UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 17, 2005
ADSOUTH PARTNERS, INC.
(Exact name of registrant as specified in its charter)
NEVADA 0-33135 68-0448219
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(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
1515 N. Federal Highway, Suite 418, Boca Raton, Florida 33432
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 750-0410
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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 1.01 Entry into a Material Definitive Agreement
On February 18, 2005, the Adsouth Partners, Inc. (the "Company")
entered into employment agreements, dated as of July 1, 2004, with its chief
executive officer, John P. Acunto, Jr., and its chief financial officer, Anton
Lee Wingeier.
Mr. Acunto's employment agreement provides for Mr. Acunto to serve as
the Company's chief executive officer until December 31, 2009, and continuing on
a year-to-year basis unless terminated by either party. Mr. Acunto is to receive
a salary of $375,000, which, commencing January 1, 2006, is subject to an annual
increase of 5%. The Company also agree to include him as one of the board of
director's nominees for election as a director. He also received an initial
bonus of $250,000 in 2004, and will receives quarterly and annual bonuses. The
quarterly bonus will be 5% of the Company's adjusted gross profit, which is
defined as gross profit less compensation (other than his quarterly bonus and
annual bonus). If the Company's income before income taxes and payment of his
annual bonus ("adjusted income") is at least $2,000,000, the Company will pay
Mr. Acunto an annual bonus equal to 5% of the adjusted income. For each quarter
in which a quarterly bonus is payable, Mr. Acunto is to receive five-year
non-qualified option to purchase the number of shares of common stock determined
by dividing the amount of the quarterly bonus by the exercise price per share,
which shall be the closing price of the Company's common stock on the last day
of the quarter. Mr. Acunto also receives insurance benefits and a monthly
automobile allowance of $1,800. In the event of a termination of Mr. Acunto's
employment as a result of his death or disability, the Company will pay him or
his beneficiary for the lesser of one year or the balance of the term. In the
event of a change of control, as defined in the agreement, a termination of his
employment other than for cause, a termination of his employment as a result of
a disability or his resignation, the Company is to pay Mr. Acunto an amount
equal to the sum of his annual salary in effect on the date of termination and
the highest total of bonuses paid to him for any year during the term multiplied
by the greater of two or the number of years remaining in the term.
Mr. Wingeier's employment agreement provides for Mr. Wingeier to serve
as the Company's chief financial officer until December 31, 2005 and continuing
thereafter on a month-to-month basis unless terminated by either party. Mr.
Wingeier is to receive a salary at the annual rate of $125,000 through September
30, 2004 and $150,000 thereafter. He also received an initial bonus of $24,000
in 2004, and will receive a quarterly and annual bonus. The quarterly bonus will
be 5% of the Company's adjusted gross profit, which is defined as gross profit
less compensation (other than his quarterly bonus and annual bonus). If the
Company's income before income taxes and payment of his annual bonus is at least
$2,000,000, the Company will pay Mr. Wingeier an annual bonus equal to 5% of the
adjusted income. For each quarter in which a quarterly bonus is payable, Mr.
Wingeier is to receive five-year non-qualified option to purchase the number of
shares of common stock determined by dividing the amount of the quarterly bonus
by the exercise price per share, which shall be the closing price of the
Company's common stock on the last day of the quarter. Mr. Wingeier also
receives insurance benefits and a monthly automobile allowance of $900. In the
event of a termination of Mr. Wingeier's employment as a result of his death or
disability, the Company will pay him or his beneficiary for the lesser of one
year or the balance of the term.
See Item 3.02 for information relating to definitive agreements
executed in connection with a private placement of securities.
Item 3.02 Unregistered Sales of Equity Securities.
On February 17 and 22, 2005, the Company completed a private placement
of its securities pursuant to subscription agreements with ten accredited
investors. Pursuant to the subscription agreements, the Company sold to the
investors, for $810,100, (i) its 10% convertible notes due December 2006 in the
aggregate principal amount of $810,100, (ii) 24,303,000 shares of Common Stock,
and (iii) warrants to purchase 10,126,250 shares of common stock at an exercise
price of $.085 per share.
Atlas Capital Services, LLC served as placement agent for the
financing. As compensation for its services as placement agent, the Company paid
Atlas a fee of 10% of the gross proceeds raised in the private placement and
warrants to purchase 20,252,500 shares of common stock at an exercise price of
$.04 per share. The Company also paid Atlas' legal expenses.
The notes are convertible into common stock at the fixed conversion
price of $.04 per share at any time. Commencing on the earlier of July 1, 2005
or the first business day of the calendar month following the date that a
registration statement covering the shares of Common Stock issued at the closing
and issuable upon conversion of the notes and exercise of the warrants, the
Company is required to redeem 1/18 of the principal amount of the notes. If the
market price of the common stock, computed as provided in the note, is at least
175% of the fixed conversion price, the Company is required to pay in stock
based on the fixed conversion price. If the market price for the common stock is
less than 175% of
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the fixed conversion price, the Company can advise the holders of the notes
whether the Company proposes to pay in stock or in cash. If payment is made in
cash, the Company is to pay 110% of the principal amount of the note being
redeemed, plus accrued interest. If payment is made in stock, the stock is
valued at the lesser of fixed conversion price or 80% of the market price of the
common stock. If the Company gives notice that it intends to pay the monthly
installment in cash, the holders may, nonetheless, convert their notes based on
the fixed conversion price. The Company has the right to prepay the notes at
105% of the principal amount, plus accrued interest, however, the holders have
the right to convert until the date of payment. Any principal amount converted
by a note holder other than a conversion with respect to a monthly installment
is applied to the monthly installments next due. The holders of the notes have
anti-dilution rights with respect to certain sales of common stock or
convertible securities at a price or with a conversion price less than the fixed
conversion price.
The warrants entitle the holders to purchase shares of the Company's
common stock for a period of five years from the date of issuance at an exercise
price of $.085 per share, except that the warrants issued to Atlas have an
exercise price of $.04 per shares. The holders of the warrants have
anti-dilution rights with respect to certain sales of common stock or
convertible securities at a price or with a conversion price less than the
exercise price.
Pursuant to the subscription agreements, the Company also agreed to
file with the Securities and Exchange Commission, a registration statement
covering the shares of common stock issued at the closing, and the shares of
common stock issuable upon conversion of the notes and upon exercise of the
warrants. If the registration statement is not filed within the required
timeframe, or does not become effective within the required timeframe, or does
not remain effective for any 15 consecutive days, the Company has agreed to make
substantial payments as liquidated damages, and the investors have the right to
take stock in respect of the Company's liquidated damage obligation.
The securities above were offered and sold in reliance upon exemptions
from the registration requirements of Section 5 of the Securities Act of 1933,
as amended, pursuant to Sections 4(2) and 4(6) of the Securities Act and Rule
506 of SEC. The securities were sold exclusively to accredited investors as
defined by Rule 501(a) under the Securities Act.
Item 9.01 Financial Statements and Exhibits.
(c) Exhibits
1.1 Agreement dated January 27, 2005 between the Company and Atlas
Capital Services, LLC
4.1 Form of Subscription Agreement
4.2 Form of note
4.3 Form of warrant (subscriber)
4.4 Form of warrant (Atlas)
99.1 Employment agreement dated as of July 1, 2004 between the Company
and John P. Acunto, Jr.
99.2 Employment agreement dated as of July 1, 2004 between the Company
and Anton Lee Wingeier
99.3 Copy of Press Release dated February 22, 2005
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ADSOUTH PARTNERS, INC.
(Registrant)
Date: February 22, 2005 /S/ Anton Lee Wingeier
____________________________________
Anton Lee Wingeier
Chief Financial Officer
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Exhibit 1.1
ATLAS CAPITAL SERVICES, LLC
Exhibit 1.1 dated January 27, 2005 between the Company and Atlas Capital
Services, LLC
January 27, 2005
John Acunto Jr.
Chairman and CEO
Adsouth Partners, Inc.
1515 N. Federal Highway Suite, 418
Boca Raton, FL 33432
Dear Mr. Acunto :
This letter confirms the terms and conditions under which Adsouth
Partners, Inc. (the "Company") has engaged Atlas Capital Services, LLC
("Atlas"), a registered broker-dealer and member of the NASD to provide the
services described below.
1. Services
1.1 Mergers & Acquisition Services. Atlas will, to the extent
requested by the Company, (i) assist the Company in identifying and evaluating
candidates ("Candidates") for a potential Transaction with the Company; (ii)
assist the Company in its efforts to seek additional business relationships that
will be of benefit to the Company; (iii) contact potential Candidates which
Atlas and the Company believe to be appropriate for a potential Transaction. In
rendering such services, Atlas may meet with representatives of such Candidates,
as are approved in advance by the Company, and provide such representatives with
such information about the Company as may be appropriate, subject to customary
business confidentiality; (iv) advise and assist the Company in considering the
desirability of effecting a Transaction, and, if the Company believes such a
Transaction to be desirable, in developing a general negotiating strategy for
accomplishing a transaction; (v) advise and assist the Company in the course of
its negotiation of a Transaction and will participate in such negotiations.
1.1.1 Definition of Transaction.As used herein,
the term "Transaction" means (i) any business agreement, arrangement or
transaction or series or combinations thereof which may include sales or
exchanges of stock, warrants, or assets, or the making of loans, leases and
other arrangements of every type and description (other than a Financing set
forth in the Investment Banking Agreement), by which, directly or indirectly, an
interest in the Company, its affiliates, or any business with common management
with the Company, or any of their respective assets, capital stock or other
securities is transferred to another entity, including, without limitation, by
way of or in the form of, a merger, acquisition, sale or exchange of stock or
assets, lease of assets, with or without purchase option, joint venture,
licensing arrangements, minority investment or partnership; or (ii) any business
agreement, arrangement or transaction or series or combinations thereof which
may include sales or exchanges of stock, warrants, or assets, or the making of
loans, leases and other arrangements of every type and description (other than a
"Financing" as set forth below) by which, directly or indirectly, an interest in
any entity is transferred to the Company, its affiliates, or any business with
common management with the Company, or any of their respective assets, capital
stock or other securities, including, without limitation, by way of and in the
form of a merger, acquisition, sale or exchange of stock or assets, lease of
assets, with or without purchase option, joint venture, licensing arrangements,
minority investment or partnership.
1.2 Financing. Atlas shall use its reasonable best efforts to
introduce the Company to corporations, partnerships, mutual funds, hedge funds,
accredited investors, investment partnerships, securities firms, lending and
other institutions and entities (collectively "Entities") which may engage in or
provide financing to the Company (the "Financing"). As used herein, the term
"Entities" means and includes any party, which is directly or indirectly
connected with or related to one of the Entities described above including,
without limitation, all affiliates as well as any referral from any of the
Entities. In addition to the foregoing, the term Entities includes any and all
Entities previously introduced by Atlas to the Company pursuant to a prior
agreement or engagement.
135 East 57th Street, 26th Floor New York, NY 10022 U.S.A
Phone: (212) 267-3500 Fax: (212) 267-3501
1.3 Except as set forth below, all services provided by Atlas under
this Agreement shall be at Atlas's cost and risk. Atlas's sole compensation, if
any, shall be a "Transaction Fee" (as set forth in Section 4 below) or
"Financing Fee" upon consummation of a Transaction or Financing, as the case may
be, in any form with any Candidate or Entity introduced by Atlas to the Company.
1.4 The Company acknowledges that Atlas's responsibilities shall be
limited to the foregoing, and that Atlas shall have no responsibility for
fulfilling any reporting or filing requirements of the Company pursuant to
applicable federal and state securities laws. In addition, the Company expressly
acknowledges and agrees that Atlas's obligations hereunder are on a reasonable
best effort basis only and that the execution of this Agreement does not
constitute a commitment by Atlas to purchase the securities or any other
securities of the Company and does not ensure the successful completion of a
Transaction or Financing .
1.5 Notwithstanding anything in this Agreement to the contrary, the
Company shall have the sole and absolute discretion to accept or not accept the
terms of any Transaction or Financing. Neither the Company nor any of its
affiliates shall have any liability whatsoever to Atlas or any other person or
entity resulting from its decision not to enter into a proposed Transaction or
Financing, regardless of the terms of the proposed Transaction or Financing.
2. Term
This Agreement shall take effect immediately and shall continue for an
initial term of Twelve (12) Months. Thereafter, the Agreement will renew every
six (6) months unless terminated by the parties in writing.
3. Information
In connection with Atlas's engagement hereunder, the Company will
furnish Atlas and any prospective Candidate or Entity with any information
concerning the Company that Atlas reasonably deems appropriate and will provide
Atlas and prospective Candidates or Entities with reasonable access to the
Company's officers, directors, accountants, counsel and other advisors, subject
to the Company's non-disclosure agreement. In addition, Atlas shall be kept
fully informed of any events that are reasonably likely to have a material
effect on the financial condition of the Company. The Company represents and
warrants to Atlas that all such information concerning the Company, whether in
the form of a letter, circular, memorandum, notice or otherwise ("Materials")
will be true and accurate in all material respects and will not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein not misleading in light of the
circumstances under which such statements are made. The Company acknowledges and
agrees that Atlas will not undertake any "due diligence" investigation and will
be using and relying upon the information supplied by the Company and its
officers, agents and others, the Materials, and any other publicly available
information concerning the Company.
4. Transaction Fee.
In consideration of Atlas's services, Atlas shall be entitled to
receive, and the Company hereby agrees to pay to Atlas, the following:
4.1 Upon the execution of this Agreement and provided that a bridge
financing is provided to the Company, Atlas will receive an option to purchase
500,000 shares of Adsouth Partners common stock @ PAR. Atlas will pay $100 for
this option.
4.2 Upon the closing of a Transaction, Atlas shall receive a
Transaction Fee payable by certified check or wire transfer equal to 5% of the
principal amount of the Transaction Amount (as defined below), and shall be paid
as proceeds are received by the Company from each Transaction. Any portion of
Atlas's Transaction Fee that is attributable to proceeds to be received by the
Company upon the occurrence of a future event, or the satisfaction of a
contingency shall be paid when the event occurs or the contingency is satisfied.
135 East 57th Street, 26th Floor New York, NY 10022 U.S.A
Phone: (212) 267-3500 Fax: (212) 267-3501
4.3 Upon the closing of a Financing, Atlas shall receive a
Financing Fee payable by certified check or wire transfer equal to 10% of the
principal amount of the Financing Amount (as defined below), and shall be paid
as proceeds are received by the Company from each Financing. Any portion of
Atlas's Financing Fee that is attributable to proceeds to be received by the
Company upon the occurrence of a future event, or the satisfaction of a
contingency shall be paid when the event occurs or the contingency is satisfied.
In addition to the foregoing, upon consummation of a Financing, the Company will
issue to Atlas and/or its designee(s) warrants (the "Warrants") to purchase such
number of shares of the Company's common stock as shall be equal to 10% of the
Financing Amount. The Warrants shall be exercisable for a period of four years
from the date of closing with an exercise price equal to the effective per share
or unit price paid by the Entities engaging in the Financing. The terms of the
Warrants shall be set forth in one or more agreements (the "Warrant Agreements")
in form and substance reasonably satisfactory to Atlas and the Company. The
Warrant Agreements shall contain customary terms, including without limitation,
provisions for change of control and registration rights consistent with the
registration rights granted to the Entities.
4.4 Atlas's Transaction Fee shall have been earned and shall be
payable to Atlas upon consummation of any Transaction which occurs as a result
of this Agreement with any Entity or Candidate in which a Transaction was made
in whole or in part (1) during the term of this Agreement (hereafter "Phase I");
or, (2) within 18 months following the termination date of this Agreement
(hereafter "Phase II") with regard to an Entity or Candidate introduced to the
Company by Atlas. It is intended that "introduced" shall have its commonly
understood meaning in transactions such as those contemplated in this Agreement.
4.5 As used herein, the term "Transaction Amount" or "Financing
Amount" shall mean the gross amount of all consideration, including without
limitation to, all cash, cash equivalents, stock, warrants, and/or assets that
is exchanged or provided to or by the Company or its shareholders, affiliates,
or subsidiaries in a Transaction or Financing, or any entities formed in or
which results from a Financing.
4.6 Registration Rights. The Company shall grant to Atlas, for any
shares of common stock issued pursuant to this Agreement, piggyback registration
rights, subject to cut-back by the underwriter in its sole and absolute
discretion, on Form S-3 or Form SB-2 or such other form as may be applicable
pursuant to the Securities Act of 1933 as amended in accordance with the terms
set forth below. Notwithstanding anything to the contrary contained herein, in
the event the Company shall grant registration rights to any party subsequent to
this Agreement that are more favorable, in any respect, than those granted to
Atlas, then the Company shall provide Atlas with those right(s) that are more
favorable than the rights of Atlas. Except as provided herein, the Company shall
pay all expenses in connection with all registration of shares of common stock
of Atlas. Notwithstanding the foregoing, each of Atlas and the Company shall be
responsible for its own internal administrative and similar costs, which shall
not constitute registration expenses.
4.7 Travel Expenses. The Company hereby agrees to cover in
advance all reasonable travel related expenses of Atlas in connection with the
services provided hereunder.
5. Non-Circumvent.
In order to prevent the Company from circumventing Atlas's position
with an Entity, the Company agrees that whether or not any Transaction
concerning the Company is completed, for a one-year period commencing from the
date of this Agreement, without the prior express written consent of Atlas,
neither the Company nor any of its officers, employees, or agents will (a)
knowingly contact directly or indirectly any person or Entity or Candidate
introduced to the Company by Atlas during the term of this Agreement; or (b)
circumvent Atlas's position with respect to the Company or Entity or Candidate
in any manner whatsoever. The foregoing shall not, however, prohibit (i)
customary direct contacts between the Company and an Entity or Candidate as part
of the negotiation and completion of a transaction, as long as Atlas is kept
apprised of such contacts on a current basis, or (ii) direct contacts between
the Company and an Entity or Candidate if Atlas fails to participate in the
negotiation or completion of a transaction for any reason, so long as the
Company pays Atlas the compensation to which it is entitled under this
Agreement.
135 East 57th Street, 26th Floor New York, NY 10022 U.S.A
Phone: (212) 267-3500 Fax: (212) 267-3501
6. Exclusivity.
The Company acknowledges and agrees that the rights granted to Atlas in
this Agreement are on an exclusive basis for the Sixty (60) days beginning on
such date that a bridge financing is provided to the Company following the
execution of this Agreement (the "Exclusive Period"). Thereafter, and for the
remainder of the term, this Agreement shall be on a non-exclusive basis. Subject
to the succeeding sentence, the Company represents and warrants that during the
Exclusive Period, no person or organization other than Atlas is, as a result of
any action by the Company, entitled to compensation for services as a finder,
broker, placement agent or investment banker. In order to coordinate our efforts
during the Exclusive Period, the Company hereby agrees not to retain or enter
into any agreement, written or oral, during the Exclusive Period with any Other
Investment Bankers. In addition to the foregoing, in the event Atlas introduces
the Company to an Entity (or Entities) that completes all or part of a
Transaction, then the Company hereby agrees that in the event during the one
year period following the closing of the Transaction the Company desires to
raise additional debt or equity capital, Atlas shall have the right to
participate in such additional debt or equity capital transactions.
7. No Shorting. Atlas will not and will not cause any person or
entity to engage in "short sales" of the Company's common stock.
8. Indemnification
The Company shall indemnify Atlas under the indemnification provisions
attached hereto as Schedule A and made a part hereof.
9. General Provisions.
9.1 Any and all claims, disputes, or controversies arising out of
this Agreement will be resolved by arbitration before the American Arbitration
Association ("AAA") and that with respect to this Agreement, a party may seek
injunctive relief and ancillary damages before the AAA. Each party irrevocably
consents to subject matter jurisdiction before the AAA. The parties shall
restrict themselves to claims for compensatory damages and no claims shall be
made by any party for punitive or similar damages. The parties agree that any
award or decision by the AAA shall be final and binding upon the parties and a
judgment may be entered in a court of competent jurisdiction upon such award or
decision. The parties agree that the situs of any arbitration or legal
proceedings hereunder shall be the City of New York.
9.2 This Agreement may not be amended or modified except in writing
signed by both parties to the Agreement.
9.3 All notices and other communications hereunder shall be deemed
given upon (a) the sender's confirmation of receipt of a facsimile
transmission to the recipient's facsimile number set forth below, (b)
confirmed delivery by a standard overnight carrier to the recipient's
address set forth below, or (c) delivery by hand to the recipient's address
set forth below (or, in each case, to or at such other facsimile number or
address for a party as such party may specify by notice given in accordance
with this Section 9.3):
(a) If to the Company, to:
John Acunto Jr.
Chairman and CEO
Adsouth Partners, Inc.
1515 N. Federal Highway, Suite 418
Boca Raton, FL 33432
Fax: 561-750-0420
135 East 57th Street, 26th Floor New York, NY 10022 U.S.A
Phone: (212) 267-3500 Fax: (212) 267-3501
(b) If to Atlas, to:
Robert Schechter
General Counsel
Atlas Capital Services, LLC
135 East 57th Street, 26th Floor
New York, New York 10022
Fax: (212) 267-3501
9.4 Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their successors and assigns.
9.5 Atlas shall perform its services hereunder as an independent
contractor and not as an employee of the Company or an affiliate thereof. It
is expressly understood and agreed to by the parties hereto that Atlas shall
have no authority to act for, represent or bind the Company or any affiliate
thereof in any manner, except as may be agreed to expressly by the Company
in writing from time to time.
9.6 The Company hereby represents that it is a sophisticated
business enterprise that has retained Atlas for the limited purposes set forth
in this letter, and the parties acknowledge and agree that their respective
rights and obligations are contractual in nature. Each party disclaims an
intention to impose fiduciary obligations on the other by virtue of the
engagement contemplated by this letter.
If the foregoing is acceptable to you, please sign and return the
enclosed copy of this letter to my attention.
Very truly yours,
ATLAS CAPITAL SERVICES, LLC
By: ____________________________
Name: Steven Pollan
Title: Managing Director
AGREED AND ACCEPTED:
ADSOUTH PARTNERS, INC.
By: __________________________
Name: John Acunto Jr.
Title: CEO
Date: _____________________
135 East 57th Street, 26th Floor New York, NY 10022 U.S.A
Phone: (212) 267-3500 Fax: (212) 267-3501
Schedule A
Atlas Capital Services, LLC
135 East 57th Street, 26th Floor
New York, NY 10022
Ladies and Gentlemen:
In connection with our engagement of Atlas Capital Services, LLC ("Atlas")
as Investment Bankers, we hereby agree to indemnify and hold harmless Atlas
and its affiliates, and the respective directors, officers, shareholders,
agents and employees of Atlas (collectively the "Indemnified Persons"),
from and against any and all claims, actions, suits, proceedings (including
those of shareholders), damages, liabilities and expenses as incurred by
any of them (including the reasonable fees and expenses of counsel) which
(A) relate to or arise out of (i) any actions taken or omitted to be taken
(including any untrue statements made to any Indemnified Person in
connection with our engagement of Atlas, or (B) otherwise relate to or
arise out of Atlas's activities on our behalf under Atlas's engagement,
including any action by Atlas to collect amounts owed to it in connection
therewith, and we shall reimburse any Indemnified Person for all expenses
(including the reasonable fees and expenses of counsel) as incurred by such
Indemnified Person in connection with investigating, preparing or defending
any such claim, action , suit or proceeding (collectively a "Claim"), in
connection with pending or threatened litigation in which any Indemnified
Person is a party. We will not, however, be responsible for any Claim which
is finally judicially determined to have resulted exclusively from the
gross negligence or willful misconduct of any person seeking
indemnification hereunder. We further agree that no Indemnified Person
shall have any liability to us for or in connection with our engagement of
Atlas except for any Claim incurred by us solely as a direct result of any
Indemnified Person's gross negligence or willful misconduct.
We further agree that we will not, without the prior written consent of
Atlas, settle, compromise or consent to the entry of any judgment in any pending
or threatened Claim in respect of which indemnification may be reasonably sought
hereunder (whether or not any Indemnified Person is an actual or potential party
to such Claim), unless such settlement, compromise or consent includes an
unconditional, irrevocable release of each Indemnified Person against whom such
claim may be brought hereunder from any and all liability arising out of such
claim.
Promptly upon receipt by an Indemnified Person of notice of any
complaint or the assertion or institution of any Claim with respect to which
indemnification is being sought hereunder, such Indemnified Person shall notify
us in writing of such complaint or of such assertion or institution but failure
to do so notify us shall not relieve us from any obligations we may have
hereunder, unless and only to the extent such failure results in the forfeiture
by us of substantial rights and defenses, and will not in any event relieve us
from any other obligation or liability we may have to any Indemnified Person, we
will assume the defense of such Claim, including the employment of counsel
reasonably satisfactory to such Indemnified Person and the payment of reasonable
fees and expenses of such counsel. In the event, however, that such Indemnified
Person reasonably determines that having common counsel with the Company and/or
another Indemnified Person would present such counsel with a conflict of
interest or if the defendant in, or target of, any such Claim, includes an
Indemnified Person and us, and such Indemnified reasonably concludes that there
may be legal defenses available to it or other Indemnified Persons different
from or in addition to those available to us, then such Indemnified Person may
employ its own separate counsel to represent or defend it in any such Claim and
we shall pay the reasonable fees and expenses of such counsel. Notwithstanding
anything herein to the contrary, if we fail timely or diligently to defend,
contest, or otherwise protect against any Claim, the relevant Indemnified Person
shall have the right, but not the obligation, to defend, contest, compromise,
settle, assert crossclaims, or counterclaims or otherwise protect against the
same, and shall be fully indemnified by us therefore, including without
limitation, for the reasonable fees and expenses of its counsel and all amounts
paid as a result of such Claim or the compromise or settlement thereof. In any
Claim in which we assume the defense, the Indemnified Person shall have the
right to participate in such Claim and to retain its own counsel therefore at
its own expense.
