party against which such breach is committed.
(l) All pronouns and any variations thereof used herein shall be
deemed to refer to the masculine, feminine, singular or plural, as identity of
the person or persons may require.
(m) This Subscription Agreement may be executed in counterparts
and by facsimile, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument.
[Signature Pages Follow]
Signature Page for Individuals:
IN WITNESS WHEREOF, Subscriber has caused this Subscription Agreement
to be executed as of the date indicated below.
$
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Purchase Price Number of Units
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Print or Type Name
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Signature
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Date
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Social Security Number (if applicable)
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Address
Please check if applicable and include co-owner's information below (name,
address, social security number):
Joint Tenancy Tenants in Common
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S-1
Partnerships, Corporations or Other Entities:
IN WITNESS WHEREOF, Subscriber has caused this Subscription Agreement
to be executed as of the date indicated below.
$
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Purchase Price Number of Units
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Print or Type Name of Entity
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Address
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Taxpayer I.D. No. (if applicable) Date
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Signature Print or Type Name and Indicate
Title or Position with Entity
S-1
Disposition of Subscription Agreement
IN WITNESS WHEREOF, the Company has caused this Subscription Agreement
to be executed, and the foregoing subscription accepted, as of the date
indicated below.
VELOCITY ASSET MANAGEMENT, INC.
By:
--------------------------------
Name:
Title:
Date: , 2004
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S-2
Annex A to Subscription Agreement
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REGISTRATION RIGHTS
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1. Definitions.
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Capitalized terms used herein without definition shall have the
respective meanings given such terms as set forth in the Subscription Agreement
dated as of _____________ __, 2004 between Velocity Asset Management, Inc. and
the investor signatory thereto (the "Subscription Agreement"). As used herein,
the following terms shall have the following meanings:
Business Day: Any day other than a day on which banks are
authorized or required to be closed in the State of New York.
Commission: The Securities and Exchange Commission.
Common Stock: The shares of common stock, par value $.001 per
share, of the Company.
Exchange Act: The Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated
thereunder.
Holder or Holders: Any holder of the Registrable Securities.
Person: Any individual, corporation, partnership, joint
venture, association, joint stock company, trust,
unincorporated organization or government or other agency or
political subdivision thereof.
Prospectus: The prospectus included in any Registration
Statement (including, without limitation, a prospectus that
discloses information previously omitted from a prospectus
filed as part of an effective registration statement in
reliance upon Rule 430A promulgated under the Securities Act),
as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the
Registrable Securities covered by such Registration Statement,
and all other amendments and supplements to the prospectus,
including post-effective amendments, and all material
incorporated by reference or deemed to be incorporated by
reference in such prospectus.
Registrable Securities: The shares of Common Stock issued
pursuant to the Subscription Agreement and shares of Common
Stock issuable upon the exercise of the Warrants issued
pursuant to the Subscription Agreement, until such time as (i)
a Registration Statement covering such Registrable Securities
has been declared effective by the Commission and such
Registrable Securities have been disposed of pursuant to such
effective Registration Statement or (ii) such Registrable
Securities are saleable pursuant to Rule 144 (or any similar
provision then in force) under the Securities Act, whichever
is earlier.
Registration Statement: Any registration statement of the
Company that covers any of the Registrable Securities pursuant
to the provisions of this Agreement, including the Prospectus,
amendments and supplements to such registration statements,
including post effective amendments, all exhibits, and all
material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
Securities Act: The Securities Act of 1933, as amended, and
the rules and regulations of the Commission promulgated
thereunder.
2. Demand Registration. The Company hereby agrees to register the
Registrable Securities in accordance with the following terms and
provisions:
(a) The Company will undertake to cause the Registrable
Securities to be registered with the Securities and Exchange
Commission (the "SEC") pursuant to the Securities Act of 1933,
or any similar federal statute, and the rules and regulations
of the SEC thereunder, all as the same shall be in effect at
the time (the "Securities Act").
(b) In the event that (i) the Company shall fail to file
a registration statement covering the Registrable Shares with
the SEC under the Securities Act pursuant to this Agreement on
or before the 45th day after the final closing or termination
of the offering pursuant to which the Registrable Securities
were issued and/or (ii) the registration statement covering
the Registrable Shares has not been declared effective by the
SEC on or before the 180th day after the final closing or
termination of the offering pursuant to which the Registrable
Securities were issued, the Company shall be in default to the
Holder under this Agreement (a "Registration Rights Default").
(c) The Company recognizes and agrees that the Holder
will not have an adequate remedy if there shall occur a
Registration Rights Default and that damages resulting
therefrom may not be readily ascertainable. Therefore, the
Company expressly agrees that, in the event of a Registration
Rights Default:
(i) it shall not oppose an application by the
Holder requiring specific performance of any and all
provisions hereof or enjoining the Company from
continuing to commit any such breach of this
Agreement; and
(ii) as liquidated damages the Company shall
issue to the Holders a number of shares of Common
Stock equal to one percent (1%) of the number shares
of Common Stock included in the Unit purchased by
such subscriber per full month from and after the
date of a Registration Rights Default until such time
as the Registrable Securities have been registered as
required by this Section 2.