135 East 57th Street, 26th Floor New York, NY 10022 U.S.A
Phone: (212) 267-3500 Fax: (212) 267-3501
We agree that if any indemnity sought by an Indemnified Person hereunder is
held by a court to be unavailable for any reason, then (whether or not
Atlas is the Indemnified Person), we and Atlas shall contribute to the
Claim for which such indemnify is held unavailable in such proportion as is
appropriate to reflect the relative benefits to us, on the one hand, and
Atlas on the other, in connection with Atlas's engagement referred to
above, and the relative fault, as between us and the Indemnified Person in
respect of the Claim, subject to the limitation that in no event shall the
amount of Atlas's contribution to such Claim exceed the amount of fees
actually received by Atlas from us pursuant to Atlas's engagement. We
hereby agree that the relative benefits to us, on the one hand, and Atlas
on the other, with respect to Atlas's engagement shall be deemed to be in
the same proportion as (a) the total value paid or proposed to be paid or
received by us or our stockholders as the case may be, pursuant to the
transaction (whether or not consummated) for which Atlas is engaged, to (b)
the fee actually paid to Atlas in connection with such engagement;
provided, however, that under no circumstances whatsoever shall Atlas be
required to contribute to any such claim any amount in excess of the fee
actually paid in connection with such engagement.
Our indemnity, reimbursement and contribution obligations under this
Agreement shall be in addition to, and shall in no way limit or otherwise
adversely affect, any rights that any Indemnified Party may have at law or at
equity.
Should Atlas or its personnel be required or requested by us to provide
documentary evidence or testimony in connection with any proceeding arising form
or relating to Atlas's engagement, we agree to pay all reasonable expenses
(including fees incurred for legal counsel) in complying therewith.
Any and all claims, disputes, or controversies arising out of this
Agreement will be resolved by arbitration before the American Arbitration
Association ("AAA") and that with respect to this Agreement, a party may seek
injunctive relief and ancillary damages before the AAA. Each party irrevocably
consents to subject matter jurisdiction before the AAA. The parties shall
restrict themselves to claims for compensatory damages and no claims shall be
made by any party for punitive or similar damages. The parties agree that any
award or decision by the AAA shall be final and binding upon the parties and a
judgment may be entered in a court of competent jurisdiction upon such award or
decision. The parties agree that the situs of any arbitration or legal
proceedings hereunder shall be the City of New York.
It is understood that, in connection with Atlas's engagement, Atlas may be
engaged to act in one or more additional capacities and that the terms of the
original engagement or any such additional engagement may be embodied in one or
more separate written agreements. The provisions of this Agreement shall apply
to the original engagement, any such additional engagement and any modifications
of the original engagement or such additional engagement and shall remain in
full force and effect following the completion or termination of Atlas's
engagement(s).
Very truly yours,
Adsouth Partners, Inc.
By:_________________________
John Acunto Jr.
Chief Executive Officer
135 East 57th Street, 26th Floor New York, NY 10022 U.S.A
Phone: (212) 267-3500 Fax: (212) 267-3501
Confirmed and agreed to:
ATLAS CAPITAL SERVICES, LLC
By:_______________________
Name: Steven Pollan
Title: Managing Director
135 East 57th Street, 26th Floor New York, NY 10022 U.S.A
Phone: (212) 267-3500 Fax: (212) 267-3501
Exhibit 4.1 Form of Subscription Agreement
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of February
16, 2005, by and among AdSouth Partners, Inc., a Nevada corporation (the
"Company"), and the subscribers identified on the signature page hereto (each a
"Subscriber" and collectively "Subscribers").
WHEREAS, the Company and the Subscribers are executing and delivering
this Agreement in reliance upon an exemption from securities registration
afforded by the provisions of Section 4(2), Section 4(6) and/or Regulation D
("Regulation D") as promulgated by the United States Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"1933 Act").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the
Subscribers, as provided herein, and the Subscribers, in the aggregate, shall
purchase ________________________ Dollars ($________) (the "Purchase Price") of
principal amount of promissory notes of the Company ("Note" or "Notes")
convertible into shares of the Company's common stock, $.0001 par value (the
"Common Stock") at a per share conversion price equal to the lesser of (i)
$0.04, or (ii) eighty percent (80%) of the average of the five lowest bid prices
reported by Bloomberg L.P. for the Principal Market (as defined in Section
9.1(b) hereof) for the twenty trading days preceding each Conversion Date (as
defined in Section 7.1(b) hereof); six (6) shares of Common Stock for each $0.20
of Purchase Price ("Initial Shares"); and share purchase warrants (the
"Warrants") in the form attached hereto as Exhibit A, to purchase shares of
Common Stock (the "Warrant Shares"). The Notes, shares of Common Stock issuable
upon conversion of the Notes (together with the Initial Shares, the "Shares"),
the Initial Shares, the Warrants and the Warrant Shares are collectively
referred to herein as the "Securities"; and
WHEREAS, the aggregate proceeds of the sale of the Notes and the
Warrants contemplated hereby shall be held in escrow pursuant to the terms of a
Funds Escrow Agreement to be executed by the parties substantially in the form
attached hereto as Exhibit B (the "Escrow Agreement").
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Subscribers hereby
agree as follows:
1. Closing. The consummation of the transactions
contemplated herein shall take place at the offices of Grushko & Mittman, P.C.,
551 Fifth Avenue, Suite 1601, New York, New York 10176, upon the satisfaction of
all conditions to Closing set forth in this Agreement ("Closing Date").
2. Conditions to Closing. Subject to the satisfaction or
waiver of the terms and conditions of this Agreement, on the Closing Date, each
Subscriber shall purchase and the Company shall sell to each Subscriber a Note
in the principal amount designated on the signature page hereto and the amount
of Warrants determined pursuant to Section 3 below. The aggregate principal
amount of the Notes to be purchased by the Subscribers on the Closing Date
shall, in the aggregate, be equal to the Purchase Price.
3. Warrants. On the Closing Date, the Company will issue
and deliver Class A Warrants to the Subscribers. One Class A Warrant will be
issued for each two Shares which would be issued on the Closing Date assuming
the complete conversion of the Notes issued on the Closing Date at the
Conversion Price in effect on the Closing Date. The per Warrant Share exercise
price to acquire a Warrant Share upon exercise of a Class A Warrant shall be
$0.085. The Class A Warrants shall be exercisable until five years after the
Closing Date.
4. Subscriber's Representations and Warranties. Each
Subscriber hereby represents and warrants to and agrees with the Company only as
to such Subscriber that:
(a) Organization and Standing of the Subscribers.
If the Subscriber is an entity, such Subscriber is a corporation, partnership or
other entity duly incorporated or organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization.
12
(Subscription Agreement)
(b) Authorization and Power. Each Subscriber has
the requisite power and authority to enter into and perform this Agreement and
to purchase the Securities being sold to it hereunder. The execution, delivery
and performance of this Agreement by such Subscriber and the consummation by it
of the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate or partnership action, and no further consent or
authorization of such Subscriber or its Board of Directors, stockholders,
partners, members, as the case may be, is required. This Agreement has been duly
authorized, executed and delivered by such Subscriber and constitutes a valid
and binding obligation of the Subscriber enforceable against the Subscriber in
accordance with the terms thereof.
(c) No Conflicts. The execution, delivery and
performance of this Agreement and the consummation by such Subscriber of the
transactions contemplated hereby or relating hereto do not and will not (i)
result in a violation of such Subscriber's charter documents or bylaws or other
organizational documents or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of any agreement, indenture or instrument or obligation to which
such Subscriber is a party or by which its properties or assets are bound, or
result in a violation of any law, rule, or regulation, or any order, judgment or
decree of any court or governmental agency applicable to such Subscriber or its
properties (except for such conflicts, defaults and violations as would not,
individually or in the aggregate, have a material adverse effect on such
Subscriber). Such Subscriber is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or to purchase the Securities in accordance
with the terms hereof, provided that for purposes of the representation made in
this sentence, such Subscriber is assuming and relying upon the accuracy of the
relevant representations and agreements of the Company herein.
(d) Information on Company. The Subscriber has
been furnished with or has had access at the EDGAR Website of the Commission to
the Company's Form 10-KSB for the year ended December 31, 2003 as filed with the
Commission, together with all subsequently filed Forms 10-QSB, 8-K, S-8 and
filings made with the Commission available at the EDGAR website (hereinafter
referred to collectively as the "Reports"). In addition, the Subscriber has
received in writing from the Company such other information concerning its
operations, financial condition and other matters as the Subscriber has
requested in writing (such other information is collectively, the "Other Written
Information"), and considered all factors the Subscriber deems material in
deciding on the advisability of investing in the Securities.
(e) Information on Subscriber. The Subscriber is,
and will be at the time of the conversion of the Notes and exercise of the
Warrants, an "accredited investor", as such term is defined in Regulation D
promulgated by the Commission under the 1933 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 private
placements 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. The Subscriber is able to bear the risk of such investment
for an indefinite period and to afford a complete loss thereof. The information
set forth on the signature page hereto regarding the Subscriber is accurate. The
Subscriber is not required to be registered as a broker-dealer under Section 15
of the Securities Exchange Act of 1934, as amended (the "1934 Act") and the
Subscriber is not a broker-dealer.
(f) Purchase of Securities. On the Closing Date,
the Subscriber will purchase the Securities as principal for its own account for
investment only and not with a view toward, or for resale in connection with,
the public sale or any distribution thereof.
(g) Compliance with Securities Act. The Subscriber
understands and agrees that the Securities have not been registered under the
1933 Act or any applicable state securities laws, by reason of their issuance in
a transaction that does not require registration under the 1933 Act (based in
part on the accuracy of the
13
(Subscription Agreement)
representations and warranties of Subscriber contained herein), and that such
Securities must be held indefinitely unless a subsequent disposition is
registered under the 1933 Act or any applicable state securities laws or is
exempt from such registration. In any event, and subject to compliance with
applicable securities laws, the Subscriber may enter into lawful hedging
transactions with third parties, which may in turn engage in short sales of the
Securities in the course of hedging the position they assume and the Subscriber
may also enter into short positions or other derivative transactions relating to
the Securities, or interests in the Securities, and deliver the Securities, or
interests in the Securities, to close out their short or other positions or
otherwise settle short sales or other transactions, or loan or pledge the
Securities, or interests in the Securities, to third parties that in turn may
dispose of these Securities.
(h) Shares Legend. The Shares and the Warrant
Shares shall bear the following or similar legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT OR ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO ADSOUTH PARTNERS, INC. THAT SUCH REGISTRATION
IS NOT REQUIRED."
(i) Warrants Legend. The Warrants shall bear the
following
or similar legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON SHARES
ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID
ACT OR ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO ADSOUTH PARTNERS, INC. THAT
SUCH REGISTRATION IS NOT REQUIRED."
(j) Note Legend. The Note shall bear the following
legend:
"THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THIS NOTE AND THE COMMON SHARES ISSUABLE
UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO ADSOUTH
PARTNERS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(k) Communication of Offer. The offer to sell the
Securities was directly communicated to the Subscriber by the Company. At no
time was the Subscriber presented with or solicited by any leaflet, newspaper or
magazine article, radio or television advertisement, or any other form of
general advertising or solicited or invited to attend a promotional meeting
otherwise than in connection and concurrently with such communicated offer.
14
(Subscription Agreement)
(l) Authority; Enforceability. This Agreement and
other agreements delivered together with this Agreement or in connection
herewith have been duly authorized, executed and delivered by the Subscriber
and are valid and binding agreements enforceable in accordance with their
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 Subscriber has full corporate power and authority
necessary to enter into this Agreement and such other agreements and to
perform its obligations hereunder and under all other agreements entered
into by the Subscriber relating hereto.
(m) Restricted Securities. Subscriber understands
that the Securities have not been registered under the 1933 Act and such
Subscriber will not sell, offer to sell, assign, pledge, hypothecate or
otherwise transfer any of the Securities unless pursuant to an effective
registration statement under the 1933 Act or unless an exemption from
registration under the 1933 Act is available. Notwithstanding anything to the
contrary contained in this Agreement, such Subscriber may transfer (without
restriction and without the need for an opinion of counsel) the Securities to
its Affiliates (as defined below) provided that each such Affiliate is an
"accredited investor" under Regulation D and such Affiliate agrees to be bound
by the terms and conditions of this Agreement. For the purposes of this
Agreement, an "Affiliate" of any person or entity means any other person or
entity directly or indirectly controlling, controlled by or under direct or
indirect common control with such person or entity. Affiliate includes each
subsidiary of the Company. For purposes of this definition, "control" means the
power to direct the management and policies of such person or firm, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise.
(n) No Governmental Review. Each Subscriber
understands that no United States federal or state agency or any other
governmental or state agency has passed on or made recommendations or
endorsement of the Securities or the suitability of the investment in the
Securities nor have such authorities passed upon or endorsed the merits of the
offering of the Securities.
(m) No Market Manipulation. No Subscriber has
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 to facilitate the sale or resale
of the Securities or affect the price at which the Securities may be issued or
resold.
(n) Correctness of Representations. Each
Subscriber represents as to such Subscriber that the foregoing representations
and warranties are true and correct as of the date hereof and, unless a
Subscriber otherwise notifies the Company prior to each Closing Date shall be
true and correct as of each Closing Date.
(o) Florida Residents. If Subscriber is a Florida
resident or if the offer or sale occurs in Florida or if the documents are
delivered in Florida, and if there are least five investors who meet one of
these tests, the following shall apply: Pursuant to Section 517.061(11)(a)(5) of
the Florida Statutes, Florida investors have a three day right to rescission. If
a Florida resident has executed a subscription agreement, he or she may elect,
within three business days after signing the subscription agreement, to withdraw
from the subscription agreement and receive a full refund and return (without
interest) of any money paid by him or her. A Florida resident's withdrawal will
be without any further liability to any person. To accomplish such withdrawal, a
Florida resident need only send a letter or telegram to the Company at 1515
North Federal Highway, Suite 418, Boca Raton, Florida 33432, Attention of Mr.
Anton Lee Wingeier, Chief Financial Officer, indicating his or her intention to
withdraw. Such letter or telegram must be sent and postmarked prior to the end
of the aforementioned third business day. If a Florida resident sends a letter,
it is prudent to sent it by certified mail, return receipt requested, to insure
that it is received and also to evidence the time and date when it is mailed.
Should a Florida resident make this request orally, he or she should ask for
written confirmation that his or her request has been received.
(p) Pennsylvania Residents. If Subscriber is a
Pennsylvania resident, the following shall apply: Each person who accepts an
offer to purchase securities exempted from registration by Section 203(d) of the
Pennsylvania Securities Act of 1972, as amended, directly from the issuer or
affiliate of the issuer, shall have the right to withdraw his or her acceptance
without incurring any liability to the seller, underwriter (if any) or any
15
(Subscription Agreement)
other person within two business days from the date of receipt by the issuer of
his or her written binding contract of purchase or, in the case of a transaction
in which there is no binding contract of purchase, within two business days
after he or she makes the initial payment for the securities being offered. Each
Pennsylvania investor is prohibited from selling his or her securities for a
period of twelve months from the date of his or her purchase.
(q) Survival. The foregoing representations and
warranties shall survive the Closing Date for a period of three years.
5. Company Representations and Warranties. The Company
represents and warrants to and agrees with each Subscriber that:
(a) Due Incorporation. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has the requisite
corporate power to own its properties and to carry on its business as
disclosed in the Reports. The Company is duly qualified as a foreign
corporation to do business and is in good standing in each jurisdiction
where the nature of the business conducted or property owned by it makes
such qualification necessary, other than those jurisdictions in which the
failure to so qualify would not have a Material Adverse Effect. For purpose
of this Agreement, a "Material Adverse Effect" shall mean a material adverse
effect on the financial condition, results of operations, properties or
business of the Company and its Subsidiaries (as defined in Section 5(w)
hereof) taken as a whole.
(b) Outstanding Stock. All issued and outstanding
shares of capital stock of the Company has been duly authorized and validly
issued and are fully paid and nonassessable.
(c) Authority; Enforceability. This Agreement, the
Note, the Warrants, and the Escrow Agreement, and any other agreements delivered
together with this Agreement or in connection herewith (collectively
"Transaction Documents") have been duly authorized, executed and delivered by
the Company and are valid and binding agreements enforceable in accordance with
their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, usury, moratorium and similar laws of general applicability
relating to or affecting creditors' rights generally and to general principles
of equity. The Company has full corporate power and authority necessary to enter
into and deliver the Transaction Documents and to perform its obligations
thereunder.
(d) Additional Issuances. There are no outstanding
agreements or preemptive or similar rights affecting the Company's common stock
or equity 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 on Schedule 5(d).
(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, the Bulletin Board nor
the Company's shareholders is required for the execution by the Company of the
Transaction Documents and compliance and performance by the Company of its
obligations under the Transaction Documents, including, without limitation, the
issuance and sale of the Securities.
(f) No Violation or Conflict. Assuming the
representations and warranties of the Subscribers in Section 4 are true and
correct, neither the issuance and sale of the Securities nor the performance of
the Company's obligations under this Agreement and all other agreements entered
into by the Company relating thereto 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 or the lapse of time or both
would be reasonably likely to constitute a default) under (A) the articles
or certificate of incorporation, charter or bylaws of the Company, (B) to
the Company's knowledge, any decree, judgment, order, law, treaty, rule,
regulation or determination applicable to the Company of any court,
governmental agency or body, or arbitrator having jurisdiction over the
Company 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
16
(Subscription Agreement)
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
except the violation, conflict, breach, or default of which would not have a
Material Adverse Effect; 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; or
(iii) result in the activation of any anti-dilution rights or a reset or
repricing of any debt or security instrument of any other creditor or equity
holder of the Company, nor result in the acceleration of the due date of any
obligation of the Company; or
(iv) result in the activation of any
piggy-back registration rights of any person or entity holding securities of the
Company or having the right to receive securities of the Company.
(g) The Securities. The Securities upon issuance:
(i) are, or will be, free and clear of any
security interests, liens, claims or other encumbrances, subject to restrictions
upon transfer under the 1933 Act and any applicable state securities laws;
(ii) have been, or will be, duly and
validly authorized and on the date of issuance of the Shares and upon exercise
of the Warrants, the Shares and Warrant Shares will be duly and validly issued,
fully paid and nonassessable or if registered pursuant to the 1933 Act, and
resold pursuant to an effective registration statement will be free trading and
unrestricted; provided, however, that no representation is made with respect to
the ability of any Subscriber to convert the Note or exercise any Warrant if and
to the extent that the Conversion Price of the Note or the exercise price of the
Warrant would result in the issuance of a number of shares of Common Stock which
is greater than the amount by which the authorized Common Stock exceeds the sum
of the outstanding Common Stock and the shares of Common Stock reserved for
issuance pursuant to outstanding agreements and outstanding options, warrants,
rights, convertible securities and other securities upon the exercise or
conversion of which or pursuant to the terms of which additional shares of
Common Stock may be issuable (the foregoing proviso being referred to as the
"Authorized Stock Proviso");
(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) subject to the truth and accuracy of
the Subscriber's representations and warranties herein, will not result in a
violation of Section 5 under the 1933 Act.
(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 affect
the execution by the Company or the performance by the Company of its
obligations under the Transaction Documents. Except as disclosed in the Reports,
there is no pending or, to the best knowledge of the Company, basis for or
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 which litigation if adversely determined would have a
Material Adverse Effect.
(i) Reporting Company. The Company is a
publicly-held company subject to reporting obligations pursuant to Section 13 of
the 1934 Act and has a class of common shares registered pursuant to Section
12(g) of the 1934 Act. Pursuant to the provisions of the 1934 Act, the Company
has timely filed all reports and other materials required to be filed thereunder
with the Commission during the preceding twelve months.
17
(j) No Market Manipulation. The Company and its
Affiliates have 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 to facilitate the
sale or resale of the Securities or affect the price at which the Securities may
be issued or resold.
(k) Information Concerning Company. The Reports
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 included in
the Reports, and except as modified in the Other Written Information or in the
Schedules hereto, there has been no Material Adverse Event relating to the
Company's business, financial condition or affairs not disclosed in the Reports.
The Reports 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 in light of the circumstances when made.
(l) Stop Transfer. The Company will not issue any
stop transfer order or other order impeding the sale, resale or delivery of any
of the Securities, except as may be required by any applicable federal or state
securities laws and unless contemporaneous notice of such instruction is given
to the Subscriber.
(m) Defaults. The Company is not in violation of
its articles of incorporation or bylaws. The Company is (i) not in default under
or in violation of any other material agreement or instrument to which it is a
party or by which it or any of its properties are bound or affected, which
default or violation would have a Material Adverse Effect, (ii) not in default
with respect to any order of any court, arbitrator or governmental body or
subject to or party to any order of any court or governmental authority arising
out of any action, suit or proceeding under any statute or other law respecting
antitrust, monopoly, restraint of trade, unfair competition or similar matters,
or (iii) to the Company's knowledge not in violation of any statute, rule or
regulation of any governmental authority which violation would have a Material
Adverse Effect.
(n) No Integrated Offering. Neither the Company,
nor any of its Affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales of any security or solicited any
offers to buy any security under circumstances that would cause the offer of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
the OTC Bulletin Board ("Bulletin Board"). Except as a result of an election by
the Subscriber pursuant to Section 12(a) hereof, neither the Company nor any of
its Affiliates will take any action or steps that would cause the offer or
issuance of the Securities to be integrated with other offerings. The Company
will not conduct any offering other than the transactions contemplated hereby
that will be integrated with the offer or issuance of the Securities, except as
a result of an election by the Subscriber pursuant to Section 12(a) hereof.
(o) No General Solicitation. Neither the Company,
nor any of its Affiliates, nor to its knowledge, any person acting on its or
their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the 1933 Act) in
connection with the offer or sale of the Securities.
(p) Listing. The Company's common stock is quoted
on the Bulletin Board. The Company has not received any oral or written notice
that its common stock is not eligible nor will become ineligible for quotation
on the Bulletin Board nor that its common stock does not meet all requirements
for the continuation of such quotation and the Company satisfies all the
requirements for the continued quotation of its common stock on the Bulletin
Board.
(q) No Undisclosed Liabilities. The Company has no
liabilities or obligations which are material, individually or in the aggregate,
which are not disclosed in the Reports and Other Written Information, other than
those incurred in the ordinary course of the Company's businesses since December
31, 2003 and which, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect, except as disclosed on Schedule
5(q).
(r) No Undisclosed Events or Circumstances. Since
December 31, 2003, no event or circumstance has occurred or exists with respect
to the Company or its businesses, properties, operations
18
(Subscription Agreement)
or financial condition, that, under applicable law, rule or regulation, requires
public disclosure or announcement prior to the date hereof by the Company but
which has not been so publicly announced or disclosed in the Reports.
(s) Capitalization. The authorized and outstanding
capital stock of the Company as of the date of this Agreement and the Closing
Date (not including the Securities) are set forth on Schedule 5(d). Except as
set forth on Schedule 5(d), there are no options, warrants, or rights to
subscribe to, securities, rights or obligations convertible into or exchangeable
for or giving any right to subscribe for any shares of capital stock of the
Company or any of its Subsidiaries. All of the outstanding shares of Common
Stock of the Company have been duly and validly authorized and issued and are
fully paid and nonassessable.
(t) Dilution. The Company's executive officers and
directors understand the nature of the Securities being sold hereby and
recognize that the issuance of the Securities will have a potential dilutive
effect on the equity holdings of other holders of the Company's equity or rights
to receive equity of the Company. The board of directors of the Company has
concluded, in its good faith business judgment that the issuance of the
Securities is in the best interests of the Company. The Company specifically
acknowledges that its obligation to issue the Shares upon conversion of the
Notes, and the Warrant Shares upon exercise of the Warrants is binding upon the
Company and enforceable regardless of the dilution such issuance may have on the
ownership interests of other shareholders of the Company or parties entitled to
receive equity of the Company.
(u) No Disagreements with Accountants and Lawyers.
There are no disagreements of any kind presently existing, or reasonably
anticipated by the Company to arise, between the Company and the accountants and
lawyers formerly or presently employed by the Company, including but not limited
to disputes or conflicts over payment owed to such accountants and lawyers.
(v) Investment Company. Neither the Company nor
any Affiliate is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(w) Subsidiary Representations. The Company makes
each of the representations contained in Sections 5(a), (b), (d), (f), (h), (m),
(s) and (u) of this Agreement, as same relate to each Subsidiary of the Company.
For purposes of this Agreement, "Subsidiary" means, with respect to any entity
at any date, any corporation, limited or general partnership, limited liability
company, trust, estate, association, joint venture or other business entity) of
which more than 50% of (i) the outstanding capital stock having (in the absence
of contingencies) ordinary voting power to elect a majority of the board of
directors or other managing body of such entity, (ii) in the case of a
partnership or limited liability company, the interest in the capital or profits
of such partnership or limited liability company or (iii) in the case of a
trust, estate, association, joint venture or other entity, the beneficial
interest in such trust, estate, association or other entity business is, at the
time of determination, owned or controlled directly or indirectly through one or
more intermediaries, by such entity. All the Company's Subsidiaries as of the
Closing Date are set forth on Schedule 5(x) hereto
(x) Correctness of Representations. The Company
represents that the foregoing representations and warranties are true and
correct as of the date hereof in all material respects, and, unless the Company
otherwise notifies the Subscribers prior to the Closing Date, shall be true and
correct in all material respects as of each Closing Date.
(y) Survival. The foregoing representations and
warranties shall survive the Closing Date for a period of three years.