3. Registration Procedures.
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In connection with the registration obligations of the Company
pursuant to the terms and conditions of this Agreement, the Company shall:
(a) prior to filing a Registration Statement or
Prospectus or any amendments or supplements thereto, including
documents incorporated by reference after the initial filing
of the Registration Statement, the Company will furnish to the
Holders covered by such Registration Statement (the "Selling
Holders"), Holders' Counsel and the underwriters, if any,
draft copies of all such documents proposed to be filed at
least three (3) Business Days prior thereto, which documents
will be subject to the review of such Holders' Counsel and the
underwriters, if any, and the Company will not, unless
required by law, file any Registration Statement or amendment
thereto or any Prospectus or any supplement thereto (including
such documents incorporated by reference) to which Selling
Holders of at least a majority of the Registrable Securities
(the "Objecting Party") shall object, pursuant to notice given
to the Company prior to the filing of such amendment or
supplement (the "Objection Notice"). The Objection Notice
shall set forth the objections and the specific areas in the
draft documents where such objections arise. The Company shall
have five (5) Business Days after receipt of the Objection
Notice to correct such deficiencies to the satisfaction of the
Objecting Party, and will notify each Selling Holder of any
stop order issued or threatened by the Commission in
connection therewith and take all reasonable actions required
to prevent the entry of such stop order or to remove it if
entered;
(b) as promptly as practicable prepare and file with the
Commission such amendments and post-effective amendments to
the Registration Statement as may be necessary to keep such
Registration Statement effective for a reasonable period;
cause the Prospectus to be supplemented by any required
Prospectus supplement, and, as so supplemented, to be filed
pursuant to Rule 424 under the Securities Act; and comply with
the provisions of the Securities Act applicable to it with
respect to the disposition of all Registrable Securities
covered by such Registration Statement during the applicable
period in accordance with the intended methods of disposition
by the Selling Holders set forth in such Registration
Statement or supplement to the Prospectus;
(c) as promptly as practicable furnish to any Selling
Holder and the underwriters, if any, without charge, such
number or conformed copies of such Registration Statement and
any post-effective amendment thereto and such number of copies
of the Prospectus (including each preliminary Prospectus) and
any amendments or supplements thereto, and any documents
incorporated by reference therein, as such Selling Holder or
underwriter may reasonably request in order to facilitate the
disposition of the Registrable Securities being sold by such
Selling Holder (it being understood that the Company consents
to the use of the Prospectus and any amendment or supplement
thereto by each Selling Holder and the underwriters, if any,
in connection with the offering and sale of the Registrable
Securities covered by the Prospectus or any amendment or
supplement thereto); provided, that before filing a
Registration Statement or Prospectus relating to the
Registrable Securities or any amendments or supplements
thereto, the Company will furnish to Holders' Counsel copies
of all documents proposed to be filed at least three (3)
Business Days prior to the filing thereof, which documents
will be subject to the review of such counsel;
(d) on or prior to the date on which the Registration
Statement is declared effective, register or qualify such
Registrable Securities under such other securities or "blue
sky" laws of such jurisdictions as any Selling Holder,
Holders' Counsel or underwriter reasonably requests and do any
and all other acts and things which may be necessary or
advisable to enable such Selling Holder to consummate the
disposition in such jurisdictions of such Registrable
Securities owned by such Selling Holder; keep each such
registration or qualification (or exemption therefrom)
effective during the period which the Registration Statement
is required to be kept effective; and do any and all other
acts or things reasonably necessary or advisable to enable the
disposition in such jurisdictions of the Registrable
Securities covered by the applicable Registration Statement;
provided that the Company shall not be required to (i) qualify
to do business as a foreign corporation or as a broker-dealer
in any jurisdiction where it is not then so qualified or (ii)
take any action which would subject it to general service of
process or to taxation in any jurisdiction where it is not
then so subject;
(e) cause the Registrable Securities covered by such
Registration Statement to be registered with or approved by
such other governmental agencies or authorities as may be
necessary by virtue of the business and operations of the
Company to enable the Selling Holders to consummate the
disposition of such Registrable Securities;
(f) as promptly as practicable notify each Selling
Holder, Holders' Counsel and any underwriter and (if requested
by any such Person) confirm such notice in writing, (i) when a
Prospectus or any Prospectus supplement or post-effective
amendment has been filed and, with respect to a Registration
Statement or any post-effective amendment, when the same has
become effective, (ii) of any request by the Commission or any
other federal or state governmental authority for amendments
or supplements to a Registration Statement or related
Prospectus or for additional information to be included in any
Registration Statement or Prospectus or otherwise, (iii) of
the issuance by the Commission of any stop order suspending
the effectiveness of a Registration Statement or the
initiation or threatening of any proceedings for that purpose,
(iv) of the issuance by any state securities commission or
other regulatory authority of any order suspending the
qualification or exemption from qualification of any of the
Registrable Securities under state securities or "blue sky"
laws or the initiation of any proceedings for that purpose and
(v) of the happening of any event which makes any statement
made in a Registration Statement or related Prospectus or any
document incorporated or deemed to be incorporated by
reference therein untrue or which requires the making of any
changes in such Registration Statement, Prospectus or
documents so that they will not contain any untrue statement
of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements
therein not misleading; and, as promptly as practicable
thereafter, prepare and file with the Commission and furnish a
supplement or amendment to such Prospectus so that, as
thereafter deliverable to the purchasers of such Registrable
Securities, such Prospectus will not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(g) make generally available to the Holders an earnings
statement satisfying the provisions of Section 10 (a) of the
Securities Act no later than thirty (30) days after the end of
the 12-month period beginning with the first day of the
Company's first fiscal quarter commencing after the effective
date of a Registration Statement;
(h) use its reasonable efforts to prevent the issuance of
any order suspending the effectiveness of a Registration
Statement, and, if one is issued, to obtain the withdrawal of
any order suspending the effectiveness of a Registration
Statement at the earliest possible moment;
(i) as promptly as practicable after filing with the
Commission of any document which is incorporated by reference
into a Registration Statement, deliver a copy of such document
to Holders' Counsel;
(j) cooperate with the Selling Holders and the managing
underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates (which shall not bear
any restrictive legends and shall be in a form eligible for
deposit with the Depository Trust Company) representing
securities sold under such Registration Statement, and enable
such securities to be in such denominations and registered in
such names as the managing underwriter or underwriters, if
any, or such Selling Holders may request and make available
prior to the effectiveness of such Registration Statement a
supply of such certificates;
Each Selling Holder, upon receipt of any notice from the
Company of the happening of any event of the kind described in
subsection (f) of this Section 3, shall forthwith discontinue
disposition of the Registrable Securities until such Selling Holder's
receipt of the copies of the supplemented or amended Prospectus
contemplated by subsection (f) of this Section 3 or until it is advised
in writing (the "Advice") by the Company that the use of the Prospectus
may be resumed, and has received copies of any additional or
supplemental filings which are incorporated by reference in the
Prospectus, and, if so directed by the Company, such Selling Holder
will, or will request the managing underwriter or underwriters, if any,
to, deliver to the Company (at the Company's expense) all copies, other
than permanent file copies then in such Selling Holder's possession, of
the Prospectus covering such Registrable Securities current at the time
of receipt of such notice. In the event that the Company shall give any
such notice, the time periods for which a Registration Statement is
required to be kept effective shall be extended by the number of days
during the period from and including the date of the giving of such
notice to and including the date when each Selling Holder shall have
received (i) the copies of the supplemented or amended Prospectus
contemplated by Section 3(f) or (ii) the Advice.
4. Registration Expenses.
---------------------
All expenses incident to the Company's performance
of, or compliance with, the provisions hereof, including
without limitation, all Commission and securities exchange or
NASD registration and filing fees, fees and expenses of
compliance with securities or "blue sky" laws (including fees
and disbursements of counsel in connection with "blue sky"
qualifications of the Registrable Securities), printing
expenses, messenger and delivery expenses, internal expenses
(including, without limitation, all salaries and expenses of
the Company's officers and employees performing legal or
accounting duties), fees and expenses incurred in connection
with the listing of the securities to be registered, if any,
on each securities exchange on which similar securities issued
by the Company are then listed, fees and disbursements of
counsel for the Company and its independent certified public
accountants (including the expense of any special audit or
"cold comfort" letters required by, or incident to, such
performance), Securities Act liability insurance (if the
Company elects to obtain such insurance), reasonable fees and
expenses of any special experts retained by the Company in
connection with such registration, fees and expenses of other
Persons retained by the Company in connection with each
registration hereunder (but not including the fees and expense
of legal counsel retained by a Holder or Holders, or any
underwriting fees, discounts or commissions attributable to
the sale of Registrable Securities) are herein called
"Registration Expenses."
The Company will pay all Registration Expenses in
connection with each Registration Statement filed pursuant to
Section 2 except as otherwise set forth therein. All expenses
to be borne by the Holders in connection with any Registration
Statement filed pursuant to Section 2 (including, without
limitation, all underwriting fees, discounts or commissions
attributable to such sale of Registrable Securities) shall be
borne by the participating Holders pro rata in relation to the
number of shares of Registrable Securities to be registered by
each Holder.
5. Indemnification; Contribution.
-----------------------------
(a) Indemnification by the Company. The Company agrees to
indemnity and hold harmless, to the full extent permitted by
law, each Holder, its officers, directors and each Person who
controls such Holder (within the meaning of the Securities
Act), and any agent or investment adviser thereof, against all
losses, claims, damages, liabilities and expenses (including
reasonable attorneys' fees and costs of investigation) arising
out of or based upon any untrue or alleged untrue statement of
material fact contained in any Registration Statement, any
amendment or supplement thereto, any Prospectus or preliminary
Prospectus or any omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
except insofar as the same arise out of or are based upon any
such untrue statement or omission based upon information with
respect to such Holder furnished in writing to the Company by
or on behalf of such Holder expressly for use therein;
provided that, in the event that the Prospectus shall have
been amended or supplemented and copies thereof as so amended
or supplemented, shall have been furnished to a Holder prior
to the confirmation of any sales of Registrable Securities,
such indemnity with respect to the Prospectus shall not inure
to the benefit of such Holder if the Person asserting such
loss, claim, damage or liability and who purchased the
Registrable Securities from such holder did not, at or prior
to the confirmation of the sale of the Registrable Securities
to such Person, receive a copy of the Prospectus as so amended
or supplemented and the untrue statement or omission of a
material fact contained in the Prospectus was corrected in the
Prospectus as so amended or supplemented.
(b) Indemnification by Holders of Registrable
Securities. In connection with any Registration Statement in
which a Holder is participating, each such Holder will furnish
to the Company in writing such information with respect to the
name and address of such Holder and such other information as
may be reasonably required for use in connection with any such
Registration Statement or Prospectus and agrees to indemnity,
to the full extent permitted by law, the Company, its
directors and officers and each Person who controls the
Company (within the meaning of the Securities Act) against any
losses, claims, damages, liabilities and expenses resulting
from any untrue statement of a material fact or any omission
of a material fact required to be stated in the Registration
Statement or Prospectus or any amendment thereof or supplement
thereto or necessary to make the statements therein not
misleading, to the extent, but only to the extent, that such
untrue or alleged untrue statement is contained in or such
omission or alleged omission relates to any information with
respect to such Holder so furnished in writing by such Holder
specifically for inclusion in any Prospectus or Registration
Statement; provided, however, that such Holder shall not be
liable in any such case to the extent that prior to the filing
of any such Registration Statement or Prospectus or amendment
thereof or supplement thereto, such Holder has furnished in
writing to the Company information expressly for use in such
Registration Statement or Prospectus or any amendment thereof
or supplement thereto which corrected or made not misleading
information previously furnished to the Company. In no event
shall the liability of any Selling Holder hereunder be greater
in amount than the dollar amount of the proceeds received by
such Selling Holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder agrees to give prompt
written notice to the indemnifying party after the receipt by
such Person of any written notice of the commencement of any
action, suit, proceeding or investigation or threat thereof
made in writing for which such Person will claim
indemnification or contribution pursuant to the provisions
hereof and, unless in the judgment of counsel of such
indemnified party a conflict of interest may exist between
such indemnified party and the indemnifying party with respect
to such claim, permit the indemnifying party to assume the
defense of such claim. Whether or not such defense is assumed
by the indemnifying party, the indemnifying party will not be
subject to any liability for any settlement made without its
consent (but such consent will not be unreasonably withheld).