6. Regulation D Offering. The offer and, subject to the
truth and accuracy of the Subscriber's representations and warranties herein,
issuance of the Securities to the Subscribers is being made pursuant to the
exemption from the registration provisions of the 1933 Act afforded by Section
4(2) or Section 4(6) of the 1933 Act and/or Rule 506 of Regulation D promulgated
thereunder. On the Closing Date, the Company will provide an opinion reasonably
acceptable to Subscriber from the Company's legal counsel opining on the
availability of an exemption from registration under the 1933 Act as it relates
to the offer and issuance of the Securities and other matters reasonably
requested by Subscribers. A form of the legal opinion is annexed hereto as
Exhibit C. The Company will provide, at the Company's expense, such other legal
opinions in the future as are
19
(Subscription Agreement)
reasonably necessary for the issuance and resale of the Common Stock issuable
upon conversion of the Notes and exercise of the Warrants pursuant to an
effective registration statement.
7.1. Conversion of Note.
(a) Upon the conversion of a Note or part
thereof, the Company shall, at its own cost and expense, take all necessary
action, including obtaining and delivering, an opinion of counsel to Company's
transfer agent, and issue stock certificates in the name of Subscriber (or its
nominee) or such other persons as designated by Subscriber and in such
denominations to be specified at conversion representing the number of shares of
Common Stock issuable upon such conversion. The Company warrants that no
instructions other than these instructions have been or will be given to the
transfer agent of the Company's Common Stock and that, unless waived by the
Subscriber, provided the Shares are then subject to a current and effective
registration statement, the Shares will be free-trading, and freely
transferable, and will not contain a legend restricting the resale or
transferability of the Shares provided the Shares are being sold pursuant to an
effective registration statement covering the Shares or are otherwise exempt
from registration.
(b) Subscriber will give notice of its decision
to exercise its right to convert the Note, interest, any sum due to the
Subscriber under the Transaction Documents including Liquidated Damages, or
part thereof by telecopying an executed and completed Notice of Conversion
(a form of which is annexed as Exhibit A to the Note) to the Company via
confirmed telecopier transmission or otherwise pursuant to Section 13(a) of
this Agreement. The Subscriber will not be required to surrender the Note
until the Note has been fully converted or satisfied. Each date on which a
Notice of Conversion is telecopied to the Company in accordance with the
provisions hereof shall be deemed a Conversion Date. The Company will itself
or cause the Company's transfer agent to transmit the Company's Common Stock
certificates representing the Shares issuable upon conversion of the Note to
the Subscriber via express courier for receipt by such Subscriber within
three (3) business days after receipt by the Company of the Notice of
Conversion (such third day being the "Delivery Date"). In the event the
Shares are electronically transferable, then delivery of the Shares must be
made by electronic transfer provided request for such electronic transfer
has been made by the Subscriber and the Subscriber has complied with all
applicable securities laws in connection with the sale of the Common Stock,
including, without limitation, the prospectus delivery requirements. A Note
representing the balance of the Note not so converted will be provided by
the Company to the Subscriber if requested by Subscriber, provided the
Subscriber delivers the original Note to the Company. In the event that a
Subscriber elects not to surrender a Note for reissuance upon partial
payment or conversion, the Subscriber hereby indemnifies the Company against
any and all loss or damage attributable to a third-party claim in an amount
in excess of the actual amount then due under the Note.
(c) The Company understands that a delay in the
delivery of the Shares in the form required pursuant to Section 7.1 hereof, or
the Mandatory Redemption Amount described in Section 7.2 hereof, respectively
after the Delivery Date or the Mandatory Redemption Payment Date (as hereinafter
defined) could result in economic loss to the Subscriber. As compensation to the
Subscriber for such loss, the Company agrees to pay (as liquidated damages and
not as a penalty) to the Subscriber for late issuance of Shares in the form
required pursuant to Section 7.1 hereof upon Conversion of the Note in the
amount of $100 per business day after the Delivery Date for each $10,000 of Note
principal amount being converted of the corresponding Shares which are not
timely delivered. The Company shall pay any payments incurred under this Section
in immediately available funds upon demand. Furthermore, in addition to any
other remedies which may be available to the Subscriber, in the event that the
Company fails for any reason to effect delivery of the Shares by the Delivery
Date or make payment by the Mandatory Redemption Payment Date, the Subscriber
will be entitled to revoke all or part of the relevant Notice of Conversion or
rescind all or part of the notice of Mandatory Redemption by delivery of a
notice to such effect to the Company whereupon the Company and the Subscriber
shall each be restored to their respective positions immediately prior to the
delivery of such notice, except that the liquidated damages described above
shall be payable through the date notice of revocation or rescission is given to
the Company.
(d) Nothing contained herein or in any document
referred to herein or delivered in connection herewith shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest or dividends required to be
20
(Subscription Agreement)
paid or other charges hereunder exceed the maximum permitted by such law, any
payments in excess of such maximum shall be credited against amounts owed by the
Company to the Subscriber and thus refunded to the Company.
7.2. Mandatory Redemption at Subscriber's Election. In
the event the Company is prohibited from issuing Shares, or fails to timely
deliver Shares on a Delivery Date, or upon the occurrence of any other Event of
Default (as defined in the Note or in this Agreement), then at the Subscriber's
election, the Company must pay to the Subscriber ten (10) business days after
request by the Subscriber, at the Subscriber's election, a sum of money
determined by (i) multiplying up to the outstanding principal amount of the Note
designated by the Subscriber by 120%, or (ii) multiplying the number of Shares
otherwise deliverable upon conversion of an amount of Note principal and/or
interest designated by the Subscriber (with the date of giving of such
designation being a "Deemed Conversion Date") at the then Conversion Price that
would be in effect on the Deemed Conversion Date by the highest closing price of
the Common Stock on the principal market for the period commencing on the Deemed
Conversion Date until the day prior to the receipt of the Mandatory Redemption
Payment, whichever is greater, together with accrued but unpaid interest thereon
and any other sums arising and outstanding under the Transaction Documents
("Mandatory Redemption Payment"). The Mandatory Redemption Payment must be
received by the Subscriber on the same date as the Company Shares otherwise
deliverable or within ten (10) business days after request, whichever is sooner
("Mandatory Redemption Payment Date"). Upon receipt of the Mandatory Redemption
Payment, the corresponding Note principal and interest will be deemed paid and
no longer outstanding. Liquidated damages calculated pursuant to Section 7.1(c)
hereof, that have been paid or accrued for the twenty day period prior to the
actual receipt of the Mandatory Redemption Payment by the Subscriber shall be
credited against the Mandatory Redemption Payment calculated pursuant to
subsections (i) and (ii) above of this Section 7.2.
7.3. Maximum Conversion. The Subscriber shall not be
entitled to convert on a Conversion Date that amount of the Note in connection
with that number of shares of Common Stock which would be in excess of the sum
of (i) the number of shares of common stock beneficially owned by the Subscriber
and its Affiliates on a Conversion Date, and (ii) the number of shares of Common
Stock issuable upon the conversion of the Note with respect to which the
determination of this provision is being made on a Conversion Date, which would
result in beneficial ownership by the Subscriber and its Affiliates of more than
4.99% of the outstanding shares of common stock of the Company on such
Conversion Date. For the purposes of the provision to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder. Subject to the foregoing and the following sentence, the Subscriber
shall not be limited to aggregate conversions of only 4.99% and aggregate
conversions by the Subscriber may exceed 4.99%. The Subscriber may void the
conversion limitation described in this Section 7.3 upon and effective after 61
days prior written notice to the Company. The Subscriber may allocate which of
the equity of the Company deemed beneficially owned by the Subscriber shall be
included in the 4.99% amount described above and which shall be allocated to the
excess above 4.99%.
7.4. Injunction Posting of Bond. In the event a
Subscriber shall elect to convert a Note or part thereof or exercise the Warrant
in whole or in part, the Company may not refuse conversion or exercise based on
any claim that such Subscriber or any one associated or affiliated with such
Subscriber has been engaged in any violation of law, or for any other reason,
unless, an injunction from a court, on notice, restraining and or enjoining
conversion of all or part of such Note or exercise of all or part of such
Warrant shall have been sought and obtained by the Company and the Company has
posted a surety bond for the benefit of such Subscriber in the amount of 120% of
the amount of the Note, or aggregate purchase price of the Warrant Shares which
are sought to be subject to the injunction, which bond shall remain in effect
until the completion of arbitration/litigation of the dispute and the proceeds
of which shall be payable to such Subscriber to the extent Subscriber obtains
judgment.
7.5. Buy-In. In addition to any other rights available to
the Subscriber, if the Company fails to deliver to the Subscriber such shares
issuable upon conversion of a Note by the Delivery Date and if after seven (7)
business days after the Delivery Date the Subscriber purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such Subscriber of the Common Stock which the
Subscriber was entitled to receive upon such conversion (a "Buy-In"), then the
Company shall pay in cash to the Subscriber (in addition to any remedies
available to or elected by the Subscriber) the amount by which (A) the
Subscriber's total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased exceeds (B) the aggregate principal
and/or interest amount of the Note for which such conversion was not
21
(Subscription Agreement)
timely honored, together with interest thereon at a rate of 15% per annum,
accruing until such amount and any accrued interest thereon is paid in full
(which amount shall be paid as liquidated damages and not as a penalty). For
example, if the Subscriber purchases shares of Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of $10,000 of note principal and/or interest, the Company shall be
required to pay the Subscriber $1,000, plus interest. The Subscriber shall
provide the Company written notice indicating the amounts payable to the
Subscriber in respect of the Buy-In.
7.6 Adjustments. The Conversion Price, Warrant exercise
price and amount of Shares issuable upon conversion of the Notes and exercise of
the Warrants shall be adjusted as described in this Agreement, the Securities.
7.7. Redemption. The Note and Warrants shall not be
redeemable or callable except as described in the Note.
7.8. Deemed Value. The Initial Shares shall have a
deemed value of $0.04 for purposes of calculation of liquidated and other
damages pursuant to the Transaction Documents.
8. Broker/Legal Fees.
(a) Broker's Fee. The Company on the one hand,
and each Subscriber (for himself only) on the other hand, agree to indemnify the
other against and hold the other harmless from any and all liabilities to any
persons claiming brokerage commissions or finder's fees other than Atlas Capital
Services, LLC ("Broker") on account of services purported to have been rendered
on behalf of the indemnifying party in connection with this Agreement or the
transactions contemplated hereby and arising out of such party's actions. The
Company agrees that on the Closing Date, the Company will pay the Broker the fee
as described on Schedule 8 hereto. The Company represents that there are no
other parties entitled to receive fees, commissions, or similar payments in
connection with the Offering except the Broker.
(b) Legal Fees. The Company shall pay to
Grushko & Mittman, P.C., a fee of $17,500 ("Legal Fees") (of which $2,500 has
been paid) as reimbursement for services rendered to the Subscribers in
connection with this Agreement and the purchase and sale of the Securities (the
"Offering") and acting as Escrow Agent for the Offering. The Legal Fees will be
payable out of funds held pursuant to the Escrow Agreement.
9.1. Covenants of the Company. The Company covenants and
agrees with the Subscribers as follows:
(a) Stop Orders. The Company will advise the
Subscribers, 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 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.
(b) Listing. The Company shall promptly secure
the listing of the Shares and the Warrant Shares upon each national
securities exchange, or electronic or automated quotation system upon which
they are or become eligible for listing and shall maintain such listing so
long as any Notes or Warrants are outstanding. The Company will maintain the
listing of its Common Stock on the American Stock Exchange, Nasdaq SmallCap
Market, Nasdaq National Market System, Bulletin Board, or New York Stock
Exchange (whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock (the "Principal Market")), and will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market, as
applicable. The Company will provide the Subscribers copies of all notices
it receives notifying the Company of the threatened and actual delisting of
the Common Stock from any Principal Market. As of the date of this Agreement
and the Closing Date, the Bulletin Board is and will be the Principal
Market.
(c) Market Regulations. The Company shall notify
the Commission, the Principal Market and applicable state authorities, in
accordance with their requirements, of the transactions contemplated
22
(Subscription Agreement)
by this Agreement, and shall take all other necessary action and proceedings
as may be required and permitted by applicable law, rule and regulation, for
the legal and valid issuance of the Securities to the Subscribers and
promptly provide copies thereof to Subscriber.
(d) Filing Requirements. From the date of this
Agreement and until the sooner of (i) three (3) years after the Closing
Date, or (ii) until all the Shares and Warrant Shares have been resold or
transferred by all the Subscribers pursuant to the Registration Statement or
pursuant to Rule 144, without regard to volume limitation, the Company will
(A) cause its Common Stock to continue to be registered under Section 12(b)
or 12(g) of the 1934 Act, (B) comply in all respects with its reporting and
filing obligations under the 1934 Act, (C) comply with all reporting
requirements that are applicable to an issuer with a class of shares
registered pursuant to Section 12(b) or 12(g) of the 1934 Act, as
applicable, and (D) comply with all requirements related to any registration
statement filed pursuant to this Agreement. The Company will use its best
efforts not to take any action or file any document (whether or not
permitted by the 1933 Act or the 1934 Act or the rules thereunder) to
terminate or suspend such registration or to terminate or suspend its
reporting and filing obligations under said acts until three (3) years after
the Closing Date. Until the earlier of the resale of the Common Stock and
the Warrant Shares by each Subscriber or three (3) years after the Warrants
have been exercised, the Company will use its best efforts to continue the
listing or quotation of the Common Stock on a Principal Market and will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market. The Company
agrees to timely file a Form D with respect to the Securities if required
under Regulation D and to provide a copy thereof to counsel to the
Subscribers.
(e) Use of Proceeds. The proceeds of the
Offering will be employed by the Company for working capital or other corporate
purposes.
(f) Reservation. Prior to the Closing Date, the
Company undertakes to reserve and maintain in reserve, pro rata, on behalf
of each holder of a Note or Warrant, from its authorized but unissued common
stock, a number of common shares equal to 200% of the amount of Common Stock
necessary to allow each holder of a Note to be able to convert all such
outstanding Notes and interest and reserve the amount of Warrant Shares
issuable upon exercise of the Warrants. Failure to have sufficient shares
reserved pursuant to this Section 9.1(f) for three (3) consecutive business
days or ten (10) days in the aggregate shall be a material default of the
Company's obligations under this Agreement and an Event of Default under the
Note.
(g) Taxes. From the date of this Agreement and
until the sooner of (i) three (3) years after the Closing Date, or (ii)
until all the Shares and Warrant Shares have been resold or transferred by
all the Subscribers pursuant to the Registration Statement or pursuant to
Rule 144, without regard to volume limitations, the Company will promptly
pay and discharge, or cause to be paid and discharged, when due and payable,
all lawful taxes, assessments and governmental charges or levies imposed
upon the income, profits, property or business of the Company; provided,
however, that any such tax, assessment, charge or levy need not be paid if
the validity thereof shall currently be contested in good faith by
appropriate proceedings and if the Company shall have set aside on its books
adequate reserves with respect thereto, and provided, further, that the
Company will pay all such taxes, assessments, charges or levies forthwith
upon the commencement of proceedings to foreclose any lien which may have
attached as security therefore.
(h) Insurance. From the date of this Agreement
and until the sooner of (i) three (3) years after the Closing Date, or (ii)
until all the Shares and Warrant Shares have been resold or transferred by
all the Subscribers pursuant to the Registration Statement or pursuant to
Rule 144, without regard to volume limitations, the Company will keep its
assets which are of an insurable character insured by financially sound and
reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in the Company's line of business,
in amounts sufficient to prevent the Company from becoming a co-insurer and
not in any event less than 100% of the insurable value of the property
insured; and the Company will maintain, with financially sound and reputable
insurers, insurance against other hazards and risks and liability to persons
and property to the extent and in the manner customary for companies in
similar businesses similarly situated and to the extent available on
commercially reasonable terms.
23
(Subscription Agreement)
(i) Books and Records. From the date of this
Agreement and until the sooner of (i) three (3) years after the Closing
Date, or (ii) until all the Shares and Warrant Shares have been resold or
transferred by all the Subscribers pursuant to the Registration Statement or
pursuant to Rule 144, without regard to volume limitations, the Company will
keep true records and books of account in which full, true and correct
entries will be made of all dealings or transactions in relation to its
business and affairs in accordance with generally accepted accounting
principles applied on a consistent basis.
(j) Governmental Authorities. From the date of
this Agreement and until the sooner of (i) three (3) years after the Closing
Date, or (ii) until all the Shares and Warrant Shares have been resold or
transferred by all the Subscribers pursuant to the Registration Statement or
pursuant to Rule 144, without regard to volume limitations, the Company
shall duly observe and conform in all material respects to all valid
requirements of governmental authorities relating to the conduct of its
business or to its properties or assets.
(k) Confidentiality/Public Announcement. From
the date of this Agreement and until the sooner of (i) three (3) years after
the Closing Date, or (ii) until all the Shares and Warrant Shares have been
resold or transferred by all the Subscribers pursuant to the Registration
Statement or pursuant to Rule 144, without regard to volume limitations, the
Company agrees that except in connection with a Form 8-K or the Registration
Statement, it will not disclose publicly or privately the identity of the
Subscribers unless expressly agreed to in writing by a Subscriber or only to
the extent required by law and then only upon five days prior notice to
Subscriber. In any event and subject to the foregoing, the Company shall
file a Form 8-K or make a public announcement describing the Offering not
later than the first business day after the Closing Date. In the Form 8-K or
public announcement, the Company will specifically disclose the amount of
common stock outstanding immediately after the Closing. A form of the
proposed Form 8-K or public announcement to be employed in connection with
the Offering is annexed hereto as Exhibit D.
(l) Further Registration Statements. Except for
a registration statement filed on behalf of the Subscribers pursuant to Section
11 of this Agreement which may include the Shares described on Schedule 11.1
hereto, the Company will not file any registration statements or amend any
already filed registration statement, including but not limited to Form S-8,
with the Commission or with state regulatory authorities without the consent of
the Subscriber until the sooner of (i) the Registration Statement described in
Section 11.1(iv) hereof shall have been declared effective by the Commission and
available for use in connection with the public resale of the Shares and Warrant
Shares for 180 days or (ii) until all the Shares have been resold or transferred
by the Subscribers pursuant to the Registration Statement or Rule 144, without
regard to volume limitations ("Exclusion Period"). The Exclusion Period will be
tolled during the pendency of an Event of Default as defined in the Note.
(m) Non-Public Information. The Company
covenants and agrees that neither it nor any other person acting on its behalf
will provide any Subscriber or its agents or counsel with any information that
the Company believes constitutes material non-public information, unless prior
thereto such Subscriber shall have agreed in writing to receive such
information. The Company understands and confirms that each Subscriber shall be
relying on the foregoing representations in effecting transactions in securities
of the Company.
10. Covenants of the Company and Subscriber Regarding
Indemnification.
(a) The Company agrees to indemnify, hold
harmless, reimburse and defend the Subscribers, the Subscribers' officers,
directors, agents, Affiliates, control persons, and principal shareholders,
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon
the Subscriber or any such person which results, arises out of or is based
upon (i) any material misrepresentation by Company or breach of any warranty
by Company in this Agreement or in any Exhibits or Schedules attached
hereto, or other agreement delivered pursuant hereto; or (ii) after any
applicable notice and/or cure periods, any breach or default in performance
by the Company of any covenant or undertaking to be performed by the Company
hereunder, or any other agreement entered into by the Company and Subscriber
relating hereto.
(b) Each Subscriber agrees to indemnify, hold
harmless, reimburse and defend the Company and each of the Company's
officers, directors, agents, Affiliates, control persons against any claim,
24
(Subscription Agreement)
cost, expense, liability, obligation, loss or damage (including reasonable
legal fees) of any nature, incurred by or imposed upon the Company or any
such person which results, arises out of or is based upon (i) any material
misrepresentation by such Subscriber in this Agreement or in any Exhibits or
Schedules attached hereto, or other agreement delivered pursuant hereto; or
(ii) after any applicable notice and/or cure periods, any breach or default
in performance by such Subscriber of any covenant or undertaking to be
performed by such Subscriber hereunder, or any other agreement entered into
by the Company and Subscribers, relating hereto.
(c) In no event shall the liability of any
Subscriber or permitted successor hereunder or under any Transaction
Document or other agreement delivered in connection herewith be greater in
amount than the dollar amount of the net proceeds actually received by such
Subscriber upon the sale of Registrable Securities (as defined herein).
(d) The procedures set forth in Section 11.6
shall apply to the indemnification set forth in Sections 10(a) and 10(b)
above.
11.1. Registration Rights. The Company hereby grants the
following registration rights to holders of the Securities.
(i) On one occasion, for a period commencing one
hundred fifty-one (151) days after the Filing Date (as defined in Section
11.1(iv) below), but not later than two (2) years after the Closing Date
("Request Date"), upon a written request therefor from any record holder or
holders of more than 50% of the Shares issued and issuable upon conversion
of the Notes, Initial Shares and the Warrant Shares actually issued upon
exercise of the Warrants and Broker's Warrants (as defined on Schedule 8
hereto), the Company shall prepare and file with the Commission a
registration statement under the 1933 Act registering the Shares and Warrant
Shares issuable upon exercise of the Warrants (collectively "Registrable
Securities") which are the subject of such request for unrestricted public
resale by the holder thereof. For purposes of Sections 11.1(i) and 11.1(ii),
Registrable Securities shall not include Securities (A) which are registered
for resale in an effective registration statement, (B) included for
registration in a pending registration statement, or (C) which have been
issued without further transfer restrictions after a sale or transfer
pursuant to a registration statement or Rule 144 under the 1933 Act. 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 ten (10) 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 11.1(i).
(ii) If the Company at any time proposes to
register any of its securities under the 1933 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 S-4, S-8 or
another form not available for registering the Registrable Securities for
sale to the public, provided the Registrable Securities are not otherwise
registered for resale by the Subscribers or Holder pursuant to an effective
registration statement, each such time it will give at least fifteen (15)
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 ten (10) days after the giving of any
such notice by the Company, to register any of the Registrable Securities
not previously registered, the Company will cause such Registrable
Securities as to which registration shall have been so requested to be
included with 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" or "Sellers"). In
the event that any registration pursuant to this Section 11.1(ii) 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 reasonably 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 foregoing provisions, or Section 11.4 hereof, the
Company may withdraw or delay or suffer a delay of any registration
statement referred to in this Section 11.1(ii) without thereby incurring any
liability to the Seller.
25
(Subscription Agreement)
(iii) If, at the time any written request for
registration is received by the Company pursuant to Section 11.1(i), the
Company has determined to proceed with the actual preparation and filing of
a registration statement under the 1933 Act in connection with the proposed
offer and sale for cash of any of its securities for the Company's own
account and the Company actually does file such other registration
statement, such written request shall be deemed to have been given pursuant
to Section 11.1(ii) rather than Section 11.1(i), and the rights of the
holders of Registrable Securities covered by such written request shall be
governed by Section 11.1(ii).
(iv) The Company shall file with the Commission a
Form SB-2 registration statement (the "Registration Statement") (or such
other form that it is eligible to use) in order to register the Registrable
Securities for resale and distribution under the 1933 Act) not later than
ninety (90) days after the Closing Date (the "Filing Date"), and cause it to
be declared effective not later than one hundred and fifty (150) days after
the Filing Date (the "Effective Date"). The Company will register not less
than a number of shares of Common Stock in the aforedescribed registration
statement that is equal to 200% of the Shares issuable upon conversion of
the Notes and all of the Initial Shares and Warrant Shares issuable upon
exercise of the Warrants and Broker's Warrants. The Registrable Securities
shall be reserved and set aside exclusively for the benefit of each
Subscriber and Warrant holder, pro rata, and not issued, employed or
reserved for anyone other than each such Subscriber and Warrant holder. The
Registration Statement will be amended or additional registration statements
will be filed by the Company as necessary to register additional shares of
Common Stock to allow the public resale of all Common Stock included in and
issuable by virtue of the Registrable Securities. Such amendments or
additional registration statements must be filed within fifteen business
days of the first date upon which insufficient Shares and Warrant Shares are
registered. Without the written consent of the Subscriber, no securities of
the Company other than the Registrable Securities will be included in the
Registration Statement except as described on Schedule 11.1, hereto. It
shall be deemed a Non-Registration Event if at any time after the date the
Registration Statement is declared effective by the Commission ("Actual
Effective Date") the Company has registered for unrestricted resale on
behalf of the Subscriber fewer than 125% of the amount of Common Shares
issuable upon full conversion of all sums due under the Notes and 100% of
the Initial Shares and Warrant Shares issuable upon exercise of the Warrants
and Broker's Warrants.
11.2. Registration Procedures. If and whenever the Company
is required by the provisions of Section 11.1(i), 11.1(ii), or (iv) to effect
the registration of any Registrable Securities under the 1933 Act, the Company
will, as expeditiously as possible:
(a) subject to the timelines provided in this
Agreement, prepare and file with the Commission a registration statement
required by Section 11, 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
herein provided), promptly provide to the holders of the Registrable
Securities copies of all filings and Commission letters of comment and
notify Subscribers (by telecopier and by e-mail addresses provided by
Subscribers) and Grushko & Mittman, P.C. (by telecopier and by email to
Counslers@aol.com) on or before 6:00 PM EST on the same business day that
the Company receives notice that (i) the Commission has no comments or no
further comments on the Registration Statement, and (ii) the registration
statement has been declared effective (failure to timely provide notice as
required by this Section 11.2(a) shall be a material breach of the Company's
obligation and an Event of Default as defined in the Notes and a
Non-Registration Event as defined in Section 11.4 of this Agreement);
(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 until such registration statement has been effective for
a period of three (3) years, and comply with the provisions of the 1933 Act
with respect to the disposition of all of the Registrable Securities covered
by such registration statement in accordance with the Sellers' intended
method of disposition set forth in such registration statement for such
period;
(c) furnish to the Sellers, at the Company's
expense, 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;
26
(Subscription Agreement)
(d) use its commercially reasonable best efforts
to register or qualify the Registrable Securities covered by such
registration statement under the securities or "blue sky" laws of New York
and such jurisdictions as the Sellers shall reasonably request in writing,
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) if applicable, list the Registrable
Securities covered by such registration statement with any securities
exchange on which the Common Stock of the Company is then listed;
(f) immediately notify the Sellers when a
prospectus relating thereto is required to be delivered under the 1933 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; and
(g) provided same would not be in violation of
the provision of Regulation FD under the 1934 Act, make available for
inspection by the Sellers, and any attorney, accountant or other agent
retained by the Seller or underwriter, all publicly available,
non-confidential financial and other records, pertinent corporate documents
and properties of the Company, and cause the Company's officers, directors
and employees to supply all publicly available, non-confidential information
reasonably requested by the seller, attorney, accountant or agent in
connection with such registration statement.