No indemnifying party will consent to entry of any judgment or
enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all
liability in respect of such claim or litigation. If the
indemnifying party is not entitled to, or elects not to,
assume the defense of a claim, it will not be obligated to pay
the fees and expenses of more than one counsel (plus such
local counsel, if any, as may be reasonably required in other
jurisdictions) with respect to such claim, unless in the
judgment of any indemnified party a conflict of interest may
exist between such indemnified party and any other of such
indemnified parties with respect to such claim, in which event
the indemnifying party shall be obligated to pay the fees and
expenses of such additional counsel or counsels. For the
purposes of this Section 5(c), the term "conflict of interest"
shall mean that there are one or more legal defenses available
to the indemnified party that are different from or additional
to those available to the indemnifying party or such other
indemnified parties, as applicable, which different or
additional defenses make joint representation inappropriate.
(d) Contribution. If the indemnification from the
indemnifying party provided for in this Section 5 is
unavailable to an indemnified party hereunder in respect of
any losses, claims, damages, liabilities or expenses referred
to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or expenses in
such proportion as is appropriate to reflect the relative
fault of the indemnifying party and indemnified parties in
connection with the actions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such
indemnifying party and indemnified parties shall be determined
by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of
a material fact, has been made by, or relates to information
supplied by, such indemnifying party or indemnified parties,
and the parties intent, knowledge, access to information and
opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in
Section 5(c), any reasonable legal or other fees or expenses
reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5(d) were
determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable
considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section
5(d), no underwriter shall be required to contribute any
amount in excess of the amount by which the total price at
which the Registrable Securities underwritten by it and
distributed to the public were offered to the public exceeds
the amount of any damages which such underwriter has otherwise
been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission, and no
Selling Holder shall be required to contribute any amount in
excess of the amount by which the total price at which the
Registrable Securities of such Selling Holder were offered to
the public exceeds the amount of any damages which such
Selling Holder has otherwise been required to pay by reason of
such untrue statement or omission. No Person guilty of
fraudulent misrepresentation (within the meaning of Section I
l(f) of the Securities Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent
misrepresentation.
(e) If indemnification is available under this Section 5,
the indemnifying parties shall indemnity each indemnified
party to the full extent provided in Sections 5(a) and (b)
without regard to the relative fault of said indemnifying
party or indemnified party or any other equitable
consideration provided for in this Section 5(d).
6. Participation in Underwritten Registrations.
-------------------------------------------
No Holder may participate in any underwritten registration
hereunder unless such Holder (a) agrees to sell its Registrable
Securities on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements
and (b) completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
7. Transfer of Rights.
------------------
The rights to cause the Company to register Registrable
Securities granted pursuant to the provisions hereof may be transferred
or assigned by any Holder to a transferee or assignee; provided;
however, that the transferee or assignee of such rights assumes the
obligations of such transferor or assignor, as the case may be,
hereunder.
8. Amendment
---------
Except as otherwise provided herein, the provisions hereof may
not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given unless the
Company has obtained the written consent of Holders of at least a
majority of the aggregate number of the Registrable Securities then
outstanding.
Exhibit B
ACCREDITED INVESTOR QUESTIONNAIRE
PURCHASER QUESTIONNAIRE
VELOCITY ASSET MANAGEMENT, INC.
An offering of up to 3,500,000 Units
Each Unit consists of one share of Common Stock and a Warrant to purchase
1/5th share of Common Stock
Offering Price: $1.50 per Unit
Return by mail or overnight delivery to:
00 X. Xxxxxxxx Xxxxxxxx, 0xx Xxxxx
Xxxxxx, XX 00000
Attention: Xxxx X. Xxxxxxxx
S-2
PURCHASER QUESTIONNAIRE
VELOCITY ASSET MANAGEMENT, INC.
THIS QUESTIONNAIRE MUST BE ANSWERED FULLY AND RETURNED ALONG WITH YOUR COMPLETED
SUBSCRIPTION AGREEMENT IN CONNECTION WITH YOUR PROSPECTIVE PURCHASE OF
SECURITIES FROM VELOCITY ASSET MANAGEMENT, INC. (THE "COMPANY").
THE INFORMATION SUPPLIED IN THIS QUESTIONNAIRE WILL BE HELD IN STRICT
CONFIDENCE. NO INFORMATION WILL BE DISCLOSED EXCEPT TO THE EXTENT THAT SUCH
DISCLOSURE IS REQUIRED BY LAW OR REGULATION, OTHERWISE DEMANDED BY PROPER LEGAL
PROCESS OR IN LITIGATION INVOLVING THE COMPANY AND ITS CONTROLLING PERSONS.
(1) The undersigned represents and warrants that he, she or it
comes within at least one category marked below, and that for any category
marked, he, she or it has truthfully set forth, where applicable, the factual
basis or reason the undersigned comes within that category. The undersigned
agrees to furnish any additional information which the Company deems necessary
in order to verify the answers set forth below.
Category A ____ The undersigned is an individual (not a partnership,
corporation, etc.) whose individual net worth, or
joint net worth with his or her spouse, presently
exceeds $1,000,000.
Explanation. In calculating net worth you may include equity in personal
property and real estate, including your principal residence, cash,
short-term investments, stock and securities. Equity in personal property
and real estate should be based on the fair market value of such property
less debt secured by such property.
Category B ____ The undersigned is an individual (not a partnership,
corporation, etc.) who had an income in excess of
$200,000 in each of the two most recent years, or
joint income with his or her spouse in excess of
$300,000 in each of those years (in each case
including foreign income, tax exempt income and full
amount of capital gains and losses but excluding any
income of other family members and any unrealized
capital appreciation) and has a reasonable
expectation of reaching the same income level in the
current year.
Category C ____ The undersigned is a director or executive officer of
the Company which is issuing and selling the
Securities (as defined in the Company's Subscription
Agreement delivered along with this Purchaser
Questionnaire (the "Subscription Agreement")).
Category D ____ The undersigned is a bank, as defined in Section
3(a)(2) of the Securities Act of 1933, as amended
(the "Act"); a savings and loan association or other
institution as defined in Section 3(a)(5)(A) of the
Act, whether acting in its individual or fiduciary
capacity; any insurance company as defined in Section
2(13) of the Act; any investment company registered
under the Investment Company Act of 1940 or a
business development company as defined in Section
2(a)(48) of that Act; any Small Business Investment
Company licensed by the U.S. Small Business
Administration under Section 301(c) or (d) of the
Small Business Investment Act of 1958; any plan
established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a
state or its political subdivisions, for the benefit
of its employees, if such plan has total assets in
excess of $5,000,000; any employee benefit plan
within the meaning of the Employee Retirement Income
Security Act of 1974 if the investment decision is
made by a plan fiduciary, as defined in Section 3(21)
of such act, which is either a bank, savings and loan
association, insurance company, or registered
investment advisor, or if the employee benefit plan
has total assets in excess of $5,000,000 or, if a
self-directed plan, with investment decisions made
solely by persons that are accredited investors
(describe entity).
1
-----------------------------------------------------
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Category E ____ The undersigned is a private business development
company as defined in section 202(a) (22) of the
Investment Advisors Act of 1940. (describe entity)
-----------------------------------------------------
-----------------------------------------------------
Category F ____ The undersigned is either a corporation, partnership,
Massachusetts business trust, or non-profit
organization within the meaning of Section 501(c)(3)
of the Internal Revenue Code, in each case not formed
for the specific purpose of acquiring the Securities
and with total assets in excess of $5,000,000.
(describe entity)
-----------------------------------------------------
-----------------------------------------------------
Category G ____ The undersigned is a trust with total assets in
excess of $5,000,000, not formed for the specific
purpose of acquiring the Securities, where the
purchase is directed by a "sophisticated investor" as
defined in Regulation 506(b)(2)(ii) under the Act.
Category H ____ The undersigned is an entity (other than a trust)
in which all of the equity owners are "accredited
investors" within one or more of the above
categories. If relying upon this Category alone, each
equity owner must complete a separate copy of this
Purchaser Questionnaire. (describe entity)
-----------------------------------------------------
-----------------------------------------------------
The undersigned agrees that the undersigned will
notify the Company at any time on or prior to the
Closing (as defined in the Company's ____________,
dated __________, relating to the issuance of
securities) in the event that the representations and
warranties in this Purchaser Questionnaire shall
cease to be true, accurate and complete.
(2) Suitability (please answer each question)
(a) For an individual, please describe your current
employment, including the company by which you are
employed and its principal business:
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
(b) For an individual, please describe any college or
graduate degrees held by you:
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
(c) For all subscribers, please list types of prior
investments:
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
2
(d) For all subscribers, please state whether you have
you participated in other private placements before:
YES NO
---------- ---------
(e) If your answer to question (d) above was "YES",
please indicate frequency of such prior participation
in private placements of:
Public Private
Companies Companies
----------------- ------------------
Frequently
----------------- ------------------
Occasionally
----------------- ------------------
Never
----------------- ------------------
(f) For individuals, do you expect your current level of
income to significantly decrease in the foreseeable
future?
YES NO
---------- ---------
(g) For trust, corporate, partnership and other
institutional subscribers, do you expect your total
assets to significantly decrease in the foreseeable
future?
YES NO
---------- ---------
(h) For all subscribers, do you have any other
investments or contingent liabilities which you
reasonably anticipate could cause you to need sudden
cash requirements in excess of cash readily available
to you?
YES NO
---------- ---------
(i) For all subscribers, are you familiar with the risk
aspects and the non-liquidity of investments such as
the Securities for which you seek to purchase?
YES NO
---------- ---------
(j) For all subscribers, do you understand that there is
no guarantee of financial return on this investment
and that you run the risk of losing your entire
investment?
YES NO
---------- ---------
(3) Manner in which title is to be held: (circle one)
(a) Individual Ownership
(b) Community Property
(c) Joint Tenant with Right of Survivorship (both parties
must sign)
(d) Partnership
(e) Tenants in Common
(f) Company
(g) Trust
(h) Other
3
(4) NASD Affiliation.
Are you affiliated or associated with an NASD member firm
(please check one):
YES NO
---------- ---------
If Yes, please describe:
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
*If subscriber is a Registered Representative with an NASD
member firm, have the following acknowledgment signed by the
appropriate party:
The undersigned NASD member firm acknowledges receipt of the
notice required by Article 3, Sections 28(a) and (b) of the
Rules of Fair Practice.
---------------------------------
Name of NASD Member Firm
By:
------------------------------
Authorized Officer
Date:
----------------------------
[Remainder of page intentionally left blank]
4
The undersigned is informed of the significance to the Company of the
foregoing representations and answers contained in this Purchaser Questionnaire
and such answers have been provided under the assumption that the Company will
rely on them.