11.3. Provision of Documents. In connection with each
registration described in this Section 11, each Seller will furnish to the
Company in writing such information and representation letters 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.
11.4. Non-Registration Events. The Company and the
Subscribers agree that the Sellers will suffer damages if the Registration
Statement is not filed by the Filing Date and not declared effective by the
Commission by the Effective Date, and any registration statement required under
Section 11.1(i) or 11.1(ii) is not filed within 60 days after written request
and declared effective by the Commission within 120 days after such request, and
maintained in the manner and within the time periods contemplated by Section 11
hereof, and it would not be feasible to ascertain the extent of such damages
with precision. Accordingly, if (A) the Registration Statement is not filed on
or before the Filing Date, (B) is not declared effective on or before the
Effective Date, (C) the Registration Statement is not declared effective within
three (3) business days after receipt by the Company or its attorneys of a
written or oral communication from the Commission that the Registration
Statement will not be reviewed or that the Commission has no further comments,
(D) if the registration statement described in Sections 11.1(i) or 11.1(ii) is
not filed within 90 days after such written request, or is not declared
effective within 150 days after such written request, or (E) any registration
statement described in Sections 11.1(i), 11.1(ii) or 11.1(iv) is filed and
declared effective but shall thereafter cease to be effective (without being
succeeded within fifteen (15) business days by an effective replacement or
amended registration statement) for a period of time which shall exceed 20 days
in the aggregate per year (defined as a period of 365 days commencing on the
date the Registration Statement is declared effective) (each such event referred
to in clauses A through E of this Section 11.4 is referred to herein as a
"Non-Registration Event"), then the Company shall deliver to the holder of
Registrable Securities, as Liquidated Damages, an amount equal to two percent
(2%) for each thirty (30) days or part thereof, thereafter of the Purchase Price
of the Notes remaining unconverted and purchase price of Shares issued upon
conversion of the Notes owned of record by such holder which are subject to such
Non-Registration Event. The Company must pay the Liquidated Damages in cash. The
Liquidated Damages must be paid within ten (10) days after the end of each
thirty (30) day period or shorter part thereof for which Liquidated Damages are
payable. In the event a Registration Statement is filed by the Filing Date but
is withdrawn prior to being declared effective by the Commission, then such
Registration Statement will be deemed to have not been filed. Liquidated Damages
that accrue pursuant to Section (A) above will be waived provided no other
Non-Registration Event has occurred. All oral or written comments received from
the Commission relating to the Registration Statement must be satisfactorily
responded to within ten (10) business days after receipt of comments from the
Commission. Failure to timely respond to Commission comments is a
Non-Registration Event for which Liquidated Damages shall accrue and be payable
by the Company to the holders of Registrable Securities at the same rate set
forth above. Notwithstanding the foregoing, the
27
(Subscription Agreement)
Company shall not be liable to the Subscriber under this Section 11.4 for any
events or delays occurring as a consequence of the acts or omissions of the
Subscribers contrary to the obligations undertaken by Subscribers in this
Agreement. Liquidated Damages will not accrue nor be payable pursuant to this
Section 11.4 nor will a Non-Registration Event be deemed to have occurred for
times during which Registrable Securities are transferable by the holder of
Registrable Securities pursuant to an effective Registration Statement or Rule
144(k) under the 1933 Act.
11.5. Expenses. All expenses incurred by the Company in
complying with Section 11, 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
reasonable 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, costs of
insurance and reasonable fee of one counsel for all Sellers (not to exceed
$5,000) are called "Registration Expenses." All underwriting discounts and
selling commissions applicable to the sale of Registrable Securities, including
any fees and disbursements of one counsel to the Seller, are called "Selling
Expenses." The Company will pay all Registration Expenses in connection with the
registration statement under Section 11. Selling Expenses in connection with
each registration statement under Section 11 shall be borne by the Seller and
may be apportioned among the Sellers 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.
11.6. Indemnification and Contribution.
(a) In the event of a registration of any
Registrable Securities under the 1933 Act pursuant to Section 11, the
Company will, to the extent permitted by law, 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
1933 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 1933 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 1933 Act pursuant to Section
11, 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 in
light of the circumstances when made, and will subject to the provisions of
Section 11.6(c) 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 shall not
be liable to the Seller to the extent that any such damages arise out of or
are based upon an untrue statement or omission made in any preliminary
prospectus if (i) the Seller failed to send or deliver a copy of the final
prospectus delivered by the Company to the Seller with or prior to the
delivery of written confirmation of the sale by the Seller to the person
asserting the claim from which such damages arise, (ii) the final prospectus
would have corrected such untrue statement or alleged untrue statement or
such omission or alleged omission, or (iii) 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, 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 1933 Act pursuant to Section 11, each
Seller severally but not jointly will, to the extent permitted by law,
indemnify and hold harmless the Company, and each person, if any, who
controls the Company within the meaning of the 1933 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 1933 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 1933 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 1933 Act pursuant to Section 11, any preliminary
prospectus or final prospectus contained therein, or any amendment or
supplement thereof, or arise out of or are based upon
28
(Subscription Agreement)
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 net proceeds actually 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 11.6(c) and shall only relieve it from any
liability which it may have to such indemnified party under this Section
11.6(c), except and only 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
11.6(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, as a group, 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 1933 Act in any case
in which either (i) a Seller, or any controlling person of a Seller, makes a
claim for indemnification pursuant to this Section 11.6 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 11.6 provides for
indemnification in such case, or (ii) contribution under the 1933 Act may be
required on the part of the Seller or controlling person of the Seller in
circumstances for which indemnification is not provided under this Section
11.6; 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, (y) the Seller will not be required to contribute any amount in excess
of the public offering price of all such securities sold by it pursuant to
such registration statement; and (z) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
1933 Act) will be entitled to contribution from any person or entity who was
not guilty of such fraudulent misrepresentation.
11.7. Delivery of Unlegended Shares.
(a) Within three (3) business days (such third
business day being the "Unlegended Shares Delivery Date") after the business
day on which the Company has received (i) a notice that Shares, Warrant
Shares or Initial Shares have been sold pursuant to the Registration
Statement or Rule 144 under the 1933 Act, (ii) a representation that the
prospectus delivery requirements, or the requirements of Rule 144, as
29
(Subscription Agreement)
applicable and if required, have been satisfied, and (iii) the original
share certificates representing the shares of Common Stock that have been
sold, and (iv) in the case of sales under Rule 144, customary representation
letters of the Subscriber and/or Subscriber's broker regarding compliance
with the requirements of Rule 144, the Company at its expense, (y) shall
deliver, and shall cause legal counsel selected by the Company to deliver to
its transfer agent (with copies to Subscriber) an appropriate instruction
and opinion of such counsel, opining on the permissibility of the delivery
of shares of Common Stock without any legends including the legend set forth
in Section 4(h) above, reissuable pursuant to any effective and current
Registration Statement described in Section 11 of this Agreement or pursuant
to Rule 144 under the 1933 Act (the "Unlegended Shares"); and (z) cause the
transmission of the certificates representing the Unlegended Shares together
with a legended certificate representing the balance of the submitted Shares
certificate, if any, to the Subscriber at the address specified in the
notice of sale, via express courier, by electronic transfer or otherwise on
or before the Unlegended Shares Delivery Date. Transfer fees shall be the
responsibility of the Seller.
(b) In lieu of delivering physical certificates
representing the Unlegended Shares, if the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer program, upon request of a Subscriber, so long as the
certificates therefor do not bear a legend and the Subscriber is not
obligated to return such certificate for the placement of a legend thereon,
the Company shall cause its transfer agent to electronically transmit the
Unlegended Shares by crediting the account of Subscriber's prime Broker with
DTC through its Deposit Withdrawal Agent Commission system. Such delivery
must be made on or before the Unlegended Shares Delivery Date.
(c) The Company understands that a delay in the
delivery of the Unlegended Shares pursuant to Section 11 hereof later than two
business days after the Unlegended Shares Delivery Date could result in economic
loss to a Subscriber. As compensation to a Subscriber for such loss, the Company
agrees to pay late payment fees (as liquidated damages and not as a penalty) to
the Subscriber for late delivery of Unlegended Shares in the amount of $100 per
business day after the Delivery Date for each $10,000 of purchase price of the
Unlegended Shares subject to the delivery default. If during any 360 day period,
the Company fails to deliver Unlegended Shares as required by this Section 11.7
for an aggregate of thirty (30) days, then each Subscriber or assignee holding
Securities subject to such default may, at its option, require the Company to
redeem all or any portion of the Shares and Warrant Shares subject to such
default at a price per share equal to 120% of the purchase price of such Shares
and Warrant Shares ("Unlegended Redemption Amount"). The amount of the
aforedescribed liquidated damages that have accrued or been paid for the twenty
day period prior to the receipt by the Subscriber of the Unlegended Redemption
Amount shall be credited against the Unlegended Redemption Amount. The Company
shall pay any payments incurred under this Section in immediately available
funds upon demand.
(d) In addition to any other rights available to
a Subscriber, if the Company fails to deliver to a Subscriber Unlegended Shares
as required pursuant to this Agreement, within seven (7) business days after the
Unlegended Shares Delivery Date and the Subscriber purchases (in an open market
transaction or otherwise) shares of common stock to deliver in satisfaction of a
sale by such Subscriber of the shares of Common Stock which the Subscriber was
entitled to receive from the Company (a "Buy-In"), then the Company shall pay in
cash to the Subscriber (in addition to any remedies available to or elected by
the Subscriber) the amount by which (A) the Subscriber's total purchase price
(including brokerage commissions, if any) for the shares of common stock so
purchased exceeds (B) the aggregate purchase price of the shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares together with
interest thereon at a rate of 15% per annum, accruing until such amount and any
accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For example, if a Subscriber purchases
shares of Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to $10,000 of purchase price of shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares, the Company shall
be required to pay the Subscriber $1,000, plus interest. The Subscriber shall
provide the Company written notice indicating the amounts payable to the
Subscriber in respect of the Buy-In.
(e) In the event a Subscriber shall request
delivery of Unlegended Shares as described in Section 11.7 and the Company is
required to deliver such Unlegended Shares pursuant to Section 11.7, the Company
may not refuse to deliver Unlegended Shares based on any claim that such
Subscriber or any one
30
(Subscription Agreement)
associated or affiliated with such Subscriber has been engaged in any violation
of law, or for any other reason, unless, an injunction or temporary restraining
order from a court, on notice, restraining and or enjoining delivery of such
Unlegended Shares or exercise of all or part of said Warrant shall have been
sought and obtained and the Company has posted a surety bond for the benefit of
such Subscriber in the amount of 120% of the amount of the aggregate purchase
price of the Common Stock and Warrant Shares which are subject to the injunction
or temporary restraining order, which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Subscriber to the extent Subscriber obtains judgment in
Subscriber's favor.
12. (a) Right of First Refusal/Redemption. Until the
end of the Exclusion Period, the Subscribers 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 or debt obligations, except in connection
with (i) as a result of the exercise of options or warrants or conversion of
convertible Notes or amounts which are granted, issued or accrue pursuant to
this Agreement, (ii) as has been described in the Reports or Other Written
Information filed with the Commission or delivered to the Subscribers prior to
the Closing Date, (iii) full or partial consideration in connection with a
strategic merger, consolidation or purchase of substantially all of the
securities or assets of corporation or other entity, (iv) the Company's issuance
of securities in connection with strategic license agreements and other
partnering arrangements so long as such issuances are not for the purpose of
raising capital, and (v) the Company's issuance of Common Stock or the issuance
or grants of options to purchase Common Stock pursuant to the Company's stock
option plans and employee stock purchase plans (collectively the foregoing are
"Excepted Issuances"). The Subscribers who exercise their rights pursuant to
this Section 12(a) shall have the right during the ten (10) business days
following receipt of the notice to purchase in the aggregate of such offered
common stock, debt or other securities in accordance with the terms and
conditions set forth in the notice of sale in the same proportion to each other
as their purchase of Notes in the Offering ("Pro Rata Portion"). In the event
such terms and conditions are modified during the notice period, the Subscribers
shall be given prompt notice of such modification and shall have the right
during the ten (10) business days following the notice of modification,
whichever is longer, to exercise such right. Subscribers who exercise their
rights pursuant to this Section 12(a) may pay for the Common Stock, debt or
other securities by tendering any instrument or waiving payment of any sums due
to them under the Transaction Documents. Each one dollar tendered as payment
shall be valued at $1.20 ("Attributed Value") of payment for such other common
stock, debt or other securities or Subscribers who do not exercise their
purchase rights pursuant to this Section 12(a) may instead demand to receive
such Subscribers' Pro Rata Portion from the Company in cash, out of the proceeds
received by the Company and tendered for redemption any instrument or waive
payment of any sums due to them under the Transaction Documents. Such redeeming
Subscribers will receive the Attributed Value of such tendered instruments or
waived sums.
(b) Favored Nations Provision. Except for the
Excepted Issuances, if at any time Notes or Warrants are outstanding, the
Company shall offer, issue or agree to issue any common stock or securities
convertible into or exercisable for shares of common stock (or modify any of the
foregoing which may be outstanding) to any person or entity at a price per share
or conversion or exercise price per share which shall be less than the
Conversion Price in respect of the Shares, or if less than the Warrant exercise
price in respect of the Warrant Shares, without the consent of each Subscriber
holding Notes, Shares, Warrants, or Warrant Shares, then the Company shall
issue, for each such occasion, additional shares of Common Stock to each
Subscriber so that the average per share purchase price of the shares of Common
Stock issued to the Subscriber (of only the Common Stock or Warrant Shares still
owned by the Subscriber) is equal to such other lower price per share and the
Conversion Price and Warrant Exercise Price shall automatically be reduced to
such other lower price per share. The average Purchase Price of the Shares and
average exercise price in relation to the Warrant Shares shall be
31
(Subscription Agreement)
calculated separately for the Shares and Warrant Shares. The foregoing
calculation and issuance shall be made separately for Shares received upon
conversion and separately for Warrant Shares. The delivery to the Subscriber of
the additional shares of Common Stock shall be not later than the closing date
of the transaction giving rise to the requirement to issue additional shares of
Common Stock. The Subscriber is granted the registration rights described in
Section 11 hereof in relation to such additional shares of Common Stock except
that the Filing Date and Effective Date vis-a-vis such additional common shares
shall be, respectively, the thirtieth (30th) and sixtieth (60th) date after the
closing date giving rise to the requirement to issue the additional shares of
Common Stock. For purposes of the issuance and adjustment described in this
paragraph, the issuance of any security of the Company carrying the right to
convert such security into shares of Common Stock or of any warrant, right or
option to purchase Common Stock shall result in the issuance of the additional
shares of Common Stock upon the sooner of the agreement to or actual issuance of
such convertible security, warrant, right or option and again at any time upon
any subsequent issuances of shares of Common Stock upon exercise of such
conversion or purchase rights if such issuance is at a price lower than the
Conversion Price or Warrant exercise price in effect upon such issuance. The
rights of the Subscriber set forth in this Section 12 are in addition to any
other rights the Subscriber has pursuant to this Agreement, the Note, any
Transaction Document, and any other agreement referred to or entered into in
connection herewith.
(c) Maximum Exercise of Rights. In the event the
exercise of the rights described in Sections 12(a) and 12(b) would result in
the issuance of an amount of common stock of the Company that would exceed
the maximum amount that may be issued to a Subscriber calculated in the
manner described in Section 7.3 of this Agreement, then the issuance of such
additional shares of common stock of the Company to such Subscriber will be
deferred in whole or in part until such time as such Subscriber is able to
beneficially own such common stock without exceeding the maximum amount set
forth calculated in the manner described in Section 7.3 of this Agreement.
The determination of when such common stock may be issued shall be made by
each Subscriber as to only such Subscriber.
13. Miscellaneous.
(a) Notices. All notices, demands, requests,
consents, approvals, and other communications required or permitted
hereunder shall be in writing and, unless otherwise specified herein, shall
be (i) personally served, (ii) deposited in the mail, registered or
certified, return receipt requested, postage prepaid, (iii) delivered by
reputable air courier service with charges prepaid, or (iv) transmitted by
hand delivery, or facsimile, addressed as set forth below or to such other
address as such party shall have specified most recently by written notice.
Any notice or other communication required or permitted to be given
hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation generated by the transmitting
facsimile machine, at the address or number designated below (if delivered
on a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice
is to be received) or (b) on the second business day following the date of
mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first
occur. The addresses for such communications shall be: (i) if to the
Company, to: AdSouth Partners, Inc., 1515 North Federal Highway, #418, Boca
Raton, FL 33432, Attn: Lee Wingeier, CFO, telecopier number: (561) 750-
32
(Subscription Agreement)
0420, with a copy by telecopier only to: Asher S. Levitsky PC, Esanu Katsky
Korins & Siger, LLP, 605 Third Avenue, New York, NY 10158, telecopier
number: (212) 716-3338, (ii) if to the Subscribers, to: the one or more
addresses and telecopier numbers indicated on the signature pages hereto,
with an additional copy by telecopier only to: Grushko & Mittman, P.C., 551
Fifth Avenue, Suite 1601, New York, New York 10176, telecopier number: (212)
697-3575, and (iii) if to the Broker, to: Atlas Capital Services, LLC, 135
East 57th Street, 26th Floor, New York, NY 10022, Attn: Steven Pollan,
telecopier number: (212) 267-3501.
(b) Entire Agreement; Assignment. This Agreement
and other documents delivered in connection herewith represent 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.
Neither the Company nor the Subscribers have relied on any representations
not contained or referred to in this Agreement and the documents delivered
herewith. No right or obligation of the Company shall be assigned without
prior notice to and the written consent of the Subscribers.
(c) Counterparts/Execution. This Agreement may be
executed in any number of counterparts and by the different signatories
hereto on separate counterparts, each of which, when so executed, shall be
deemed an original, but all such counterparts shall constitute but one and
the same instrument. This Agreement may be executed by facsimile signature
and delivered by facsimile transmission.
(d) Law Governing this Agreement. This Agreement
shall be governed by and construed in accordance with the laws of the State
of New York without regard to conflicts of laws principles that would result
in the application of the substantive laws of another jurisdiction. 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
New York or in the federal courts located in the state of New York. The
parties and the individuals executing this Agreement and other agreements
referred to herein or delivered in connection herewith on behalf of the
Company agree to submit to the jurisdiction of such courts and waive trial
by jury. The prevailing party shall be entitled to recover from the other
party its reasonable attorney's fees and costs. In the event that any
provision of this Agreement or any other agreement delivered in connection
herewith is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it
may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability
of any other provision of any agreement.
(e) Specific Enforcement, Consent to Jurisdiction.
The Company and Subscriber acknowledge and agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were
not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to one
or more preliminary and final injunctions to prevent or cure breaches of the
provisions of this Agreement and to enforce specifically the terms and
provisions hereof, this being in addition to any other remedy to which any
of them may be entitled by law or equity. Subject to Section 13(d) hereof,
each of the Company, Subscriber and any signator hereto in his personal
capacity hereby waives, and agrees not to assert in any such suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction
in New York of such court, that the suit, action or proceeding is brought in
an inconvenient forum or that the venue of the suit, action or proceeding is
improper. Nothing in this Section shall affect or limit any right to serve
process in any other manner permitted by law.
(f) Independent Nature of Subscribers. The Company
acknowledges that the obligations of each Subscriber under the Transaction
Documents are several and not joint with the obligations of any other
Subscriber, and no Subscriber shall be responsible in any way for the
performance of the obligations of any other Subscriber under the Transaction
Documents. The Company acknowledges that each Subscriber has represented
that the decision of each Subscriber to purchase Securities has been made by
such Subscriber independently of any other Subscriber and independently of
any information, materials, statements or opinions as to the business,
affairs, operations, assets, properties, liabilities, results of operations,
condition (financial or otherwise) or prospects of the Company which may
have been made or given by any other Subscriber or by any agent or employee
of any other Subscriber, and no Subscriber or any of its agents or employees
shall have any liability to any Subscriber (or any other person) relating to
or arising from any such information, materials, statements or opinions. The
Company acknowledges that nothing contained in any
33
(Subscription Agreement)
Transaction Document, and no action taken by any Subscriber pursuant hereto
or thereto (including, but not limited to, the (i) inclusion of a Subscriber
in the Registration Statement and (ii) review by, and consent to, such
Registration Statement by a Subscriber) shall be deemed to constitute the
Subscribers as a partnership, an association, a joint venture or any other
kind of entity, or create a presumption that the Subscribers are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. The Company
acknowledges that each Subscriber shall be entitled to independently protect
and enforce its rights, including without limitation, the rights arising out
of the Transaction Documents, and it shall not be necessary for any other
Subscriber to be joined as an additional party in any proceeding for such
purpose. The Company acknowledges that it has elected to provide all
Subscribers with the same terms and Transaction Documents for the
convenience of the Company and not because Company was required or requested
to do so by the Subscribers. The Company acknowledges that such procedure
with respect to the Transaction Documents in no way creates a presumption
that the Subscribers are in any way acting in concert or as a group with
respect to the Transaction Documents or the transactions contemplated
thereby.
[THIS SPACE INTENTIONALLY LEFT BLANK]
34
(Subscription Agreement)
ATLAS CAPITAL SERVICES, LLC
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (A)
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.
ADSOUTH PARTNERS, INC.
a Nevada corporation
By:_________________________________
Name: John P. Acunto, Jr.
Title: Chief Executive Officer
Dated: February ___, 2005
135 East 57th Street, 26th Floor New York, NY 10022 U.S.A
Phone: (212) 267-3500 Fax: (212) 267-3501
ATLAS CAPITAL SERVICES, LLC
Exhibit 4.2 Form of note
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER
SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ADSOUTH
PARTNERS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
a) CONVERTIBLE NOTE
FOR VALUE RECEIVED, ADSOUTH PARTNERS, INC., a Nevada corporation
(hereinafter called "Borrower"), hereby promises to pay to
__________________________________,
___________________________________________________________, (the "Holder") or
its registered assigns or successors in interest or order, without demand, the
sum of _____________________________ Dollars ($__________) ("Principal Amount"),
with simple and unpaid interest thereon, on December ___, 2006 (the "Maturity
Date"), if not sooner paid.
This Note has been entered into pursuant to the terms of a subscription
agreement between the Borrower and the Holder, dated of even date herewith (the
"Subscription Agreement"), and shall be governed by the terms of such
Subscription Agreement. Unless otherwise separately defined herein, all
capitalized terms used in this Note shall have the same meaning as is set forth
in the Subscription Agreement. The following terms shall apply to this Note:
ARTICLE I
2) INTEREST; AMORTIZATION
3)
1.1. Interest Rate. Subject to Section 5.7 hereof, interest payable on
this Note shall accrue at a rate per annum (the "Interest Rate") of ten percent
(10%). Interest on the Principal Amount shall accrue from the date of this Note
and shall be payable monthly, in arrears, commencing on the first business day
of the calendar month following the sooner of (i) 120 days after the Closing
Date, or (ii) the actual effective date of the Registration Statement described
in Section 11.1(iv) of the Subscription Agreement, and on the first business day
of each consecutive calendar month thereafter (each a "Repayment Date") and on
the Maturity Date, whether by acceleration or otherwise.
1.2. Minimum Monthly Principal Payments. Amortizing payments of the
outstanding Principal Amount of this Note shall commence on the Repayment Date
and on each successive Repayment Date until the Principal Amount has been repaid
in full, whether by the payment of cash or by the conversion of such Principal
Amount into Common Stock pursuant to the terms hereof. Subject to Section 2.1
and Article 3 below, on each Repayment Date, the Borrower shall make payments to
the Holder in the amount of one-eighteenth (1/18th) of the initial Principal
Amount (the "Monthly Principal Amount"), together with any other amounts and
interest, which are then owing under this Note that have not been paid (the
Monthly Principal Amount, together with such accrued and unpaid interest and
such other amounts, collectively, the "Monthly Amount"). Amounts of conversions
of Principal Amount made by the Holder or Borrower pursuant to Section 2.1 or
Article III, and amounts converted pursuant to Section 2.3 of this Note shall be
applied to Monthly Amounts commencing with the Monthly Amount first payable and
then Monthly Amounts thereafter in chronological order. Any Principal Amount,
interest and any other sum
135 East 57th Street, 26th Floor New York, NY 10022 U.S.A
Phone: (212) 267-3500 Fax: (212) 267-3501
arising under the Subscription Agreement that remains outstanding on the
Maturity Date shall be due and payable on the Maturity Date.
1.3. Default Interest Rate. Following the occurrence and during the
continuance of an Event of Default, which, if susceptible to cure is not cured
within twenty (20) days, otherwise then from the first date of such occurrence,
the annual interest rate on this Note shall (subject to Section 6.7)
automatically be increased to fifteen percent (15%), and all outstanding
obligations under this Note, including unpaid interest, shall continue to accrue
interest from the date of such Event of Default at such interest rate applicable
to such obligations until such Event of Default is cured or waived.