Individual
Date:
-------------------------- --------------------------------
Name of Individual
(Please type or print)
-------------------------------
Signature of Individual
Partnership, Corporation or
Other Entity
Date:
-------------------------- --------------------------------
Print or Type Entity Name
By: Name:
---------------------
Print or Type Name
Title:
--------------------
-------------------------------
Signature
5
Exhibit C
Form of Warrant
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. NEITHER THIS WARRANT NOR THE
SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF THIS WARRANT MAY BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT OR SUCH SHARES (AS APPLICABLE) UNDER
SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
VELOCITY ASSET MANAGEMENT, INC.
COMMON STOCK WARRANT
--------------------
Warrant No. CS - Warrant to Purchase Shares of Common
Stock ------
Void after , 2009
-------- ---
For value received Velocity Asset Management, Inc., a Delaware corporation
("Company"), subject to the terms and conditions of this warrant (the
"Warrant"), promises to issue to (the "Holder")___________________ shares (the
"Shares") of the Common Stock, $.001 par value per share (the "Common Stock")
during the period specified herein upon the exercise of this Warrant as provided
herein.
1. Term of Warrant. Subject to the terms and conditions set forth
herein, this Warrant shall be exercisable, in whole or in part, at any time up
and until __________ __, 2009 (the "Expiration Date").
2. Exercise Price. The "Exercise Price" at which this Warrant may
be exercised is Two Dollars and Fifty Cents ($2.50) per share of Common Stock.
3. Exercise of Warrant. (a) Except as provided in Section 3(b),
the purchase rights represented by this Warrant are exercisable by the Holder in
whole or in part (in accordance with Section 4 hereof), at any time, or from
time to time, during the term hereof as described in Section 1 above, by the
surrender of this Warrant and the Notice of Exercise annexed hereto duly
completed and executed on behalf of the Holder, at the office of the Company (or
such other office or agency of the Company as it may designate by notice in
writing to the Holder), upon payment of the Exercise Price of the shares to be
purchased (i) in cash or by check acceptable to the Company, (ii) by
cancellation by the Holder of indebtedness or other obligations of the Company
to the Holder, or (iii) by a combination of (i) and (ii).
(B) IN THE EVENT THAT THE COMPANY HAS NOT REGISTERED THE
COMMON STOCK ON OR BEFORE THE 150TH DAY AFTER THE FINAL CLOSING OR
TERMINATION OF THE OFFERING PURSUANT TO WHICH THIS WARRANT WAS ISSUED TO
HOLDER, UPON WRITTEN NOTICE OF EXERCISE FROM THE HOLDER TO THE COMPANY THAT
THE HOLDER IS EXERCISING THIS WARRANT IN WHOLE OR IN PART AND AS
CONSIDERATION OF SUCH EXERCISE IS AUTHORIZING THE COMPANY TO WITHHOLD FROM
ISSUANCE A NUMBER OF SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT, THE COMPANY SHALL DELIVER TO THE HOLDER (WITHOUT PAYMENT BY THE
HOLDER OF THE AGGREGATE EXERCISE PRICE) THAT NUMBER OF SHARES OF COMMON
STOCK HAVING AN AGGREGATE FAIR MARKET VALUE (AS HEREINAFTER DEFINED) EQUAL
TO THE QUOTIENT OBTAINED BY DIVIDING (X) THE SPREAD VALUE BY (Y) THE FAIR
MARKET VALUE OF ONE SHARE OF COMMON STOCK IMMEDIATELY PRIOR TO THE
EXERCISE. THE SHARES WITHHELD BY THE COMPANY SHALL NO LONGER BE ISSUABLE
UNDER THIS WARRANT. THE TERM "SPREAD VALUE" SHALL MEAN (I) THE NUMBER OF
SHARES EXERCISED AT A GIVEN TIME MULTIPLIED BY THE FAIR MARKET VALUE OF ONE
SHARE OF COMMON STOCK, LESS (II) AGGREGATE APPLICABLE EXERCISE PRICE. FOR
THE PURPOSES OF THIS AGREEMENT, (I) "TRADING DAY" SHALL MEAN ANY DAY ON
WHICH THE PRINCIPAL MARKET IS OPEN FOR BUSINESS AND (II) "PRINCIPAL MARKET"
6
SHALL MEAN INITIALLY THE OTC BULLETIN BOARD AND SHALL INCLUDE THE AMERICAN
STOCK EXCHANGE, NASDAQ NATIONAL MARKET, THE NASDAQ SMALLCAP MARKET OR THE
NEW YORK STOCK EXCHANGE IF THE COMPANY IS LISTED AND TRADES ON SUCH MARKET
OR EXCHANGE.
"Fair Market Value" of a share of Common Stock as of
a particular date (the "Determination Date") shall
mean:
(i) If the Common Stock is traded on a Principal Market,
then the average of the closing or last sale price, respectively,
reported for the five trading days immediately preceding the
Determination Date; or
(ii) If the Common Stock is not traded as provided above,
then the price determined in good faith by the Board of Directors of
the Company, which price shall be determined by a review of various
factors that the Board of Directors deems appropriate including, but
not limited to, a review of the Company's financial statements, recent
sales of the Company's securities and the liquidation value of the
securities provided that (1) the basis or bases of each such
determination shall be set forth in the corporate records of the
Company pertaining to meetings and other actions of such board, and (2)
such records are available to the Holder for inspection during normal
business hours of the Company upon the giving of reasonable prior
notice. In the event the price is not acceptable to the Holder then the
Fair Market Value shall be determined by an appraiser if the Company
and the Holder can agree upon the appraiser. If the Company and the
Holder cannot agree, then the value and price shall be determined by
three appraisers as follows: the Company shall select one appraiser;
the Holder shall select one appraiser; and the two appraisers shall
select a third. The decision of a majority of the appraisers shall be
final and binding upon all parties. The costs of the appraisal shall be
borne equally by the Holder and the Company.