ARTICLE II
CONVERSION REPAYMENT
2.1. (a) Payment of Monthly Amount in Cash or Common Stock. If
the Monthly Amount (or a portion thereof of such Monthly Amount if such portion
of the Monthly Amount could have been converted into shares of Common Stock but
for Section 3.2) may be paid in cash pursuant to Section 2.1(b), then the
Borrower shall pay the Holder in cash an amount equal to 110% of the Monthly
Amount due and owing to the Holder on the Repayment Date. If the Monthly Amount
(or a portion of such Monthly Amount, if not all of the Monthly Amount may be
converted into shares of Common Stock pursuant to Section 3.2) is required to be
paid in shares of Common Stock pursuant to Section 2.1(b), the number of such
shares to be issued by the Borrower to the Holder on such Repayment Date (in
respect of such portion of the Monthly Amount converted into shares of Common
Stock pursuant to Section 2.1(b)), shall be the number determined by dividing
(x) the portion of the Monthly Amount converted into shares of Common Stock, by
(y) the then applicable Conversion Price as defined in Section 3.1 of this Note.
(b) Monthly Amount Conversion Guidelines. Subject to
Sections 2.1(a), 2.1(b), 2.2 and 3.2 hereof, the Holder shall convert into
shares of Common Stock at the Fixed Conversion Price the maximum portion of the
Monthly Amount due on each Repayment Date provided that the average of the five
lowest closing bid prices of the Common Stock as reported by Bloomberg, L.P. on
the Principal Market (as defined below) for the twenty (20) consecutive trading
days immediately preceding such Repayment Date shall be greater than or equal to
75% above the Fixed Conversion Price ("Conversion Criterion"). The Monthly
Amount due on a Repayment Date that the Holder has not been able to convert into
shares of Common Stock due to failure to meet the Conversion Criterion or the
Additional Conversion Limitation shall be paid by the Borrower at the Borrower's
election (i) in cash at the rate of 110% of such Monthly Amount otherwise due on
such Repayment Date, within three (3) business days after the applicable
Repayment Date, or (ii) in registered, unlegended, free-trading Common Stock at
an applied conversion rate equal to the lesser of the Fixed Conversion Price or
eighty percent (80%) of the average of the five (5) lowest closing bid prices of
the Common Stock as reported by Bloomberg L.P. for the twenty (20) trading days
preceding such Repayment Date. Such shares of Common Stock must be delivered to
the Holder not later than three (3) business days of the applicable Repayment
Date. Whichever of the OTC Pink Sheets, NASD OTC Bulletin Board, NASDAQ SmallCap
Market, NASDAQ National Market System, American Stock Exchange, or New York
Stock Exchange or such other principal market or exchange where the Common Stock
is listed or traded is the principal trading exchange or market for the Common
Stock is the Principal Market. The Borrower must send notice to the Holder by
confirmed telecopier not later than 3:00 PM, New York City time on the trading
day immediately preceding each Repayment Date notifying Holder of Borrower's
election to pay the Monthly Redemption Amount in cash or stock. The Notice must
state the amount of cash and or stock to be paid and include supporting
calculations. Elections by the Borrower must be made to all Holders of Notes
similar to this Note in proportion to the relative Note principal held by such
Note Holders. If such notice is not timely sent or if the Monthly Redemption
Amount is not timely delivered, then Holder shall have the right instead of the
Company to elect within five trading days after the later of the applicable
Repayment Date or required delivery date, as the case may be, whether to be paid
in cash or Common Stock.
(c) Application of Conversion Amounts. Any amounts converted
by the Holder pursuant to Section 2.1(b) shall be deemed to constitute payments
of, or applied (i) first, against outstanding fees, (ii) second, against accrued
interest on the Principal Amount, and (iii) third, against the Principal Amount.
37
(Subscription Agreement)
2.2. No Effective Registration. Notwithstanding anything to
the contrary herein, no amount payable hereunder may be paid in shares of Common
Stock by the Borrower without the Holder's consent unless (a) either (i) an
effective current Registration Statement covering the shares of Common Stock to
be issued in satisfaction of such obligations exists, or (ii) an exemption from
registration of the Common Stock is available pursuant to Rule 144(k) of the
Securities Act, and (b) no Event of Default hereunder exists and is continuing,
unless such Event of Default is cured within any applicable cure period or is
otherwise waived in writing by the Holder in whole or in part at the Holder's
option..
2.3. Optional Redemption of Principal Amount. Provided an
Event of Default is not continuing, the Borrower will have the option of
prepaying the outstanding Principal Amount ("Optional Redemption"), in whole or
in part, by paying to the Holder a sum of money equal to one hundred and five
percent (105%) of the Principal Amount to be redeemed, together with accrued but
unpaid interest thereon and any and all other sums due, accrued or payable to
the Holder arising under this Note, the Subscription Agreement or any
Transaction Document through the Redemption Payment Date as defined below (the
"Redemption Amount"). Borrower's election to exercise its right to prepay must
be by notice in writing ("Notice of Redemption"). The Notice of Redemption shall
specify the date for such Optional Redemption (the "Redemption Payment Date"),
which date shall be not less than seven (7) business days after the date of the
Notice of Redemption (the "Redemption Period"). A Notice of Redemption shall not
be effective with respect to any portion of the Principal Amount for which the
Holder has a pending election to convert pursuant to Section 3.1, or for
conversions initiated or made by the Holder pursuant to Section 3.1 during the
Redemption Period. On the Redemption Payment Date, the Redemption Amount less
any portion of the Redemption Amount against which the Holder has exercised its
rights pursuant to Section 3.1, shall be paid in good funds to the Holder. In
the event the Borrower fails to pay the Redemption Amount on the Redemption
Payment Date as set forth herein, then (i) such Notice of Redemption will be
null and void, (ii) Borrower will have no right to deliver another Notice of
Redemption, and (iii) Borrower's failure may be deemed by Holder to be a
non-curable Event of Default.
ARTICLE III
CONVERSION RIGHTS
3.1. Holder's Conversion Rights. Subject to Section 3.2 and the
mandatory conversion provisions therein, the Holder shall have the right, but
not the obligation, to convert all or any portion of the then aggregate
outstanding Principal Amount of this Note, together with interest and fees due
hereon, and any sum arising under the Subscription Agreement, and the
Transaction Documents, including but not limited to Liquidated Damages, into
shares of Common Stock, subject to the terms and conditions set forth in this
Article III at $0.04 ("Fixed Conversion Price"), as same may be adjusted
pursuant to this Note and the Subscription Agreement. The Holder may exercise
such right by delivery to the Borrower of a written Notice of Conversion
pursuant to Section 3.3.
3.2. Conversion Limitation. Notwithstanding anything contained
herein to the contrary, the Holder shall not be entitled to convert pursuant to
the terms of this Note nor may this Note be converted in whole or in part into
an amount of Common Stock that would be convertible into that number of Common
Stock which would exceed the difference between the number of shares of Common
Stock beneficially owned by such Holder and 4.99% of the outstanding shares of
Common Stock. For the purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Exchange
Act and Regulation 13d-3 thereunder. The foregoing limitation shall be
calculated as of each Conversion Date. Subject to the foregoing and the
following sentence, aggregate conversions over time shall not be limited to
4.99%. The Holder may void the Conversion Share limitation described in this
Section 3.2 upon 61 days prior notice to the Borrower. The Holder may allocate
which of the equity of the Borrower deemed beneficially owned by the Holder
shall be included in the 4.99% amount described above and which shall be
allocated to the excess above 4.99%.
3.3. Mechanics of Holder's Conversion.
(a) In the event that the Holder elects to convert any
amounts outstanding under this Note into Common Stock, the Holder shall give
notice of such election by delivering an executed and completed notice of
38
(Subscription Agreement)
conversion (a "Notice of Conversion") to the Borrower, which Notice of
Conversion shall provide a breakdown in reasonable detail of the Principal
Amount, accrued interest and amounts being converted. The original Note is not
required to be surrendered to the Borrower until all sums due under the Note
have been paid. On each Conversion Date (as hereinafter defined) and in
accordance with its Notice of Conversion, the Holder shall make the appropriate
reduction to the Principal Amount, accrued interest and fees as entered in its
records and shall provide written notice thereof to the Borrower within three
(3) business days after the Conversion Date. Each date on which a Notice of
Conversion is delivered or telecopied to the Borrower in accordance with the
provisions hereof shall be deemed a "Conversion Date." A form of Notice of
Conversion to be employed by the Holder is annexed hereto as Exhibit A.
(b) Pursuant to the terms of a Notice of Conversion, the
Borrower will issue instructions to the transfer agent accompanied by an opinion
of counsel, if so required by the Borrower's transfer agent, within two (2)
business days after the date of the delivery to Borrower of the Notice of
Conversion and shall cause the transfer agent to transmit the certificates
representing the Conversion Shares to the Holder by crediting the account of the
Holder's designated broker with the Depository Trust Corporation ("DTC") through
its Deposit Withdrawal Agent Commission ("DWAC") system within three (3)
business days after receipt by the Borrower of the Notice of Conversion (the
"Delivery Date"). In the case of the exercise of the conversion rights set forth
herein the conversion privilege shall be deemed to have been exercised and the
Conversion Shares issuable upon such conversion shall be deemed to have been
issued upon the date of receipt by the Borrower of the Notice of Conversion. The
Holder shall be treated for all purposes as the record holder of such shares of
Common Stock. Notwithstanding the foregoing to the contrary, the Borrower or its
transfer agent shall only be obligated to issue and deliver the shares to the
DTC on the Holder's behalf via DWAC (or certificates free of restrictive
legends) if the registration statement providing for the resale of the shares of
Common Stock issuable upon the conversion of this Note is effective and the
Holder has complied with all applicable securities laws in connection with the
sale of the Common Stock, including, without limitation, the prospectus delivery
requirements. In the event that Conversion Shares cannot be delivered to the
Holder via DWAC, the Borrower shall deliver physical certificates representing
the Conversion Shares by the Delivery Date.
3.4. Conversion Mechanics.
(a) The number of shares of Common Stock to be issued upon
each conversion of this Note pursuant to this Article III shall be determined by
dividing that portion of the Principal Amount and interest and fees to be
converted, if any, by the then applicable Conversion Price.
(b) The Fixed Conversion Price and number and kind of
shares or other securities to be issued upon conversion shall be subject to
adjustment from time to time upon the happening of certain events while this
conversion right remains outstanding, as follows:
A. Merger, Sale of Assets, etc. If the Borrower
at any time shall consolidate with or merge into or sell or convey all or
substantially all its assets to any other corporation, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase such number and kind of shares or
other securities and property as would have been issuable or distributable on
account of such consolidation, merger, sale or conveyance, upon or with respect
to the securities subject to the conversion or purchase right immediately prior
to such consolidation, merger, sale or conveyance. The foregoing provision shall
similarly apply to successive transactions of a similar nature by any such
successor or purchaser. Without limiting the generality of the foregoing, the
anti-dilution provisions of this Section shall apply to such securities of such
successor or purchaser after any such consolidation, merger, sale or conveyance.
B. Reclassification, etc. If the Borrower at any
time shall, by reclassification or otherwise, change the Common Stock into the
same or a different number of securities of any class or classes, this Note, as
to the unpaid principal portion thereof and accrued interest thereon, shall
thereafter be deemed to evidence the right to purchase an adjusted number of
such securities and kind of securities as would have been issuable as the result
of such change with respect to the Common Stock immediately prior to such
reclassification or other change.
C. Stock Splits, Combinations and Dividends. If
the shares of Common Stock are subdivided or combined into a greater or smaller
number of shares of Common Stock, or if a dividend is paid on the
39
(Subscription Agreement)
Common Stock in shares of Common Stock, the Conversion Price shall be
proportionately reduced in case of subdivision of shares or stock dividend or
proportionately increased in the case of combination of shares, in each such
case by the ratio which the total number of shares of Common Stock outstanding
immediately after such event bears to the total number of shares of Common Stock
outstanding immediately prior to such event.
D. Share Issuance. So long as this Note is
outstanding, if the Borrower shall issue any Common Stock except for the
Excepted Issuances (as defined in the Subscription Agreement), prior to the
complete conversion of this Note for a consideration less than the Fixed
Conversion Price that would be in effect at the time of such issue, then, and
thereafter successively upon each such issuance, the Fixed Conversion Price
shall be reduced to such other lower issue price. For purposes of this
adjustment, the issuance of any security or debt instrument of the Borrower
carrying the right to convert such security or debt instrument into Common Stock
or of any warrant, right or option to purchase Common Stock shall result in an
adjustment to the Fixed Conversion Price upon the issuance of the
above-described security, debt instrument, warrant, right, or option and again
upon the issuance of shares of Common Stock upon exercise of such conversion or
purchase rights if such issuance is at a price lower than the then applicable
Conversion Price. The reduction of the Fixed Conversion Price described in this
paragraph is in addition to the other rights of the Holder described in the
Subscription Agreement.
(c) Whenever the Fixed Conversion Price is adjusted
pursuant to Section 3.4(b) above, the Borrower shall promptly mail to the Holder
a notice setting forth the Conversion Price after such adjustment and setting
forth a statement of the facts requiring such adjustment.
3.5. Reservation. During the period the conversion right exists,
Borrower will reserve from its authorized and unissued Common Stock not less
than two hundred percent (200%) of the number of shares to provide for the
issuance of Common Stock upon the full conversion of this Note. Borrower
represents that upon issuance, such shares will be duly and validly issued,
fully paid and non-assessable. Borrower agrees that its issuance of this Note
shall constitute full authority to its officers, agents, and transfer agents who
are charged with the duty of executing and issuing stock certificates to execute
and issue the necessary certificates for shares of Common Stock upon the
conversion of this Note.
3.6 Issuance of Replacement Note. Upon any partial conversion of
this Note, a replacement Note containing the same date and provisions of this
Note shall, at the written request of the Holder, be issued by the Borrower to
the Holder for the outstanding Principal Amount of this Note and accrued
interest which shall not have been converted or paid, provided Holder has
surrendered an original Note to the Company. In the event that the Holder elects
not to surrender a Note for reissuance upon partial payment or conversion, the
Holder hereby indemnifies the Borrower against any and all loss or damage
attributable to a third-party claim in an amount in excess of the actual amount
then due under the Note.
ARTICLE IV
EVENTS OF DEFAULT
The occurrence of any of the following events of default ("Event of
Default") shall, at the option of the Holder hereof, make all sums of principal
and interest then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable, upon demand, without presentment, or
grace period, all of which hereby are expressly waived, except as set forth
below:
4.1 Failure to Pay Principal or Interest. The Borrower fails to pay
any installment of Principal Amount, interest or other sum due under this Note
or any Transaction Document when due and such failure continues for a period of
five (5) business days after the due date.
4.2 Breach of Covenant. The Borrower breaches any material covenant
or other term or condition of the Subscription Agreement, this Note or
Transaction Document in any material respect and such breach, if subject to
cure, continues for a period of fifteen (15) business days after written notice
to the Borrower from the Holder.
40
(Subscription Agreement)
4.3 Breach of Representations and Warranties. Any material
representation or warranty of the Borrower made herein, in the Subscription
Agreement, Transaction Document or in any agreement, statement or certificate
given in writing pursuant hereto or in connection herewith or therewith shall be
false or misleading in any material respect as of the date made and a Closing
Date.
4.4 Receiver or Trustee. The Borrower or any Subsidiary of Borrower
shall make an assignment for the benefit of creditors, or apply for or consent
to the appointment of a receiver or trustee for them or for a substantial part
of their property or business; or such a receiver or trustee shall otherwise be
appointed.
4.5 Judgments. Any money judgment, writ or similar final process
shall be entered or filed against Borrower or any subsidiary of Borrower or any
of their property or other assets for more than $100,000, and shall remain
unvacated, unbonded or unstayed for a period of forty-five (45) days.
4.6 Non-Payment. A default by the Borrower under any one or more
obligations in an aggregate monetary amount in excess of $100,000 for more than
twenty (20) days after the due date.
4.7 Bankruptcy. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings or relief under any bankruptcy law
or any law, or the issuance of any notice in relation to such event, for the
relief of debtors shall be instituted by or against the Borrower or any
Subsidiary of Borrower and if instituted against them are not stayed or
dismissed within ninety (90) days of initiation.
4.8 Delisting. Delisting of the Common Stock from the OTC Bulletin
Board ("Bulletin Board") or such other principal exchange on which the Common
Stock is listed for trading; failure to comply with the requirements for
continued listing on the Bulletin Board for a period of seven consecutive
trading days; or notification from the Bulletin Board or any Principal Market
that the Borrower is not in compliance with the conditions for such continued
listing on the Bulletin Board or other Principal Market.
4.9 Stop Trade. An SEC or judicial stop trade order or Principal
Market trading suspension with respect to Borrower's Common Stock that lasts for
five or more consecutive trading days.
4.10 Failure to Deliver Common Stock or Replacement Note. Borrower's
failure to timely deliver Common Stock to the Holder pursuant to and in the form
required by this Note or the Subscription Agreement, and, if requested by
Borrower, a replacement Note.
4.11 Non-Registration Event. The occurrence of a Non-Registration
Event as described in the Subscription Agreement.
4.12 Cross Default. A default by the Borrower of a material term,
covenant, warranty or undertaking of any Transaction Document which is not cured
after any required notice and/or cure period.
ARTICLE V
MISCELLANEOUS
5.1 Failure or Indulgence Not Waiver. No failure or delay on the
part of Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
5.2 Notices. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice
41
(Subscription Agreement)
or other communication required or permitted to be given hereunder shall be
deemed effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be: (i) if to the
Borrower to: AdSouth Partners, Inc., 1515 North Federal Highway, #418, Boca
Raton, FL 33432, Attn: Lee Wingeier, CFO, telecopier number: (561) 750-0420,
with a copy by telecopier only to: Asher S. Levitsky PC, Esanu Katsky Korins &
Siger, LLP, 605 Third Avenue, New York, NY 10158, telecopier number: (212)
716-3338, and (ii) if to the Holder, to the name, address and telecopy number
set forth on the front page of this Note, with a copy by telecopier only to
Grushko & Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York, New York 10176,
telecopier number: (212) 697-3575.
5.3 Amendment Provision. The term "Note" and all reference thereto,
as used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.
5.4 Assignability. This Note shall be binding upon the Borrower and
its successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns. No transfer of this Note shall be effective unless such
transfer is made in compliance with all applicable federal and state securities
laws and the Holder shall provide to the Company an opinion of counsel, which
counsel and opinion shall be reasonably acceptable to the Company, as to the
exemption from the registration requirements of the Securities Act of 1933, as
amended, and applicable state securities laws. The Company shall be entitled to
treat as the owner of this Note only the person shown as the Holder on its books
and records, regardless of whether the Company has any contrary knowledge.
5.5 Cost of Collection. If default is made in the payment of this
Note, Borrower shall pay the Holder hereof reasonable costs of collection,
including reasonable attorneys' fees.
5.6 Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York, without regard to conflicts
of laws principles that would result in the application of the substantive laws
of another jurisdiction. 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 New York or in the federal courts located in the state of
New York. Both parties and the individual signing this Note on behalf of the
Borrower 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. In the event that any provision of this Note is
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any such provision which may prove invalid or unenforceable under any law
shall not affect the validity or unenforceability of any other provision of this
Note. Nothing contained herein shall be deemed or operate to preclude the Holder
from bringing suit or taking other legal action against the Borrower in any
other jurisdiction to collect on the Borrower's obligations to Holder, to
realize on any collateral or any other security for such obligations, or to
enforce a judgment or other court in favor of the Holder.
5.7 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.
5.8. Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Note and, therefore, stipulates that the
rule of construction that ambiguities are to be resolved against the drafting
party shall not be applied in the interpretation of this Note to favor any party
against the other.
42
(Subscription Agreement)
5.9 Redemption. This Note may not be redeemed or called without
the consent of the Holder except as described in this Note.
5.10 Shareholder Status. The Holder shall not have rights as a
shareholder of the Borrower with respect to unconverted portions of this Note.
However, the Holder will have the rights of a shareholder of the Borrower with
respect to the Shares of Common Stock to be received after delivery by the
Holder of a Conversion Notice to the Borrower.
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by an authorized officer as of the ____ day of February, 2005.
ADSOUTH PARTNERS, INC.
By:________________________________
Name:
Title:
WITNESS:
--------------------------------------
43
(Subscription Agreement)
NOTICE OF CONVERSION
(To be executed by the Registered Holder in order to convert the Note)
The undersigned hereby elects to convert $_________ of the principal
and $_________ of the interest due on the Note issued by AdSouth Partners, Inc.
on February ___, 2005 into Shares of Common Stock of AdSouth Partners, Inc. (the
"Borrower") according to the conditions set forth in such Note, as of the date
written below.
Date of Conversion:____________________________________________________________
Conversion Price:______________________________________________________________
Number of Shares of Common Stock Beneficially Owned on the Conversion Date: Less
than 5% of the outstanding Common Stock of AdSouth Partners, Inc.
Shares To Be Delivered:________________________________________________________
Signature:_____________________________________________________________________
Print Name:____________________________________________________________________
Address:_______________________________________________________________________
_____________________________________________________________________
44
(Subscription Agreement)
ATLAS CAPITAL SERVICES, LLC
Exhibit 4.3 Form of warrant (subscriber)
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO ADSOUTH PARTNERS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
Right to Purchase _________ shares of Common Stock of AdSouth
Partners, Inc. (subject to adjustment as provided herein)
CLASS A COMMON STOCK PURCHASE WARRANT
No. 2005-A-001 Issue Date: February ____, 2005
ADSOUTH PARTNERS, INC., a corporation organized under the laws of the
State of Nevada (the "Company"), hereby certifies that, for value received,
____________________________, ________________________________________________,
or its assigns (the "Holder"), is entitled, subject to the terms set forth
below, to purchase from the Company at any time after the Issue Date until 5:00
p.m., E.S.T on the fifth (5th) anniversary of the Issue Date (the "Expiration
Date"), up to ________ fully paid and nonassessable shares of Common Stock at a
per share purchase price of $0.085. The aforedescribed purchase price per share,
as adjusted from time to time as herein provided, is referred to herein as the
"Purchase Price." The number and character of such shares of Common Stock and
the Purchase Price are subject to adjustment as provided herein. The Company may
reduce the Purchase Price without the consent of the Holder. Capitalized terms
used and not otherwise defined herein shall have the meanings set forth in that
certain Subscription Agreement (the "Subscription Agreement"), dated February
___, 2005, entered into by the Company and Holders of the Class A Warrants.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" shall include AdSouth Partners, Inc. and
any corporation which shall succeed or assume the obligations of AdSouth
Partners, Inc. hereunder.
(b) The term "Common Stock" includes (a) the Company's Common
Stock, $.0001 par value per share, as authorized on the date of the Subscription
Agreement, and (b) any other securities into which or for which any of the
securities described in (a) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than
Common Stock) and other securities of the Company or any other person (corporate
or otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 5 or otherwise.
(d) The term "Warrant Shares" shall mean the Common Stock issuable
upon exercise of this Warrant.
1. Exercise of Warrant.
1.1. Number of Shares Issuable upon Exercise. From and
after the Issue Date through and including the Expiration Date, the Holder
hereof shall be entitled to receive, upon exercise of this Warrant in whole in
accordance with the terms of subsection 1.2 or upon exercise of this Warrant in
part in accordance with subsection 1.3, shares of Common Stock of the Company,
subject to adjustment pursuant to Section 4.
135 East 57th Street, 26th Floor New York, NY 10022 U.S.A
Phone: (212) 267-3500 Fax: (212) 267-3501
1.2. Full Exercise. This Warrant may be exercised in full
by the Holder hereof by delivery of an original or facsimile copy of the form of
subscription attached as Exhibit A hereto (the "Subscription Form") duly
executed by such Holder and surrender of the original Warrant within four (4)
days of exercise, to the Company at its principal office or at the office of its
Warrant Agent (as provided hereinafter), accompanied by payment, in cash, wire
transfer or by certified or official bank check payable to the order of the
Company, in the amount obtained by multiplying the number of shares of Common
Stock for which this Warrant is then exercisable by the Purchase Price then in
effect.
1.3. Partial Exercise. This Warrant may be exercised in
part (but not for a fractional share) by surrender of this Warrant in the manner
and at the place provided in subsection 1.2 except that the amount payable by
the Holder on such partial exercise shall be the amount obtained by multiplying
(a) the number of whole shares of Common Stock designated by the Holder in the
Subscription Form by (b) the Purchase Price then in effect. On any such partial
exercise, the Company, at its expense, will forthwith issue and deliver to or
upon the order of the Holder hereof a new Warrant of like tenor, in the name of
the Holder hereof or as such Holder (upon payment by such Holder of any
applicable transfer taxes) may request, the whole number of shares of Common
Stock for which such Warrant may still be exercised.
1.4. Fair Market Value. Fair Market Value of a share of
Common Stock as of a particular date (the "Determination Date") shall mean:
(a) If the Company's Common Stock is traded on
an exchange or is quoted on the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ"), National Market System, the NASDAQ SmallCap
Market or the American Stock Exchange, LLC, then the closing or last sale price,
respectively, reported for the last business day immediately preceding the
Determination Date;
(b) If the Company's Common Stock is not traded
on an exchange or on the NASDAQ National Market System, the NASDAQ SmallCap
Market or the American Stock Exchange, Inc., but is traded in the
over-the-counter market, then the average of the closing bid and ask prices
reported for the last business day immediately preceding the Determination Date;
(c) Except as provided in clause (d) below, if
the Company's Common Stock is not publicly traded, then as the Holder and the
Company agree, or in the absence of such an agreement, by arbitration in
accordance with the rules then standing of the American Arbitration Association,
before a single arbitrator to be chosen from a panel of persons qualified by
education and training to pass on the matter to be decided; or
(d) If the Determination Date is the date of a
liquidation, dissolution or winding up, or any event deemed to be a liquidation,
dissolution or winding up pursuant to the Company's charter, then all amounts to
be payable per share to holders of the Common Stock pursuant to the charter in
the event of such liquidation, dissolution or winding up, plus all other amounts
to be payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of all of the Warrants are outstanding
at the Determination Date.
1.5. Company Acknowledgment. The Company will, at the time
of the exercise of the Warrant, upon the request of the Holder hereof
acknowledge in writing its continuing obligation to afford to such Holder any
rights to which such Holder shall continue to be entitled after such exercise in
accordance with the provisions of this Warrant. If the Holder shall fail to make
any such request, such failure shall not affect the continuing obligation of the
Company to afford to such Holder any such rights.
1.6. Delivery of Stock Certificates, etc. on Exercise. The
Company agrees that the shares of Common Stock purchased upon exercise of this
Warrant shall be deemed to be issued to the Holder hereof as the record owner of
such shares as of the close of business on the date on which this Warrant shall
have been surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within four (4) business days thereafter, the Company at its expense
(including the payment by it of any applicable issue taxes) will cause to be
issued in the name of and delivered to the Holder hereof, or as such
46
Holder (upon payment by such Holder of any applicable transfer taxes) may direct
in compliance with applicable securities laws, a certificate or certificates for
the number of duly and validly issued, fully paid and nonassessable shares of
Common Stock (or Other Securities) to which such Holder shall be entitled on
such exercise, plus, in lieu of any fractional share to which such Holder would
otherwise be entitled, cash equal to such fraction multiplied by the then Fair
Market Value of one full share of Common Stock, together with any other stock or
other securities and property (including cash, where applicable) to which such
Holder is entitled upon such exercise pursuant to Section 1 or otherwise.
2. Warrant Exercise.
(a) If a Registration Statement (as defined in the
Subscription Agreement) ("Registration Statement") is effective and the Holder
may sell its shares of Common Stock upon exercise hereof pursuant to the
Registration Statement, this Warrant may be exercisable in whole or in part for
cash only as set forth in Section 1 above. If no such Registration Statement is
available during the time that such Registration Statement is required to be
effective pursuant to the terms of the Subscription Agreement, then payment upon
exercise may be made at the option of the Holder either in (i) cash, wire
transfer or by certified or official bank check payable to the order of the
Company equal to the applicable aggregate Purchase Price, (ii) by delivery of
Common Stock issuable upon exercise of the Warrants in accordance with Section
(b) below or (iii) by a combination of any of the foregoing methods, for the
number of Common Stock specified in such form (as such exercise number shall be
adjusted to reflect any adjustment in the total number of shares of Common Stock
issuable to the holder per the terms of this Warrant) and the holder shall
thereupon be entitled to receive the number of duly authorized, validly issued,
fully-paid and non-assessable shares of Common Stock (or Other Securities)
determined as provided herein.
(b) If the Fair Market Value of one share of Common Stock
is greater than the Purchase Price (at the date of calculation as set forth
below), in lieu of exercising this Warrant for cash, the holder may elect to
convert this Warrant into the number of shares equal to the value (as determined
below) of this Warrant (or the portion thereof being cancelled) by surrender of
this Warrant at the principal office of the Company together with the properly
endorsed Subscription Form in which event the Company shall issue to the holder
a number of shares of Common Stock computed using the following formula:
X=Y (A-B)
-------
A
Where X= the number of shares of Common Stock to be issued to the holder
Y= the number of shares of Common Stock
purchasable under the Warrant or, if only a
portion of the Warrant is being exercised,
the portion of the Warrant being exercised
(at the date of such calculation)
A= the Fair Market Value of one share of the Company's Common
Stock (at the date of such calculation)
B= Purchase Price (as adjusted to the date of such calculation)
(c) The Holder may employ the cashless exercise feature
described in Section (b) above only during the pendency of a Non-Registration
Event as described in Section 11 of the Subscription Agreement.
For purposes of Rule 144 promulgated under the 1933 Act, it is
intended, understood and acknowledged that the Warrant Shares issued in a
cashless exercise transaction shall be deemed to have been acquired by the
Holder, and the holding period for the Warrant Shares shall be deemed to have
commenced, on the date this Warrant was originally issued pursuant to the
Subscription Agreement.
3. Adjustment for Reorganization, Consolidation, Merger, etc.
47
3.1. Reorganization, Consolidation, Merger, etc. In case
at any time or from time to time, the Company shall (a) effect a reorganization,
(b) consolidate with or merge into any other person or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the Holder of this
Warrant, on the exercise hereof as provided in Section 1, at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such Holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
Holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Section 4.
3.2. Certain Merger and Sale Transactions. Notwithstanding
any other provisions of this Warrant, in the event of a Specified Merger, as
hereinafter defined, this Warrant, if not exercised prior to the effective time
of the Specified Merger, shall, at the effective time of the Specified Merger,
without any action on the part of the holder, become and be converted into the
right to receive cash or securities equal to the amount determined by
multiplying the number of shares of Common Stock issuable upon exercise of this
Warrant by the amount by which (i) the consideration payable with respect to one
share of Common Stock in the Specified Merger exceeds (ii) the Purchase Price in
effect immediately prior to the effectiveness of the Specified Merger. A
Specified Merger shall mean the merger or consolidation of the Company into
another corporation or entity or the sale by the Company of all or substantially
all of its business and assets in a transaction in which the net proceeds or
other consideration from such sale are distributed to the Company's stockholders
in liquidation of their shares of Common Stock, if, and only if, the sole
consideration to be received by the holders of the Common Stock is cash,
including any contingent cash, and/or securities all of which are listed on the
New York or American Stock Exchange, the Nasdaq Stock Market, the OTC Bulletin
Board or the Pink Sheets. Securities issued in the Specified Merger shall be
valued at the average closing price thereof on the principal stock exchange or
market on which the securities are listed for the five trading-day period ending
the trading day prior to the effective date of the Specified Merger. Payment to
the holder of this Warrant with respect to any such securities shall be payable
in either cash or in such securities (valued as herein provided), as the Company
shall determine, it being understood that the Company will seek, to the extent
practical, allocate cash and such securities in the same percentages as is
payable to the holders of Common Stock. If, in a Specified Merger, the value of
the consideration payable with respect to one share of Common Stock is less than
the Purchase Price in effect immediately prior to the effectiveness of the
Specified Merger, no payment shall be made to the holder of this Warrant, and
this Warrant shall terminate.
3.3. Continuation of Terms. Upon any reorganization,
consolidation, merger or transfer (and any dissolution following any transfer)
referred to in this Section 3, this Warrant shall continue in full force and
effect and the terms hereof shall be applicable to the Other Securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any Other Securities, including, in the case of any
such transfer, the person acquiring all or substantially all of the properties
or assets of the Company, whether or not such person shall have expressly
assumed the terms of this Warrant as provided in Section 4. In the event this
Warrant does not continue in full force and effect after the consummation of the
transaction described in this Section 3, then only in such event will the
Company's securities and property (including cash, where applicable) receivable
by the Holder of the Warrants be delivered to the Trustee as contemplated by
Section 3.2.
3.4 Share Issuance. Until the Expiration Date, if the
Company shall issue any Common Stock except for the Excepted Issuances (as
defined in the Subscription Agreement), prior to the complete exercise of this
Warrant for a consideration less than the Purchase Price that would be in effect
at the time of such issue, then, and thereafter successively upon each such
issue, the Purchase Price shall be reduced to such other lower issue price. For
purposes of this adjustment, the issuance of any security or debt instrument of
the Company carrying the right to convert such security or debt instrument into
Common Stock or of any warrant, right or option to purchase Common Stock shall
result in an adjustment to the Purchase Price upon the issuance of the
above-described security, debt instrument, warrant, right, or option and again
at any time upon any subsequent issuances of shares of Common Stock upon
exercise of such conversion or purchase rights if such issuance is at a price
lower than the Purchase
48
Price in effect upon such issuance. The reduction of the Purchase Price
described in this Section 3.4 is in addition to the other rights of the Holder
described in the Subscription Agreement.
4. Extraordinary Events Regarding Common Stock. In the event that
the Company shall (a) issue additional shares of the Common Stock as a dividend
or other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4.
The number of shares of Common Stock that the Holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be adjusted to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the numerator
is the Purchase Price that would otherwise (but for the provisions of this
Section 4) be in effect, and (b) the denominator is the Purchase Price in effect
on the date of such exercise.
5. Certificate as to Adjustments. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of the Warrants, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the Holder of the Warrant and any
Warrant Agent of the Company (appointed pursuant to Section 11 hereof).
6. Reservation of Stock, etc. Issuable on Exercise of Warrant;
Financial Statements. The Company will at all times reserve and keep available,
solely for issuance and delivery on the exercise of the Warrants, all shares of
Common Stock (or Other Securities) from time to time issuable on the exercise of
the Warrant. This Warrant entitles the Holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Company's Common Stock.
7. Assignment; Exchange of Warrant. Subject to compliance with
applicable securities laws, this Warrant, and the rights evidenced hereby, may
be transferred by any registered holder hereof (a "Transferor"). On the
surrender for exchange of this Warrant, with the Transferor's endorsement in the
form of Exhibit B attached hereto (the "Transferor Endorsement Form") and
together with an opinion of counsel reasonably satisfactory to the Company that
the transfer of this Warrant will be in compliance with applicable securities
laws, the Company at its expense, twice, only, but with payment by the
Transferor of any applicable transfer taxes, will issue and deliver to or on the
order of the Transferor thereof a new Warrant or Warrants of like tenor, in the
name of the Transferor and/or the transferee(s) specified in such Transferor
Endorsement Form (each a "Transferee"), calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock called for on the face or
faces of the Warrant so surrendered by the Transferor. No such transfers shall
result in a public distribution of the Warrant.
8. 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 any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense, twice only, will execute and deliver, in lieu thereof, a new Warrant of
like tenor.
49
9. Registration Rights. The Holder of this Warrant has been
granted certain registration rights by the Company. These registration rights
are set forth in Sections 11.1 through 11.7 of the Subscription Agreement. The
terms of the Subscription Agreement are incorporated herein by this reference.
10. Maximum Exercise. The Holder shall not be entitled to exercise
this Warrant on an exercise date, in connection with that number of shares of
Common Stock which would be in excess of the sum of (i) the number of shares of
Common Stock beneficially owned by the Holder and its affiliates on an exercise
date, and (ii) the number of shares of Common Stock issuable upon the exercise
of this Warrant with respect to which the determination of this limitation is
being made on an exercise date, which would result in beneficial ownership by
the Holder and its affiliates of more than 4.99% of the outstanding shares of
Common Stock on such date. For the purposes of the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder. Subject to the foregoing and the following sentence, the Holder
shall not be limited to aggregate exercises which would result in the issuance
of more than 4.99%. The restriction described in this paragraph may be revoked
upon sixty-one (61) days prior notice from the Holder to the Company. The Holder
may allocate which of the equity of the Company deemed beneficially owned by the
Subscriber shall be included in the 4.99% amount described above and which shall
be allocated to the excess above 4.99%.
11. Warrant Agent. The Company may, by written notice to the Holder
of the Warrant, appoint an agent (a "Warrant Agent") for the purpose of issuing
Common Stock (or Other Securities) on the exercise of this Warrant pursuant to
Section 1, exchanging this Warrant pursuant to Section 7, and replacing this
Warrant pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such Warrant Agent.
12. Transfer on the Company's Books. Until this Warrant is
transferred on the books of the Company, the Company may treat the registered
holder hereof as the absolute owner hereof for all purposes, notwithstanding any
notice to the contrary.
13. Notices. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be: (i) if to the Company to: AdSouth Partners, Inc.,
1515 North Federal Highway, #418, Boca Raton, FL 33432, Attn: Lee Wingeier, CFO,
telecopier number: (561) 750-0420, with a copy by telecopier only to: Asher S.
Levitsky PC, Esanu Katsky Korins & Siger, LLP, 605 Third Avenue, New York, NY
10158, telecopier number: (212) 716-3338, and (ii) if to the Holder, to the
address and telecopier number listed on the first paragraph of this Warrant,
with an additional copy by telecopier only to: Grushko & Mittman, P.C., 551
Fifth Avenue, Suite 1601, New York, New York 10176, telecopier number: (212)
697-3575.
14. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of New York. Any dispute relating to this Warrant shall be
adjudicated in New York County in the State of New York. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
50
IN WITNESS WHEREOF, the Company has executed this Warrant as of the
date first written above.
ADSOUTH PARTNERS, INC.
By: ___________________________________________
Name:
Title:
Witness:
______________________________
51
Exhibit 4.4 Form of warrant (Atlas)
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO ADSOUTH PARTNERS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
Right to Purchase _________ shares of Common Stock of AdSouth
Partners, Inc. (subject to adjustment as provided herein)
CLASS A COMMON STOCK PURCHASE WARRANT (Broker)
No. 2005-B-001 Issue Date: February ____, 2005
ADSOUTH PARTNERS, INC., a corporation organized under the laws of the
State of Nevada (the "Company"), hereby certifies that, for value received,
ATLAS CAPITAL SERVICES, LLC, 135 East 57th Street, 26th Floor, New York, NY
10022, Attn: Steven Pollan, telecopier number: (212) 267-3501, or its assigns
(the "Holder"), is entitled, subject to the terms set forth below, to purchase
from the Company at any time after the Issue Date until 5:00 p.m., E.S.T on the
fifth (5th) anniversary of the Issue Date (the "Expiration Date"), up to
________ fully paid and nonassessable shares of Common Stock at a per share
purchase price of $0.04. The aforedescribed purchase price per share, as
adjusted from time to time as herein provided, is referred to herein as the
"Purchase Price." The number and character of such shares of Common Stock and
the Purchase Price are subject to adjustment as provided herein. The Company may
reduce the Purchase Price without the consent of the Holder. Capitalized terms
used and not otherwise defined herein shall have the meanings set forth in that
certain Subscription Agreement (the "Subscription Agreement"), dated February
___, 2005, entered into by the Company and Holders of the Company's Securities.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" shall include AdSouth Partners, Inc. and any
corporation which shall succeed or assume the obligations of AdSouth Partners,
Inc. hereunder.
(b) The term "Common Stock" includes (a) the Company's Common
Stock, $.0001 par value per share, as authorized on the date of the Subscription
Agreement, and (b) any other securities into which or for which any of the
securities described in (a) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than
Common Stock) and other securities of the Company or any other person (corporate
or otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 5 or otherwise.
(d) The term "Warrant Shares" shall mean the Common Stock issuable
upon exercise of this Warrant.
1. Exercise of Warrant.
1.1. Number of Shares Issuable upon Exercise. From and
after the Issue Date through and including the Expiration Date, the Holder
hereof shall be entitled to receive, upon exercise of this Warrant in whole in
accordance with the terms of subsection 1.2 or upon exercise of this Warrant in
part in accordance with subsection 1.3, shares of Common Stock of the Company,
subject to adjustment pursuant to Section 4.
1
1.2. Full Exercise. This Warrant may be exercised in full
by the Holder hereof by delivery of an original or facsimile copy of the form of
subscription attached as Exhibit A hereto (the "Subscription Form") duly
executed by such Holder and surrender of the original Warrant within four (4)
days of exercise, to the Company at its principal office or at the office of its
Warrant Agent (as provided hereinafter), accompanied by payment, in cash, wire
transfer or by certified or official bank check payable to the order of the
Company, in the amount obtained by multiplying the number of shares of Common
Stock for which this Warrant is then exercisable by the Purchase Price then in
effect.
1.3. Partial Exercise. This Warrant may be exercised in
part (but not for a fractional share) by surrender of this Warrant in the manner
and at the place provided in subsection 1.2 except that the amount payable by
the Holder on such partial exercise shall be the amount obtained by multiplying
(a) the number of whole shares of Common Stock designated by the Holder in the
Subscription Form by (b) the Purchase Price then in effect. On any such partial
exercise, the Company, at its expense, will forthwith issue and deliver to or
upon the order of the Holder hereof a new Warrant of like tenor, in the name of
the Holder hereof or as such Holder (upon payment by such Holder of any
applicable transfer taxes) may request, the whole number of shares of Common
Stock for which such Warrant may still be exercised.
1.4. Fair Market Value. Fair Market Value of a share of
Common Stock as of a particular date (the "Determination Date") shall mean:
(a) If the Company's Common Stock is traded on
an exchange or is quoted on the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ"), National Market System, the NASDAQ SmallCap
Market or the American Stock Exchange, LLC, then the closing or last sale price,
respectively, reported for the last business day immediately preceding the
Determination Date;
(b) If the Company's Common Stock is not traded
on an exchange or on the NASDAQ National Market System, the NASDAQ SmallCap
Market or the American Stock Exchange, Inc., but is traded in the
over-the-counter market, then the average of the closing bid and ask prices
reported for the last business day immediately preceding the Determination Date;
(c) Except as provided in clause (d) below, if
the Company's Common Stock is not publicly traded, then as the Holder and the
Company agree, or in the absence of such an agreement, by arbitration in
accordance with the rules then standing of the American Arbitration Association,
before a single arbitrator to be chosen from a panel of persons qualified by
education and training to pass on the matter to be decided; or
(d) If the Determination Date is the date of a
liquidation, dissolution or winding up, or any event deemed to be a liquidation,
dissolution or winding up pursuant to the Company's charter, then all amounts to
be payable per share to holders of the Common Stock pursuant to the charter in
the event of such liquidation, dissolution or winding up, plus all other amounts
to be payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of all of the Warrants are outstanding
at the Determination Date.
1.5. Company Acknowledgment. The Company will, at the time
of the exercise of the Warrant, upon the request of the Holder hereof
acknowledge in writing its continuing obligation to afford to such Holder any
rights to which such Holder shall continue to be entitled after such exercise in
accordance with the provisions of this Warrant. If the Holder shall fail to make
any such request, such failure shall not affect the continuing obligation of the
Company to afford to such Holder any such rights.
1.6. Delivery of Stock Certificates, etc. on Exercise. The
Company agrees that the shares of Common Stock purchased upon exercise of this
Warrant shall be deemed to be issued to the Holder hereof as the record owner of
such shares as of the close of business on the date on which this Warrant shall
have been surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within four (4) business days thereafter, the Company at its expense
(including the payment by it of any applicable issue taxes) will cause to be
issued in the name of and delivered to the Holder hereof, or as such Holder
(upon payment by such Holder of any applicable transfer taxes) may direct in
compliance with applicable securities laws, a certificate or certificates for
the number of duly and validly issued, fully paid and nonassessable shares of
Common Stock (or Other Securities) to which such Holder shall be entitled on
such exercise, plus, in lieu
2
of any fractional share to which such Holder would otherwise be entitled, cash
equal to such fraction multiplied by the then Fair Market Value of one full
share of Common Stock, together with any other stock or other securities and
property (including cash, where applicable) to which such Holder is entitled
upon such exercise pursuant to Section 1 or otherwise.
2. Warrant Exercise.
(a) If a Registration Statement (as defined in the
Subscription Agreement) ("Registration Statement") is effective and the Holder
may sell its shares of Common Stock upon exercise hereof pursuant to the
Registration Statement, this Warrant may be exercisable in whole or in part for
cash only as set forth in Section 1 above. If no such Registration Statement is
available during the time that such Registration Statement is required to be
effective pursuant to the terms of the Subscription Agreement, then payment upon
exercise may be made at the option of the Holder either in (i) cash, wire
transfer or by certified or official bank check payable to the order of the
Company equal to the applicable aggregate Purchase Price, (ii) by delivery of
Common Stock issuable upon exercise of the Warrants in accordance with Section
(b) below or (iii) by a combination of any of the foregoing methods, for the
number of Common Stock specified in such form (as such exercise number shall be
adjusted to reflect any adjustment in the total number of shares of Common Stock
issuable to the holder per the terms of this Warrant) and the holder shall
thereupon be entitled to receive the number of duly authorized, validly issued,
fully-paid and non-assessable shares of Common Stock (or Other Securities)
determined as provided herein.
(b) If the Fair Market Value of one share of Common Stock
is greater than the Purchase Price (at the date of calculation as set forth
below), in lieu of exercising this Warrant for cash, the holder may elect to
convert this Warrant into the number of shares equal to the value (as determined
below) of this Warrant (or the portion thereof being cancelled) by surrender of
this Warrant at the principal office of the Company together with the properly
endorsed Subscription Form in which event the Company shall issue to the holder
a number of shares of Common Stock computed using the following formula:
X=Y(A-B)
------
A
Where X= the number of shares of Common Stock to be issued to the holder
Y= the number of shares of Common Stock
purchasable under the Warrant or, if only a
portion of the Warrant is being exercised,
the portion of the Warrant being exercised
(at the date of such calculation)
A= the Fair Market Value of one share of the Company's Common Stock
(at the date of such calculation)
B= Purchase Price (as adjusted to the date of such calculation)
(d) The Holder may employ the exercise feature described
in Section (b) above only during the pendency of a Non-Registration Event as
described in Section 11 of the Subscription Agreement.
For purposes of Rule 144 promulgated under the 1933 Act, it is
intended, understood and acknowledged that the Warrant Shares issued in a
cashless exercise transaction shall be deemed to have been acquired by the
Holder, and the holding period for the Warrant Shares shall be deemed to have
commenced, on the date this Warrant was originally issued pursuant to the
Subscription Agreement.
3. Adjustment for Reorganization, Consolidation, Merger, etc.
3.1. Reorganization, Consolidation, Merger, etc. In case
at any time or from time to time, the Company shall (a) effect a reorganization,
(b) consolidate with or merge into any other person or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the Holder of this
Warrant, on the exercise hereof as provided in Section 1, at any time after the
consummation of such reorganization, consolidation or merger
3
or the effective date of such dissolution, as the case may be, shall receive, in
lieu of the Common Stock (or Other Securities) issuable on such exercise prior
to such consummation or such effective date, the stock and other securities and
property (including cash) to which such Holder would have been entitled upon
such consummation or in connection with such dissolution, as the case may be, if
such Holder had so exercised this Warrant, immediately prior thereto, all
subject to further adjustment thereafter as provided in Section 4.
3.2. Certain Merger and Sale Transactions. Notwithstanding
any other provisions of this Warrant, in the event of a Specified Merger, as
hereinafter defined, this Warrant, if not exercised prior to the effective time
of the Specified Merger, shall, at the effective time of the Specified Merger,
without any action on the part of the holder, become and be converted into the
right to receive cash or securities equal to the amount determined by
multiplying the number of shares of Common Stock issuable upon exercise of this
Warrant by the amount by which (i) the consideration payable with respect to one
share of Common Stock in the Specified Merger exceeds (ii) the Purchase Price in
effect immediately prior to the effectiveness of the Specified Merger. A
Specified Merger shall mean the merger or consolidation of the Company into
another corporation or entity or the sale by the Company of all or substantially
all of its business and assets in a transaction in which the net proceeds or
other consideration from such sale are distributed to the Company's stockholders
in liquidation of their shares of Common Stock, if, and only if, the sole
consideration to be received by the holders of the Common Stock is cash,
including any contingent cash, and/or securities all of which are listed on the
New York or American Stock Exchange, the Nasdaq Stock Market, the OTC Bulletin
Board or the Pink Sheets. Securities issued in the Specified Merger shall be
valued at the average closing price thereof on the principal stock exchange or
market on which the securities are listed for the five trading-day period ending
the trading day prior to the effective date of the Specified Merger. Payment to
the holder of this Warrant with respect to any such securities shall be payable
in either cash or in such securities (valued as herein provided), as the Company
shall determine, it being understood that the Company will seek, to the extent
practical, allocate cash and such securities in the same percentages as is
payable to the holders of Common Stock. If, in a Specified Merger, the value of
the consideration payable with respect to one share of Common Stock is less than
the Purchase Price in effect immediately prior to the effectiveness of the
Specified Merger, no payment shall be made to the holder of this Warrant, and
this Warrant shall terminate.
3.3. Continuation of Terms. Upon any reorganization,
consolidation, merger or transfer (and any dissolution following any transfer)
referred to in this Section 3, this Warrant shall continue in full force and
effect and the terms hereof shall be applicable to the Other Securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any Other Securities, including, in the case of any
such transfer, the person acquiring all or substantially all of the properties
or assets of the Company, whether or not such person shall have expressly
assumed the terms of this Warrant as provided in Section 4. In the event this
Warrant does not continue in full force and effect after the consummation of the
transaction described in this Section 3, then only in such event will the
Company's securities and property (including cash, where applicable) receivable
by the Holder of the Warrants be delivered to the Trustee as contemplated by
Section 3.2.
3.4 Share Issuance. Until the Expiration Date, if the
Company shall issue any Common Stock except for the Excepted Issuances (as
defined in the Subscription Agreement), prior to the complete exercise of this
Warrant for a consideration less than the Purchase Price that would be in effect
at the time of such issue, then, and thereafter successively upon each such
issue, the Purchase Price shall be reduced to such other lower issue price. For
purposes of this adjustment, the issuance of any security or debt instrument of
the Company carrying the right to convert such security or debt instrument into
Common Stock or of any warrant, right or option to purchase Common Stock shall
result in an adjustment to the Purchase Price upon the issuance of the
above-described security, debt instrument, warrant, right, or option and again
at any time upon any subsequent issuances of shares of Common Stock upon
exercise of such conversion or purchase rights if such issuance is at a price
lower than the Purchase Price in effect upon such issuance. The reduction of the
Purchase Price described in this Section 3.4 is in addition to the other rights
of the Holder described in the Subscription Agreement.
4. Extraordinary Events Regarding Common Stock. In the event that
the Company shall (a) issue additional shares of the Common Stock as a dividend
or other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction,
4
the numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4.
The number of shares of Common Stock that the Holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be adjusted to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the numerator
is the Purchase Price that would otherwise (but for the provisions of this
Section 4) be in effect, and (b) the denominator is the Purchase Price in effect
on the date of such exercise.
5. Certificate as to Adjustments. In each case of any adjustment
or readjustment in the shares of Common Stock (or Other Securities) issuable on
the exercise of the Warrants, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the Holder of the Warrant and any
Warrant Agent of the Company (appointed pursuant to Section 11 hereof).
6. Reservation of Stock, etc. Issuable on Exercise of Warrant;
Financial Statements. The Company will at all times reserve and keep available,
solely for issuance and delivery on the exercise of the Warrants, all shares of
Common Stock (or Other Securities) from time to time issuable on the exercise of
the Warrant. This Warrant entitles the Holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Company's Common Stock.