7
For example, if the Holder elected to exercise this Warrant for 1,000 shares of
Common Stock and the Fair Market Value as of the date of exercise was $4.00 per
share the following adjustment would be effected:
Number of
Shares to be
Issued = Spread Value/Fair Market Value
= (1,000 x $4.00) - (1,000 x $2.50)/$4.00
= (4,000 - 2,500)/$4.00
= 1,500/4.00
= 375
In this example, as a result of the "cashless exercise", 600
shares would be issued to the Holder and 400 shares would be cancelled as
payment of the aggregate Exercise Price.
If this Warrant shall have been exercised in part, the Company
shall, at the time of delivery of the certificate or certificates representing
Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder
to purchase the unpurchased shares of Common Stock called for by this Warrant,
which new Warrant shall in all other respects be identical with this Warrant.
4. Partial Exercise. This Warrant may be exercised in part for at
least (i) 1,000 shares or (ii) the number shares remaining subject to this
Warrant if such number of shares is less than 1,000 shares. Upon such partial
exercise, the Holder shall be entitled to receive a new warrant, which shall be
dated as of the date of this Warrant, covering the number of shares in respect
of which this Warrant shall not have been exercised.
5. Issuance Date. The person or persons in whose name or names
any certificate representing shares of Common Stock is issued hereunder shall be
deemed to have become the holder of record of the shares represented thereby as
of the close of business on the date this Warrant is exercised with respect to
such shares, whether or not the transfer books of the Company shall be closed.
6. Expiration Date. This Warrant shall expire at the close of
business on the Expiration Date.
7. Reserved Shares; Valid Issuance. The Company covenants that it
will, at all times from and after the date the Common Stock is increased as
provided above, reserve and keep available such number of its authorized shares
of Common Stock, free from all preemptive or similar rights therein, as will be
sufficient to permit the exercise of this Warrant in full and the conversion of
this Warrant into shares of Common Stock receivable upon such exercise. The
Company further covenants that such shares as may be issued pursuant to such
exercise will, upon issuance, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof.
8. Stock Dividends. If after the date of this Warrant the Company
shall subdivide the Common Stock, by split-up or otherwise, or combine the
Common Stock, or issue additional shares of Common Stock in payment of a stock
dividend on the Common Stock, (i) the number of shares issuable on the exercise
of this Warrant shall forthwith be proportionately increased in the case of a
subdivision or stock dividend, or proportionately decreased in the case of a
combination, (ii) the Exercise Price shall forthwith be proportionately
decreased in the case of a subdivision or stock dividend, or proportionately
increased in the case of a combination and (iii) the minimum number of shares
subject to a partial exercise of this Warrant will be proportionately increased
in the case of a subdivision or stock dividend, or proportionately decreased in
the case of a combination.
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9. Mergers and Reclassifications. If after the date of this
Warrant there shall be any reclassification, capital reorganization or change of
the Common Stock (other than as a result of a subdivision, combination or stock
dividend provided for in Section 10 hereof), or any consolidation of the Company
with, or merger of the Company into, another corporation or other business
organization (other than a consolidation or merger in which the Company is the
continuing corporation and which does not result in any reclassification or
change of the outstanding Common Stock), or any sale or conveyance to another
corporation or other business organization of all or substantially all of the
assets of the Company, then, as a condition of such reclassification,
reorganization, change, consolidation, merger, sale or conveyance, lawful
provisions shall be made, and duly executed documents evidencing the same from
the Company or its successor shall be delivered to the Holder, so that the
Holder shall thereafter have the right to purchase, at a total price not to
exceed that payable upon the exercise of this Warrant in full, the kind and
amount of shares of stock and other securities and property receivable upon such
reclassification, reorganization, change, consolidation, merger, sale or
conveyance by a holder of the number of shares of Common Stock which might have
been purchased by the Holder immediately prior to such reclassification,
reorganization, change, consolidation, merger, sale or conveyance (or, if there
are no holders of Common Stock at such time, by a holder of the number of shares
of Common Stock which might have been acquired by the Holder immediately prior
to such reclassification, reorganization, change, consolidation, merger, sale or
conveyance upon the exercise of this Warrant in full), and in any such case
appropriate provisions shall be made with respect to the rights and interest of
the Holder to the end that the provisions hereof (including without limitation,
provisions for the adjustment of the Exercise Price and the number of shares
issuable hereunder) shall thereafter be applicable in relation to any shares of
stock or other securities and property thereafter deliverable upon exercise
hereof.
10. Fractional Shares. In no event shall any fractional share of
Common Stock be issued upon any exercise of this Warrant. If, upon exercise of
this Warrant as an entirety, the Holder would, except as provided in this
Section 10, be entitled to receive a fractional share of Common Stock, then the
Company shall issue the next higher number of full shares of Common Stock,
issuing a full share with respect to such fractional share.
11. Certificate of Adjustment. Whenever the Exercise Price is
adjusted, as herein provided, the Company shall promptly deliver to the Holder a
certificate setting forth the Exercise Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment.
12. Notices of Record Date, Etc. In the event of:
(a) any taking by the Company of a record of the holders
of any class of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right,
(b) any reclassification of the capital stock of the
Company, capital reorganization of the Company, consolidation or merger
involving the Company, or sale or conveyance of all or substantially all of its
assets, or
(c) any voluntary or involuntary dissolution, liquidation
or winding-up of the Company,
then, and in each such event, the Company will mail or cause to be mailed to the
Holder a notice specifying (i) the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and stating the amount
and character of such dividend, distribution or right, or (ii) the date on which
any such reclassification, reorganization, consolidation, merger, sale or
conveyance, dissolution, liquidation or winding-up is to take place, and the
time, if any is to be fixed, as of which the holders of record in respect of
such event are to be determined. Such notice shall be mailed at least 10 days
prior to the date specified in such notice on which any such action is to be
taken.