7. Assignment; Exchange of Warrant. Subject to compliance with
applicable securities laws, this Warrant, and the rights evidenced hereby, may
be transferred by any registered holder hereof (a "Transferor"). On the
surrender for exchange of this Warrant, with the Transferor's endorsement in the
form of Exhibit B attached hereto (the "Transferor Endorsement Form") and
together with an opinion of counsel reasonably satisfactory to the Company that
the transfer of this Warrant will be in compliance with applicable securities
laws, the Company at its expense, twice, only, but with payment by the
Transferor of any applicable transfer taxes, will issue and deliver to or on the
order of the Transferor thereof a new Warrant or Warrants of like tenor, in the
name of the Transferor and/or the transferee(s) specified in such Transferor
Endorsement Form (each a "Transferee"), calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock called for on the face or
faces of the Warrant so surrendered by the Transferor. No such transfers shall
result in a public distribution of the Warrant.
8. 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 any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense, twice only, will execute and deliver, in lieu thereof, a new Warrant of
like tenor.
9. Registration Rights. The Holder of this Warrant has been
granted certain registration rights by the Company. These registration rights
are set forth in Sections 11.1 through 11.7 of the Subscription Agreement. The
terms of the Subscription Agreement are incorporated herein by this reference.
10. Maximum Exercise. The Holder shall not be entitled to exercise
this Warrant on an exercise date, in connection with that number of shares of
Common Stock which would be in excess of the sum of (i) the number of shares of
Common Stock beneficially owned by the Holder and its affiliates on an exercise
date, and (ii) the number of shares of Common Stock issuable upon the exercise
of this Warrant with respect to which the determination of this limitation is
being made on an exercise date, which would result in beneficial ownership by
the Holder and its affiliates of more than 4.99% of the outstanding shares of
Common Stock on such date. For the
5
purposes of the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and Regulation 13d-3 thereunder. Subject to the foregoing and
the following sentence, the Holder shall not be limited to aggregate exercises
which would result in the issuance of more than 4.99%. The restriction described
in this paragraph may be revoked upon sixty-one (61) days prior notice from the
Holder to the Company. The Holder may allocate which of the equity of the
Company deemed beneficially owned by the Subscriber shall be included in the
4.99% amount described above and which shall be allocated to the excess above
4.99%.
11. Warrant Agent. The Company may, by written notice to the
Holder of the Warrant, appoint an agent (a "Warrant Agent") for the purpose of
issuing Common Stock (or Other Securities) on the exercise of this Warrant
pursuant to Section 1, exchanging this Warrant pursuant to Section 7, and
replacing this Warrant pursuant to Section 8, or any of the foregoing, and
thereafter any such issuance, exchange or replacement, as the case may be, shall
be made at such office by such Warrant Agent.
12. Transfer on the Company's Books. Until this Warrant is
transferred on the books of the Company, the Company may treat the registered
holder hereof as the absolute owner hereof for all purposes, notwithstanding any
notice to the contrary.
13. Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be: (i) if to the Company to: AdSouth Partners, Inc.,
1515 North Federal Highway, #418, Boca Raton, FL 33432, Attn: Lee Wingeier, CFO,
telecopier number: (561) 750-0420, with a copy by telecopier only to: Asher S.
Levitsky PC, Esanu Katsky Korins & Siger, LLP, 605 Third Avenue, New York, NY
10158, telecopier number: (212) 716-3338, and (ii) if to the Holder, to the
address and telecopier number listed on the first paragraph of this Warrant,
with an additional copy by telecopier only to: Grushko & Mittman, P.C., 551
Fifth Avenue, Suite 1601, New York, New York 10176, telecopier number: (212)
697-3575.
14. Miscellaneous. This Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought. This Warrant shall be construed and enforced in
accordance with and governed by the laws of New York. Any dispute relating to
this Warrant shall be adjudicated in New York County in the State of New York.
The headings in this Warrant are for purposes of reference only, and shall not
limit or otherwise affect any of the terms hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the validity or
enforceability of any other provision.
6
IN WITNESS WHEREOF, the Company has executed this Warrant as of the
date first written above.
ADSOUTH PARTNERS, INC.
By: ____________________________________
Name:
Title:
Witness:
______________________________
7
Exhibit 99.1 Employment agreement dated as of July 1, 2004 between the Company
and John P. Acunto, Jr.
99.2 Employment agreement dated as of July 1, 2004 between the Company
and Anton Lee Wingeier
99.3 Copy of Press Release dated February 17, 2005
EMPLOYMENT AGREEMENT
AGREEMENT dated as of the 1st day of July, 2004 by and between Adsouth
Partners, Inc., a Nevada corporation with its principal office at 1515 North
Federal Highway, Suite 418, Boca Raton, Florida 33432 (the "Company"), and John
P. Acunto, Jr., residing at _________________________________ ("Executive").
W I T N E S S E T H:
WHEREAS, the Company has engaged Executive as its chief executive
officer and desires to continue to obtain the benefits of Executive's knowledge,
skill and ability in connection with managing the operations of the Company and
to continue to employ Executive on the terms and conditions hereinafter set
forth; and
WHEREAS, Executive desires to provide his services to the Company and
to accept employment by the Company on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the mutual promises set forth in
this Agreement, the parties agree as follows:
Employment and Duties.
---------------------
Subject to the terms and conditions hereinafter set forth, the
Company hereby employs Executive as its Chief Executive Officer, and he shall
have the duties and responsibilities associated with the chief executive officer
of a public corporation. Additionally, during the Term, as hereinafter defined,
the Company shall include Executive as one of the board of directors' nominees
for election as a director. Executive shall report to the Company's board of
directors (the "Board"). Executive shall also perform such other duties and
responsibilities as may be determined by the Board, as long as such duties and
responsibilities are consistent with those of the Chief Executive Officer.
Executive shall serve as a director of the Company and any of
its subsidiaries, if elected, and in such executive capacity or capacities with
respect to any affiliate of the Company to which he may be elected or appointed,
provided that such duties are consistent with those of the Company's Chief
Executive Officer. Executive shall receive no additional compensation for
services rendered pursuant to this Section 1(b).
Unless terminated earlier as provided for in Section 5 of this
Agreement, this Agreement shall have an initial term (the "Initial Term")
commencing as of the date of this Agreement and expiring on December 31, 2009,
and shall continue on a year-to-year basis thereafter unless terminated by
either the Company or Executive on not less than ninety (90) days written notice
prior to the expiration of the Initial Term or any one-year extension. The
Initial Term and the one-year extensions are collectively referred to as the
"Term."
Executive's Performance. Executive hereby accepts the employment
contemplated by this Agreement. During the Term, Executive shall devote
substantially all of his business time to the performance of his duties under
this Agreement, and shall perform such duties diligently, in good faith and in a
manner consistent with the best interests of the Company. Executive shall not be
precluded from engaging in charitable and community activities, managing his
personal and financial affairs and engaging in other non-competitive activities,
provided that such
1
activities shall not interfere in any material way with Executive's duties
pursuant to this Agreement. Executive will not be required to move his residence
from South Florida.
Compensation and Other Benefits.
-------------------------------
For his services to the Company during the Term, the Company
shall pay Executive a salary ("Salary") at the annual rate of $375,000, which,
commencing January 1, 2006 and each January 1 thereafter, shall be subject to a
five percent (5%) increase. All Salary payments shall be payable in such
installments as the Company regularly pays its executive officers, but not less
frequently than semi-monthly.
In addition to the Salary, the Company shall pay Executive the
following bonuses (collectively, the "Bonuses"):
(ii) An initial bonus of $250,000, of which $30,000 is
due and payable on July 1, 2004, $110,000 is due and payable on October 1, 2004
and the remaining $110,000 is due and payable on December 31, 2004.
(iii) The Company shall pay Executive a quarterly bonus
(the "Quarterly Bonus") equal to five percent (5%) of Company's Adjusted Gross
Profit, as hereinafter defined, earned during each quarter, commencing with the
quarter beginning October 1, 2004. The Adjusted Gross Profit for any quarter
shall mean the Company's gross profit, determined in accordance with generally
accepted accounting principals, consistently applied, for such quarter, minus
all executive compensation (i.e., compensation payable to (x) all of the
Company's officers, including salary, bonus, commission and any other
compensation payable to officers, and (y) all compensation to directors in their
capacities as directors or members of a committee of the Board, and shall
include, in case of any compensation covered by clauses (x) and (y), all items
of compensation, whether in the form of cash or securities or other property),
except that, for purposes of making the calculation pursuant to this Section
3(b)(ii), executive compensation shall not include the Quarterly Bonus and the
Annual Bonus, as hereinafter defined. All compensation in a form other than cash
shall be valued in the manner reflected on the applicable filings by the Company
with the Securities and Exchange Commission (the "SEC"). The quarterly bonus
shall be payable not later than ten (10) days after the date on which the
applicable quarterly or annual report is filed by the Company with the SEC.
(iv) If, for any calendar year, the Company's Adjusted
Income, as hereinafter defined, is at least two million dollars ($2,000,000),
the Company shall pay an annual bonus (the "Annual Bonus") equal to five percent
(5%) of the Company's Adjusted Income. Adjusted Income shall mean income before
income taxes, determined in accordance with generally accepted accounting
principles consistently applied, before deduction of the Annual Bonus for such
year. The Annual Bonus shall be payable within thirty (30) days after the date
the Form 10-K or 10-KSB is filed with the SEC. The Annual Bonus for 2004 shall
be based on the Adjusted Income for the three month period ending December 31,
2004.
2
(v) The Quarterly Bonus and the Annual Bonus shall be
payable if Executive is employed by the Company on the last day of the quarter
or year, as the case may be, for which the Quarterly Bonus or Annual Bonus is
payable, regardless of whether he is employed by the Company on the date payment
is due.
For each calendar quarter, commencing with the quarter ending
December 31, 2004, the Company shall grant to Executive, as of the last day of
the calendar quarter, five year non-qualified stock options to purchase the
number of shares of the Company's common stock determined by dividing (i) the
dollar amount payable to Executive as the Quarterly Bonus for such quarter, by
(ii) the exercise price per share. The exercise price per shall mean the closing
price of the Company's common stock on the principal market or exchange on which
the stock is traded on the last trading day of the quarter. If, on any such
trading day, there is no reported trading of the Company's common stock, the
closing price for that day shall mean the average of the closing high bid and
low asked prices on such date. The options will become exercisable on the date
the Company files a quarterly or annual report with the SEC which reflects net
income for a quarter after the quarter for which the options were granted, and
expires on the fifth anniversary of the last day of the calendar quarter for
which the options were granted. For example, if an option is granted with
respect to the fourth quarter of 2004, the option will become exercisable on the
date that the Company files a Form 10-QSB or Form 10-KSB that shows net income
for a quarter after the fourth quarter of 2004 and will expire on December 31,
2009.
In addition to Salary and Bonuses, Executive shall receive the
following benefits during the Term:
(vi) Major medical health insurance for Executive and
members of his immediate family; provided, however, that until such time as the
Company shall have adopted a company-wide health insurance program, the Company
will provide Executive with a monthly medical allowance of $750.
(vii) Dental insurance for Executive and members of his
family; provided, that if the Company does not provide dental insurance
coverage, the Company shall reimburse Executive for his dental expenses,
including any dental insurance he may obtain, provided, that the payments
pursuant to this Section 3(d)(ii) shall not to exceed $5,000 per year.
(viii) Accident, life insurance and long-term disability
insurance to the extent such benefits are provided to the Company's executive
officers.
(ix) Long-term health care insurance to the extent that
the Company is able, by using reasonable efforts, to obtain such coverage for an
annual premium which does not exceed $2,000. To the extent that the annual
premium for such coverage exceeds $2,000, if Executive desires such coverage, he
shall be responsible for the additional premiums.
(x) An automobile allowance of $1,800 per month.
(xi) Vacation in accordance with Company policy.
3
In the event of a termination of Executive's employment as a
result of his death or Disability, as hereinafter defined, the Company shall
continue to pay to Executive or his beneficiary, his Salary at the annual rate
in effect at the date of death or termination resulting from a Disability, until
the earlier of (i) twelve (12) months from the date of death or such termination
or (ii) the expiration of the Term.
Any compensation paid or payable to Executive by any
subsidiary of the Company shall be treated as a payment on account of the
compensation due Executive pursuant to this Agreement..
Reimbursement of Expenses. The Company shall reimburse Executive, upon
presentation of proper expense statements, for all authorized, ordinary and
necessary out-of-pocket expenses reasonably incurred by Executive during the
Term in connection with the performance of his services pursuant to this
Agreement hereunder in accordance with the Company's expense reimbursement
policy.
Termination of Employment.
-------------------------
This Agreement and Executive's employment hereunder shall
terminate immediately upon the death of Executive.
This Agreement and Executive's employment, may be terminated
by Executive or the Company on not less than thirty (30) days' written notice in
the event of Executive's Disability. The term "Disability" shall mean any
illness, disability or incapacity of Executive which prevents him from
substantially performing his regular duties for a period of three (3)
consecutive months or four (4) months, even though not consecutive, in any
twelve (12) month period. However, if Executive is covered by long-term
disability insurance, the Company may not terminate this Agreement pursuant to
this Section 5(b) unless Executive is eligible for disability payments under his
long-term disability insurance.
The Company may terminate this Agreement and Executive's
employment for cause, in which event no further compensation shall be payable to
Executive subsequent to the date of such termination. The term "Cause" shall
mean (i) a breach of Sections 6, 7 or 8 of this Agreement; (ii) a breach of
trust whereby Executive obtains personal gain or benefit at the expense of or to
the detriment of the Company; or (iii) a conviction of Executive of any felony
or any misdemeanor involving drugs or controlled substances or theft,
embezzlement or other taking of property belonging to another person. If the
Company proposes to terminate this Agreement pursuant to clauses (i) or (ii) of
this Section 5(c), the Company shall notify Executive in writing setting forth
in reasonable detail the basis for the proposed termination, and Executive shall
have a reasonable opportunity to respond to the Board and to be represented
before the Board by counsel. If this Agreement is terminated pursuant to clause
(iii) of this Section 5(c), and the conviction is subsequently reversed on
appeal, the Company shall pay Executive his Salary for the balance of the Term.
For purposes of clauses (iii) of this Section 5(c), a guilty plea or plea of
nolo contendere or similar plea shall be deemed to be a conviction.
4
In the event that the Company terminates Executive's
employment other than (i) as provided in Sections 5(a), (b) and (c) of this
Agreement or (ii) as a result of or following a Change of Control (other than as
provided in Section 5(f) of this Agreement), or in the event of a termination by
Executive of this Agreement and his employment for Good Reason, as hereinafter
defined, the Company shall pay to Executive as severance payments (A) his Salary
as provided in this Agreement for the balance of the Term, (B) an amount equal
to the Quarterly Bonuses and Annual Bonus paid to Executive for the previous
year and any Quarterly Bonuses paid or payable during such year prior to the
date of termination, (C) the Annual Bonus that would be paid to Executive with
respect to the year in which the termination occurs if this Agreement and
Executive's employment hereunder had not been terminated, and (D) the insurance
benefits and automobile allowance provided for in Section 3(d)(i) through (v).
The payments to be made pursuant to clauses (A) and (B) of this Section 5(d)
shall be paid in twelve (12) equal monthly installments commencing within the
month following the month in which Executive's termination occurs. The payment
due pursuant to clause (C) of this Section 5(d) shall be paid on the date when
it would be paid pursuant to Section 3(b)(iii) of this Agreement if his
employment has not been terminated. The payments pursuant to clause (D) of this
Section 5(d) shall be paid monthly during period ending with the date that would
be the end of the term if this Agreement had not been terminated.
Executive may terminate this Agreement on thirty (30) days'
notice for Good Reason. "Good Reason" shall mean (i) the Company's failure to
pay compensation as required by Section 3 of this Agreement; (ii) any other
material breach of this Agreement by the Company, or (iii) the assignment of
Executive without Executive's consent to a position, responsibilities or duties
of a lesser status or degree of responsibility than the Employee's position,
responsibilities, or duties as the Company's chief executive officer.
(xii) In the event that, following a Change of Control,
as hereinafter defined, Executive is either dismissed other than for cause, or
resigns for any reason, or his employment is terminated as a result of a
Disability, the Company shall pay Executive severance pay in an amount
(determined at the rate in effect on the date of dismissal or resignation) equal
to the Cash Compensation multiplied by the greater of (A) two (2) or (B) the
number of whole or partial months remaining in the Term, divided by twelve (12).
Cash Compensation shall mean the sum of (x) Annual Salary at the rate in effect
on the date of termination, and (y) the highest total of Bonuses paid or payable
pursuant to Section 3(b) for any year during the Term, including the year in
which the termination of his employment occurs.
(xiii) A Change of Control shall occur or be deemed to
have occurred if (A) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended) is or becomes the
beneficial owner, directly or indirectly, of securities of the Company
representing one-third (1/3) or more of the combined voting power of the
Company's then outstanding securities, or (B) during any period of two (2)
consecutive years, individuals who at the beginning of such period constitute
the Board cease for any reason to constitute a least a majority thereof unless
the election of each new director was nominated, ratified or approved by at
least two-thirds (2/3) of the directors then still in office who were either
directors at the beginning of such period or who were elected or appointed with
the approval or ratification of at least two-thirds (2/3) of the directors
5
who were directors at the beginning of such period, or (C) the Board of
Directors shall have determined that an event, other than as described in
clauses (A) and (B) of this Section 5(f)(ii), results in a Change of Control.
Notwithstanding the foregoing, an event described in this Section 5(f)(ii) shall
not be deemed a Change of Control if, at the time of such event, Executive
expressly agrees in writing that such event does not constitute a Change of
Control.
The Company and Executive agree that no further payments are
due to Executive pursuant to his prior commission structure, which terminated on
June 30, 2004.
Trade Secrets and Proprietary Information.
-----------------------------------------
Executive recognizes and acknowledges that the Company,
through the expenditure of considerable time and money, has developed and will
continue to develop in the future information concerning customers, clients,
marketing, products, services, business, research and development activities and
operational methods of the Company and its customers or clients, contracts,
financial or other data, technical data or any other confidential or proprietary
information possessed, owned or used by the Company, the disclosure of which
could or does have a material adverse effect on the Company, its business, any
business it proposes to engage in, its operations, financial condition or
prospects and that the same are confidential and proprietary and considered
"confidential information" of the Company for the purposes of this Agreement. In
consideration of his employment, Executive agrees that he will not, during or
after the Term, without the consent of the Board make any disclosure of
confidential information now or hereafter possessed by the Company, to any
person, partnership, corporation or entity either during or after the term here
of, except that nothing in this Agreement shall be construed to prohibit
Executive from using or disclosing such information (a) if such disclosure is
necessary in the normal course of the Company's business in accordance with
Company policies or instructions or authorization from the Board, (b) such
information shall become public knowledge other than by or as a result of
disclosure by a person not having a right to make such disclosure, or (c)
subsequent to the Term, if such information shall have either (i) been developed
by Executive independent of any of the Company's confidential or proprietary
information or (ii) been disclosed to Executive by a person not subject to a
confidentiality agreement with or other obligation of confidentiality to the
Company. For the purposes of Sections 6, 7 and 8 of this Agreement, the term
"Company" shall include the Company, its parent, its subsidiaries and
affiliates, other than affiliates whose relationship as an affiliate is derived
solely from Executive's interest in or position at the affiliate.
In the event that any trade secrets or other confidential
information covered by Section 6(a) of this Agreement is required to be produced
by Executive pursuant to legal process, Executive shall give the Company notice
of such legal process within a reasonable time, but not later than ten (10)
business days prior to the date such disclosure is to be made, unless Executive
has received less notice, in which event Executive shall immediately notify the
Company. The Company shall have the right to object to any such disclosure, and
if the Company objects (at the Company's cost and expense) in a timely manner so
that Executive is not subject to penalties for failure to make such disclosure,
Executive shall not make any disclosure until there has been a court
determination on the Company's objections. If disclosure is required by a court
order, final beyond right of review, or if the Company
6
does not object to the disclosure, Executive shall make disclosure only to the
extent that disclosure is unequivocally required by the court order, and
Executive will exercise reasonable efforts at the Company's expense, to obtain
reliable assurance that confidential treatment will be accorded the Confidential
Information.
Covenant Not To Solicit or Compete.
----------------------------------
During the period from the date of this Agreement until one
(1) year following the date on which Executive's employment is terminated,
Executive will not, directly or indirectly:
(xiv) Persuade or attempt to persuade any person or
entity which is or was a customer, client or supplier of the Company to cease
doing business with the Company, or to reduce the amount of business it does
with the Company (the terms "customer" and "client" as used in this Section 7 to
include any potential customer or client to whom the Company submitted bids or
proposals, or with whom the Company conducted negotiations, during the term of
Executive's employment hereunder or during the twelve (12) months preceding the
termination of his employment);
(xv) solicit for himself or any other person or entity
other than the Company the business of any person or entity which is a customer
or client of the Company, or was a customer or client of the Company within one
(1) year prior to the termination of his employment;
(xvi) persuade or attempt to persuade any employee of
the Company, or any individual who was an employee of the Company during the one
(1) year period prior to the termination of this Agreement, to leave the
Company's employ, or to become employed by any person or entity other than the
Company; or
(xvii) engage in any business in the United States
whether as an officer, director, consultant, partner, guarantor, principal,
agent, employee, advisor or in any manner, which directly competes with the
business of the Company as it is engaged in at the time of the termination of
this Agreement, unless, at the time of such termination or thereafter during the
period that Executive is bound by the provisions of this Section 7, the Company
ceases to be engaged in such activity, provided, however, that nothing in this
Section 7 shall be construed to prohibit Executive from owning an interest of
not more than five (5%) percent of any public company engaged in such
activities.
Executive acknowledges that the restrictive covenants (the
"Restrictive Covenants") contained in Sections 6 and 7 of this Agreement are a
condition of his employment are reasonable and valid in geographical and
temporal scope and in all other respects. If any court determines that any of
the Restrictive Covenants, or any part of any of the Restrictive Covenants, is
invalid or unenforceable, the remainder of the Restrictive Covenants and parts
thereof shall not thereby be affected and shall remain in full force and effect,
without regard to the invalid portion. If any court determines that any of the
Restrictive Covenants, or any part thereof, is invalid or unenforceable because
of the geographic or
7
temporal scope of such provision, such court shall have the power to reduce the
geographic or temporal scope of such provision, as the case may be, and, in its
reduced form, such provision shall then be enforceable.
The Company acknowledges that the payment of Salary, Bonuses
and other benefits provided in Section 3 of this Agreement is a necessary
prerequisite to Executive being bound by the Restrictive Covenants. If the
Company fails to pay to Executive such compensation or benefits within ten
business days after receipt of written notice of such failure, Executive shall
be relieved of his obligations to comply with the Restrictive Covenants. In the
event of the termination of Executive's employment other than (i) by the Company
as provided in Sections 5(a), (b) or (c) of this Agreement or (ii) by Executive
for Good Reason, the Restrictive Covenants shall terminate on the date of
termination of Executive's employment.
Inventions and Discoveries. Executive agrees promptly to disclose in
writing to the Company any invention or discovery made by him during the period
of time that this Agreement remains in full force and effect, whether during or
after working hours, in any business in which the Company is then engaged or
which otherwise relates to any product or service dealt in by the Company and
such inventions and discoveries shall be the Company's sole property. Upon the
Company's request, Executive shall execute and assign to the Company all
applications for copyrights and letters patent of the United States and such
foreign countries as the Company may designate, and Executive shall execute and
deliver to the Company such other instruments as the Company deems necessary to
vest in the Company the sole ownership of all rights, title and interest in and
to such inventions and discoveries, as well as all copyrights and/or patents. If
services in connection with applications for copyrights and/or patents are
performed by Executive at the Company's request after the termination of his
employment hereunder, the Company shall pay him reasonable compensation for such
services rendered after termination of this Agreement.
Injunctive Relief. Executive agrees that his violation or threatened
violation of any of the provisions of Sections 6, 7 or 8 of this Agreement shall
cause immediate and irreparable harm to the Company. In the event of any breach
or threatened breach of any of said provisions, Executive consents to the entry
of preliminary and permanent injunctions by a court of competent jurisdiction
prohibiting Executive from any violation or threatened violation of such
provisions and compelling Executive to comply with such provisions. This Section
9 shall not affect or limit, and the injunctive relief provided in this Section
9 shall be in addition to, any other remedies available to the Company at law or
in equity or in arbitration for any such violation by Executive. The provisions
of Sections 6, 7, 8 and 9 of this Agreement shall survive any termination of
this Agreement and Executive's employment pursuant to this Agreement.
Indemnification. The Company shall provide Executive with payment of
legal fees and indemnification to the maximum extent permitted by the Company's
Certificate of Incorporation, By-Laws, and the laws of the jurisdiction under
which the Company was organized.
Miscellaneous.
8
Executive represents, warrants, covenants and agrees that he
has a right to enter into this Agreement, that he is not a party to any
agreement or understanding, oral or written, which would prohibit performance of
his obligations under this Agreement, and that he will not use in the
performance of his obligations hereunder any proprietary information of any
other party which he is legally prohibited from using.
The Company represents, warrants and agrees that it has full
power and authority to execute and deliver this Agreement and perform its
obligations hereunder and this Agreement has been duly authorized by the Board
and no other corporate action is required of the Company to enter into this
Agreement and perform its obligations hereunder.
Executive will cooperate with the Company in connection with
the Company's application to obtain key-man life insurance on his life, on which
the Company will be the beneficiary. Such cooperation shall include the
execution of any applications or other documents requiring his signature and
submission of insurance applications and submission to a physical.