13. Transfers.
(a) Warrant Register. The Company will maintain a
register (the "Warrant Register") containing the names and addresses of the
Holder or Holders. Any Holder of this Warrant or any portion thereof may change
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his or her address as shown on the Warrant Register by written notice to the
Company requesting such change. Any notice or written communication required or
permitted to be given to the Holder may be delivered or given by mail to such
Holder as shown on the Warrant Register and at the address shown on the Warrant
Register. Until this Warrant is transferred on the Warrant Register of the
Company, the Company may treat the Holder as shown on the Warrant Register as
the absolute owner of this Warrant for all purposes, notwithstanding any notice
to the contrary.
(b) Warrant Agent. The Company may, by written notice to
the Holder, appoint an agent for the purpose of maintaining the Warrant Register
referred to in Section 13(a) above, issuing the Common Stock or other securities
then issuable upon the exercise of this Warrant, exchanging this Warrant,
replacing this Warrant, or any or all of the foregoing. Thereafter, any such
registration, issuance, exchange, or replacement, as the case may be, shall be
made at the office of such agent.
(c) Transferability and Nonnegotiability of Warrant. This
Warrant may not be transferred or assigned in whole or in part without
compliance with all applicable federal and state securities laws by the
transferor and the transferee (including the delivery of investment
representation letters and legal opinions reasonably satisfactory to the
Company, if such are requested by the Company). Subject to compliance with the
Securities Act of 1933, as amended (the "Act"), title to this Warrant may be
transferred by endorsement (by the Holder executing the Assignment Form annexed
hereto) and delivery in the same manner as a negotiable instrument transferable
by endorsement and delivery.
(d) Exchange of Warrant Upon a Transfer. On surrender of
this Warrant for exchange, properly endorsed and subject to the provisions of
this Warrant with respect to compliance with the Act and with the limitations on
assignments and transfers contained in this Section 13, the Company at its
expense shall issue to or on the order of the Holder a new warrant or warrants
of like tenor, in the name of the Holder or as the Holder (on payment by the
Holder of any applicable transfer taxes) may direct, for the number of shares
issuable upon exercise hereof.
(e) Compliance with Securities Laws.
(i) The Holder of this Warrant, by acceptance
hereof, acknowledges that this Warrant and the shares of Common Stock to be
issued upon exercise hereof are being acquired solely for the Holder's own
account and not as a nominee for any other party; and for investment, and that
the Holder will not offer, sell or otherwise dispose of this Warrant or any
shares of Common Stock to be issued upon exercise hereof except under
circumstances that will not result in a violation of the Act or any state
securities laws. Upon exercise of this Warrant, the Holder shall, if requested
by the Company, confirm in writing, in a form satisfactory to the Company, that
the shares of Common Stock so purchased are being acquired solely for the
Holder's own account and not as a nominee for any other party, for investment,
and not with a view toward distribution or resale.
(ii) This Warrant and all shares of Common Stock
issued upon exercise hereof shall be stamped or imprinted with a legend in
substantially the following form (in addition to any legend required by state
securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY APPLICABLE STATE SECURITIES LAWS. SUCH SECURITIES AND ANY
SECURITIES ISSUED HEREUNDER OR THEREUNDER MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SAID ACT AND APPLICABLE LAWS.
14. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and substance to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor and amount.
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15. No Impairment. The Company will not, by amendment of its
Certificate of Incorporation or through any reclassification, capital
reorganization, consolidation, merger, sale or conveyance of assets,
dissolution, liquidation, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder.
16. Applicable Law. The provisions and terms of this Warrant shall
be governed by and construed in accordance with the internal laws of the State
of Delaware. All actions and proceedings arising out of or relating to this
Warrant shall be heard and determined in any state or Federal court sitting in
the State of New York, County of New York. In any such action or proceeding,
each of the parties hereto hereby absolutely and irrevocably (i) waives any
objection to jurisdiction or venue, (ii) waives personal service of any summons,
complaint, declaration or other process and (iii) agrees that service thereof
may be made by certified or registered first-class mail directed to such party,
as the case may be, at their respective addresses set forth herein
17. Waiver of Jury Trial. THE COMPANY AND THE SUBSCRIBER HEREBY
WAIVE A TRIAL BY JURY OF ANY AND ALL ISSUES ARISING IN ANY ACTION OR PROCEEDING
BETWEEN THEM OR THEIR SUCCESSORS OR ASSIGNS, UNDER OR IN CONNECTION WITH THIS
SUBSCRIPTION AGREEMENT OR ANY OF ITS PROVISIONS OR ANY NEGOTIATIONS IN
CONNECTION THEREWITH.
18. Successors and Assigns. This Warrant shall be binding upon the
Company's successors and assigns and shall inure to the benefit of the Holder's
successors, legal representatives and permitted assigns.
19. Business Days. If the last or appointed day for the taking of
any action required or the expiration of any right granted herein shall be a
Saturday or Sunday or a legal holiday in Massachusetts, then such action may be
taken or right may be exercised on the next succeeding day which is not a
Saturday or Sunday or such a legal holiday.
[SIGNATURE PAGE FOLLOWS]
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Dated: , 2004 VELOCITY ASSET MANAGEMENT, INC.
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(Corporate Seal) By:
------------------------------------
Name:
----------------------------------
Attest: Title:
---------------------------------
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Exhibit A
Subscription
------------
To: Date:
------------------------ -------------------------
The undersigned hereby subscribes for __________ shares of Common Stock
covered by this Warrant. The undersigned represents that these shares of Common
Stock are being acquired solely for the undersigned's own account and not as a
nominee for any other party, for investment, and not with a view toward
distribution or resale.
The certificate(s) for such shares shall be issued in the name of the
undersigned or as otherwise indicated below:
------------------------------------
Signature
------------------------------------
Name for Registration
------------------------------------
Address
------------------------------------
Name for Registration
------------------------------------
Address
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