Any notice, consent or communication required under the
provisions of this Agreement shall be given in writing and sent or delivered by
hand, overnight courier or messenger service, against a signed receipt or
acknowledgment of receipt, or by registered or certified mail, return receipt
requested, or telecopier or similar means of communication if receipt is
acknowledged or if transmission is confirmed by mail as provided in this Section
11(d), to the parties at their respective addresses set forth at the beginning
of this Agreement or by telecopier to the Company at (561) 750-0420, or to
Executive at (561) - , with notice to the Company being sent to the attention of
the individual who executed this Agreement on behalf of the Company. Either
party may, by like notice, change the person, address or telecopier number to
which notice is to be sent. If no telecopier number is provided for Executive,
notice to him shall not be sent by telecopier.
This Agreement shall in all respects be construed and
interpreted in accordance with, and the rights of the parties shall be governed
by, the laws of the State of Florida applicable to contracts executed and to be
performed wholly within such State, without regard to principles of conflicts of
laws except that the provisions of Section 10 shall be governed by the
corporation law of the state in which the Company is incorporated.
Except for actions, suits, or proceedings taken pursuant to or
under Section 6, 7, 8 or 9 of this Agreement, any dispute concerning this
Agreement or the rights of the parties hereunder shall be submitted to binding
arbitration in Miami, Florida before a single arbitrator under the rules of the
American Arbitration Association. The award of the arbitrator shall be final,
binding and conclusive on all parties, and judgment on such award may be entered
in any court having jurisdiction. The arbitrator shall have the power, in his
discretion, to award counsel fees and costs to the prevailing party. The
arbitrator shall have no power to modify or amend any specific provision of this
Agreement except as expressly provided in Section 7(b) and 11(h) of this
Agreement.
Notwithstanding the provisions of Section 11(f) of this
Agreement, with respect to any claim for injunctive relief or other equitable
remedy pursuant to Section 9 of this Agreement or any claim to enforce an
9
arbitration award or to compel arbitration, the parties hereby (i) consent to
the exclusive jurisdiction of the state courts sitting in Palm Beach County,
Florida and (ii) waives any claim that the jurisdiction of any such court is not
a convenient forum for any such action and any defense of lack of in personam
jurisdiction with respect thereof.
If any term, covenant or condition of this Agreement or the
application thereof to any party or circumstance shall, to any extent, be
determined to be invalid or unenforceable, the remainder of this Agreement, or
the application of such term, covenant or condition to parties or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby and each term, covenant or condition of this Agreement shall be
valid and be enforced to the fullest extent permitted by law, and any court or
arbitrator having jurisdiction may reduce the scope of any provision of this
Agreement, including the geographic and temporal restrictions set forth in
Section 7 of this Agreement, so that it complies with applicable law.
This Agreement constitute the entire agreement of the Company
and Executive as to the subject matter hereof, superseding all prior or
contemporaneous written or oral understandings or agreements, including any and
all previous employment agreements or understandings, all of which are hereby
terminated, with respect to the subject matter covered in this Agreement. This
Agreement may not be modified or amended, nor may any right be waived, except by
a writing which expressly refers to this Agreement, states that it is intended
to be a modification, amendment or waiver and is signed by both parties in the
case of a modification or amendment or by the party granting the waiver. No
course of conduct or dealing between the parties and no custom or trade usage
shall be relied upon to vary the terms of this Agreement. The failure of a party
to insist upon strict adherence to any term of this Agreement on any occasion
shall not be considered a waiver or deprive that party of the right thereafter
to insist upon strict adherence to that term or any other term of this
Agreement.
Neither party hereto shall have the right to assign or
transfer any of its or his rights hereunder except in connection with a merger
of consolidation of the Company or a sale by the Company of all or substantially
all of its business and assets.
This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective heirs, successors, executors,
administrators and permitted assigns.
The headings in this Agreement are for convenience of
reference only and shall not affect in any way the construction or
interpretation of this Agreement.
No delay or omission to exercise any right, power or remedy
accruing to either party hereto shall impair any such right, power or remedy or
shall be construed to be a waiver of or an acquiescence to any breach hereof. No
waiver of any breach hereof shall be deemed to be a waiver of any other breach
hereof theretofore or thereafter occurring. Any waiver of any provision hereof
shall be effective only to the extent specifically set forth in an applicable
writing. All remedies afforded to either party under this Agreement, by law or
otherwise, shall be cumulative and not alternative and shall not preclude
assertion by such party of any other rights or the seeking of any other rights
or remedies against any other party.
10
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ADSOUTH PARTNERS, INC.
By:_______________________________________________
Anton Lee Wingeier, Chief Financial Officer
EXECUTIVE:
__________________________________________________
John P. Acunto, Jr.
11
Exhibit 99.2 Employment agreement dated as of July 1, 2004 between the Company
and Anton Lee Wingeier
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT dated as of the 1st day of July, 2004, by and between Adsouth
Partners, Inc., a Nevada corporation with its principal office at 1515 North
Federal Highway, Suite 418, Boca Raton, Florida 33432 (the "Company"), and Anton
Lee Wingeier, residing at ___________________________, ("Executive").
W I T N E S S E T H:
WHEREAS, the Company has engaged Executive as its chief financial
officer and desires to continue to obtain the benefits of Executive's knowledge,
skill and ability in connection with the operations of the Company and to
continue to employ Executive on the terms and conditions hereinafter set forth;
and
WHEREAS, Executive desires to provide his services to the Company and
to accept employment by the Company on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the mutual promises set forth in
this Agreement, the parties agree as follows:
Employment and Duties.
---------------------
Subject to the terms and conditions hereinafter set forth, the
Company hereby employs Executive as its Chief Financial Officer, and he shall
have the duties and responsibilities associated with the chief financial officer
of a public corporation. Executive shall report to the Company's board of
directors (the "Board") or chief executive officer, as the Board shall
determine.
Executive shall also perform such other duties and
responsibilities for the Company as may be determined by the Board, as long as
such duties and responsibilities are consistent with those of the Company's
Chief Financial Officer. Executive shall, if elected, serve as a director of the
Company and any of its subsidiaries, provided that such duties are consistent
with those of the Company's Chief Financial Officer. Executive shall receive no
additional compensation for services rendered pursuant to this Section 1(b).
Unless terminated earlier as provided for in Section 5 of this
Agreement, this Agreement shall have an initial term (the "Initial Term")
commencing as of the date of this Agreement and expiring on December 31, 2005,
and shall continue on a month-to-month basis thereafter unless terminated by
either the Company or Executive on not less than ninety (90) days written notice
prior to the expiration of the Initial Term or thereafter on one month's written
notice. The Initial Term and the extensions are collectively referred to as the
"Term."
Executive's Performance. Executive hereby accepts the employment
contemplated by this Agreement. During the Term, Executive shall devote
substantially all of his business time to the performance of his duties under
this Agreement, and shall perform such duties diligently, in good faith and in a
manner consistent with the best interests of the Company. Executive shall not be
precluded from engaging in charitable and community activities, managing his
personal and financial affairs and engaging in other non-competitive activities,
provided that such activities shall not interfere in any material way with
Executive's duties pursuant to this Agreement. Executive will not be required to
move his residence from South Florida.
Compensation and Other Benefits.
1
For his services to the Company during the Term, the Company
shall pay Executive a salary ("Salary") at the annual rate of $125,000 through
September 30, 2004, and thereafter at the annual rate of $150,000.
In addition to the Salary, the Company shall pay Executive the
following bonuses (collectively, the "Bonuses"):
(xviii) An initial bonus of $24,000, which is due and
payable not later than December 31, 2004.
(xix) The Company shall pay Executive a quarterly bonus
(the "Quarterly Bonus") equal to five percent (5%) of Company's Adjusted Gross
Profit, as hereinafter defined, earned during each quarter, commencing with the
quarter beginning October 1, 2004. The Adjusted Gross Profit for any quarter
shall mean the Company's gross profit, determined in accordance with generally
accepted accounting principles, consistently applied, for such quarter, minus
all executive compensation (i.e., compensation payable to (x) all of the
Company's officers, including salary, bonus, commission and any other
compensation payable to officers, and (y) all compensation to directors in their
capacities as directors or members of a committee of the Board, and shall
include, in case of any compensation covered by clauses (x) and (y), all items
of compensation, whether in the form of cash or securities or other property),
except that, for purposes of making the calculation pursuant to this Section
3(b)(ii), executive compensation shall not include the Quarterly Bonus or the
Annual Bonus, as hereinafter defined. All compensation in a form other than cash
shall be valued in the manner reflected on the applicable filings by the Company
with the Securities and Exchange Commission (the "SEC"). The quarterly bonus
shall be payable not later than ten (10) days after the date on which the
applicable quarterly or annual report is filed by the Company with the SEC.
(xx) If, for any calendar year, commencing with the year
ended December 31, 2005, the Company's Adjusted Income, as hereinafter defined,
is at least two million dollars ($2,000,000), the Company shall pay an annual
bonus (the "Annual Bonus") equal to five percent (5%) of the Company's Adjusted
Income. Adjusted Income shall mean income before income taxes, determined in
accordance with generally accepted accounting principles consistently applied,
before deduction of the Annual Bonus for such year. The Annual Bonus shall be
payable within thirty (30) days after the date the Form 10-K or 10-KSB is filed
with the SEC.
(xxi) The Quarterly Bonus and the Annual Bonus shall be
payable if Executive is employed by the Company on the last day of the quarter
or year, as the case may be, for which the Quarterly Bonus or Annual Bonus is
payable, regardless of whether he is employed by the Company on the date payment
is due.
For each calendar quarter, commencing with the quarter ending
December 31, 2004, the Company shall grant to Executive, as of the last day of
the calendar quarter, five year non-qualified stock options to purchase the
number of shares of the Company's common stock determined by dividing (i) the
dollar amount payable to Executive as the Quarterly Bonus for such quarter, by
(ii) the exercise price per share. The exercise price per shall mean the closing
price of the Company's common stock on the principal market or exchange on which
the stock is
2
traded on the last trading day of the quarter. If, on any such trading day,
there is no reported trading of the Company's common stock, the closing price
for that day shall mean the average of the closing high bid and low asked prices
on such date. The options will become exercisable on the date the Company files
a quarterly or annual report with the SEC which reflects net income for a
quarter after the quarter for which the options were granted, and expires on the
fifth anniversary of the last day of the calendar quarter for which the options
were granted. The options shall continue in full force and effect
notwithstanding a termination of Executive's employment, including a termination
as a result of his death or disability, except that the options shall terminate
immediately in the event of a termination for cause, as hereinafter defined. For
example, if an option is granted with respect to the fourth quarter of 2004, the
option will become exercisable on the date that the Company files a Form 10-QSB
or Form 10-KSB that shows net income for a quarter after the fourth quarter of
2004 and the option will expire on December 31, 2009.
In addition to Salary and Bonuses, Executive shall receive the
following benefits during the Term:
(xxii) Major medical health insurance for Executive and
members of his immediate family; provided, however, that until such time as the
Company shall have adopted a company-wide health insurance program, the Company
will provide Executive with a monthly medical allowance of $750.
(xxiii) Dental insurance for Executive and members of
his family; provided, that if the Company does not provide dental insurance
coverage, the Company shall reimburse Executive for his dental expenses,
including any dental insurance he may obtain, provided, that the payments
pursuant to this Section 3(d)(ii) shall not exceed $5,000 per year.
(xxiv) Accident, life insurance and long-term disability
insurance to the extent such benefits are provided to the Company's executive
officers.
(xxv) Long-term health care insurance to the extent that
the Company is able, by using reasonable efforts, to obtain such coverage for an
annual premium which does not exceed $2,000. To the extent that the annual
premium for such coverage exceeds $2,000, if Executive desires such coverage, he
shall be responsible for the additional premiums.
(xxvi) An automobile allowance of $900 per month.
(xxvii) Vacation in accordance with Company policy.
In the event of a termination of Executive's employment as a
result of his death or Disability, as hereinafter defined, the Company shall
continue to pay to Executive or his beneficiary, his Salary at the annual rate
in effect at the date of death or termination resulting from a Disability, until
the earlier of (i) twelve (12) months from the date of death or such termination
or (ii) the expiration of the Term.
3
Any compensation paid or payable to Executive by any
subsidiary of the Company shall be treated as a payment on account of the
compensation due Executive pursuant to this Agreement.
Reimbursement of Expenses. The Company shall reimburse Executive, upon
presentation of proper expense statements, for all authorized, ordinary and
necessary out-of-pocket expenses reasonably incurred by Executive during the
Term in connection with the performance of his services pursuant to this
Agreement hereunder in accordance with the Company's expense reimbursement
policy.
Termination of Employment.
-------------------------
This Agreement and Executive's employment hereunder shall
terminate immediately upon the death of Executive.
This Agreement and Executive's employment, may be terminated
by Executive or the Company on not less than thirty (30) days' written notice in
the event of Executive's Disability. The term "Disability" shall mean any
illness, disability or incapacity of Executive which prevents him from
substantially performing his regular duties for a period of three (3)
consecutive months or four (4) months, even though not consecutive, in any
twelve (12) month period. However, if Executive is covered by long-term
disability insurance, the Company may not terminate this Agreement pursuant to
this Section 5(b) unless Executive is eligible for disability payments under his
long-term disability insurance.
The Company may terminate this Agreement and Executive's
employment for cause, in which event no further compensation shall be payable to
Executive subsequent to the date of such termination. The term "Cause" shall
mean (i) a breach of Sections 6, 7 or 8 of this Agreement; (ii) a breach of
trust whereby Executive obtains personal gain or benefit at the expense of or to
the detriment of the Company; or (iii) a conviction of Executive of any felony
or any misdemeanor involving drugs or controlled substances or theft,
embezzlement or other taking of property belonging to another person. If the
Company proposes to terminate this Agreement pursuant to clauses (i) or (ii) of
this Section 5(c), the Company shall notify Executive in writing setting forth
in reasonable detail the basis for the proposed termination, and Executive shall
have a reasonable opportunity to respond to the Board and to be represented
before the Board by counsel. If this Agreement is terminated pursuant to clause
(iii) of this Section 5(c), and the conviction is subsequently reversed on
appeal, the Company shall pay Executive his Salary for the balance of the Term.
For purposes of clauses (iii) of this Section 5(c), a guilty plea or plea of
nolo contendere or similar plea shall be deemed to be a conviction.
In the event that (i) the Company terminates Executive's
employment other than as provided in Sections 5(a), (b) and (c) of this
Agreement or (ii) Executive terminates his employment for Good Reason, as
hereinafter defined, then in either case, (x) the Company shall pay to
Executive, within fifteen (15) days after such termination, a severance payment
equal to Executive's salary for the balance of the Term, and (y) all outstanding
options held by Executive shall become immediately exercisable.
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Executive may terminate this Agreement on thirty (30) days'
notice for Good Reason. "Good Reason" shall mean (i) the Company's failure to
pay compensation as required by Section 3 of this Agreement; (ii) any other
material breach of this Agreement by the Company, or (iii) the assignment of
Executive without Executive's consent to a position, responsibilities or duties
of a lesser status or degree of responsibility than the Employee's position,
responsibilities, or duties as the Company's chief financial officer.
Trade Secrets and Proprietary Information.
-----------------------------------------
Executive recognizes and acknowledges that the Company,
through the expenditure of considerable time and money, has developed and will
continue to develop in the future information concerning customers, clients,
marketing, products, services, business, research and development activities and
operational methods of the Company and its customers or clients, contracts,
financial or other data, technical data or any other confidential or proprietary
information possessed, owned or used by the Company, the disclosure of which
could or does have a material adverse effect on the Company, its business, any
business it proposes to engage in, its operations, financial condition or
prospects and that the same are confidential and proprietary and considered
"confidential information" of the Company for the purposes of this Agreement. In
consideration of his employment, Executive agrees that he will not, during or
after the Term, without the consent of the Board make any disclosure of
confidential information now or hereafter possessed by the Company, to any
person, partnership, corporation or entity either during or after the term here
of, except that nothing in this Agreement shall be construed to prohibit
Executive from using or disclosing such information (a) if such disclosure is
necessary in the normal course of the Company's business in accordance with
Company policies or instructions or authorization from the Board, (b) such
information shall become public knowledge other than by or as a result of
disclosure by a person not having a right to make such disclosure, or (c)
subsequent to the Term, if such information shall have either (i) been developed
by Executive independent of any of the Company's confidential or proprietary
information or (ii) been disclosed to Executive by a person not subject to a
confidentiality agreement with or other obligation of confidentiality to the
Company. For the purposes of Sections 6, 7 and 8 of this Agreement, the term
"Company" shall include the Company, its parent, its subsidiaries and
affiliates, other than affiliates whose relationship as an affiliate is derived
solely from Executive's interest in or position at the affiliate.
In the event that any trade secrets or other confidential
information covered by Section 6(a) of this Agreement is required to be produced
by Executive pursuant to legal process, Executive shall give the Company notice
of such legal process within a reasonable time, but not later than ten (10)
business days prior to the date such disclosure is to be made, unless Executive
has received less notice, in which event Executive shall immediately notify the
Company. The Company shall have the right to object to any such disclosure, and
if the Company objects (at the Company's cost and expense) in a timely manner so
that Executive is not subject to penalties for failure to make such disclosure,
Executive shall not make any disclosure until there has been a court
determination on the Company's objections. If disclosure is required by a court
order, final beyond right of review, or if the Company does not object to the
disclosure, Executive shall make disclosure only to the extent that disclosure
is unequivocally
5
required by the court order, and Executive will exercise reasonable efforts at
the Company's expense, to obtain reliable assurance that confidential treatment
will be accorded the Confidential Information.
Covenant Not To Solicit or Compete.
----------------------------------
During the period from the date of this Agreement until one
(1) year following the date on which Executive's employment is terminated,
Executive will not, directly or indirectly:
(xxviii) Persuade or attempt to persuade any person or
entity which is or was a customer, client or supplier of the Company to cease
doing business with the Company, or to reduce the amount of business it does
with the Company (the terms "customer" and "client" as used in this Section 7 to
include any potential customer or client to whom the Company submitted bids or
proposals, or with whom the Company conducted negotiations, during the term of
Executive's employment hereunder or during the twelve (12) months preceding the
termination of his employment);
(xxix) solicit for himself or any other person or entity
other than the Company the business of any person or entity which is a customer
or client of the Company, or was a customer or client of the Company within one
(1) year prior to the termination of his employment;
(xxx) persuade or attempt to persuade any employee of
the Company, or any individual who was an employee of the Company during the one
(1) year period prior to the termination of this Agreement, to leave the
Company's employ, or to become employed by any person or entity other than the
Company; or
(xxxi) engage in any business in the United States
whether as an officer, director, consultant, partner, guarantor, principal,
agent, employee, advisor or in any manner, which directly competes with the
business of the Company as it is engaged in at the time of the termination of
this Agreement, unless, at the time of such termination or thereafter during the
period that Executive is bound by the provisions of this Section 7, the Company
ceases to be engaged in such activity, provided, however, that nothing in this
Section 7 shall be construed to prohibit Executive from (x) owning an interest
of not more than five (5%) percent of any public company engaged in such
activities or (y) serving as a financial or accounting officer or employee of a
company engaged in such activities as long as Executive does not take any action
expressly prohibited by Section 7(a)(i), (ii) or (iii) of this Agreement.
Executive acknowledges that the restrictive covenants (the
"Restrictive Covenants") contained in Sections 6 and 7 of this Agreement are a
condition of his employment are reasonable and valid in geographical and
temporal scope and in all other respects. If any court determines that any of
the Restrictive Covenants, or any part of any of the Restrictive Covenants, is
invalid or unenforceable, the remainder of the Restrictive Covenants and parts
thereof shall not thereby be affected and shall remain in full force and effect,
without regard to the invalid portion. If any court determines that any of the
Restrictive Covenants, or any part thereof, is invalid or unenforceable because
of the geographic or
6
temporal scope of such provision, such court shall have the power to reduce the
geographic or temporal scope of such provision, as the case may be, and, in its
reduced form, such provision shall then be enforceable.
The Company acknowledges that the payment of Salary, Bonuses
and other benefits provided in Section 3 of this Agreement is a necessary
prerequisite to Executive being bound by the Restrictive Covenants. If the
Company fails to pay to Executive such compensation or benefits within ten
business days after receipt of written notice of such failure, Executive shall
be relieved of his obligations to comply with the Restrictive Covenants. In the
event of the termination of Executive's employment other than (i) by the Company
as provided in Sections 5(a), (b) or (c) of this Agreement or (ii) by Executive
for Good Reason, the Restrictive Covenants shall terminate on the date of
termination of Executive's employment.
Inventions and Discoveries. Executive agrees promptly to disclose in
writing to the Company any invention or discovery made by him during the period
of time that this Agreement remains in full force and effect, whether during or
after working hours, in any business in which the Company is then engaged or
which otherwise relates to any product or service dealt in by the Company and
such inventions and discoveries shall be the Company's sole property. Upon the
Company's request, Executive shall execute and assign to the Company all
applications for copyrights and letters patent of the United States and such
foreign countries as the Company may designate, and Executive shall execute and
deliver to the Company such other instruments as the Company deems necessary to
vest in the Company the sole ownership of all rights, title and interest in and
to such inventions and discoveries, as well as all copyrights and/or patents. If
services in connection with applications for copyrights and/or patents are
performed by Executive at the Company's request after the termination of his
employment hereunder, the Company shall pay him reasonable compensation for such
services rendered after termination of this Agreement.
Injunctive Relief. Executive agrees that his violation or threatened
violation of any of the provisions of Sections 6, 7 or 8 of this Agreement shall
cause immediate and irreparable harm to the Company. In the event of any breach
or threatened breach of any of said provisions, Executive consents to the entry
of preliminary and permanent injunctions by a court of competent jurisdiction
prohibiting Executive from any violation or threatened violation of such
provisions and compelling Executive to comply with such provisions. This Section
9 shall not affect or limit, and the injunctive relief provided in this Section
9 shall be in addition to, any other remedies available to the Company at law or
in equity or in arbitration for any such violation by Executive. The provisions
of Sections 6, 7, 8 and 9 of this Agreement shall survive any termination of
this Agreement and Executive's employment pursuant to this Agreement.
Indemnification. The Company shall provide Executive with payment of
legal fees and indemnification to the maximum extent permitted by the Company's
Certificate of Incorporation, By-Laws, and the laws of the jurisdiction under
which the Company was organized.
Miscellaneous.
7
Executive represents, warrants, covenants and agrees that he
has a right to enter into this Agreement, that he is not a party to any
agreement or understanding, oral or written, which would prohibit performance of
his obligations under this Agreement, and that he will not use in the
performance of his obligations hereunder any proprietary information of any
other party which he is legally prohibited from using.
The Company represents, warrants and agrees that it has full
power and authority to execute and deliver this Agreement and perform its
obligations hereunder and this Agreement has been duly authorized by the Board
and no other corporate action is required of the Company to enter into this
Agreement and perform its obligations hereunder.
Executive will cooperate with the Company in connection with
the Company's application to obtain key-man life insurance on his life, on which
the Company will be the beneficiary. Such cooperation shall include the
execution of any applications or other documents requiring his signature and
submission of insurance applications and submission to a physical.
Any notice, consent or communication required under the
provisions of this Agreement shall be given in writing and sent or delivered by
hand, overnight courier or messenger service, against a signed receipt or
acknowledgment of receipt, or by registered or certified mail, return receipt
requested, or telecopier or similar means of communication if receipt is
acknowledged or if transmission is confirmed by mail as provided in this Section
11(d), to the parties at their respective addresses set forth at the beginning
of this Agreement or by telecopier to the Company at (561) 750-0420, or to
Executive at (561) - , with notice to the Company being sent to the attention of
the individual who executed this Agreement on behalf of the Company. Either
party may, by like notice, change the person, address or telecopier number to
which notice is to be sent. If no telecopier number is provided for Executive,
notice to him shall not be sent by telecopier.
This Agreement shall in all respects be construed and
interpreted in accordance with, and the rights of the parties shall be governed
by, the laws of the State of Florida applicable to contracts executed and to be
performed wholly within such State, without regard to principles of conflicts of
laws except that the provisions of Section 10 shall be governed by the
corporation law of the state in which the Company is incorporated.
Except for actions, suits, or proceedings taken pursuant to or
under Section 6, 7, 8 or 9 of this Agreement, any dispute concerning this
Agreement or the rights of the parties hereunder shall be submitted to binding
arbitration in Miami, Florida before a single arbitrator under the rules of the
American Arbitration Association. The award of the arbitrator shall be final,
binding and conclusive on all parties, and judgment on such award may be entered
in any court having jurisdiction. The arbitrator shall have the power, in his
discretion, to award counsel fees and costs to the prevailing party. The
arbitrator shall have no power to modify or amend any specific provision of this
Agreement except as expressly provided in Section 7(b) and 11(h) of this
Agreement.
Notwithstanding the provisions of Section 11(f) of this
Agreement, with respect to any claim for injunctive relief or other equitable
remedy pursuant to Section 9 of this Agreement or any claim to enforce an
8
arbitration award or to compel arbitration, the parties hereby (i) consent to
the exclusive jurisdiction of the state courts sitting in Palm Beach County,
Florida and (ii) waives any claim that the jurisdiction of any such court is not
a convenient forum for any such action and any defense of lack of in personam
jurisdiction with respect thereof.
If any term, covenant or condition of this Agreement or the
application thereof to any party or circumstance shall, to any extent, be
determined to be invalid or unenforceable, the remainder of this Agreement, or
the application of such term, covenant or condition to parties or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby and each term, covenant or condition of this Agreement shall be
valid and be enforced to the fullest extent permitted by law, and any court or
arbitrator having jurisdiction may reduce the scope of any provision of this
Agreement, including the geographic and temporal restrictions set forth in
Section 7 of this Agreement, so that it complies with applicable law.
This Agreement constitute the entire agreement of the Company
and Executive as to the subject matter hereof, superseding all prior or
contemporaneous written or oral understandings or agreements, including any and
all previous employment agreements or understandings, all of which are hereby
terminated, with respect to the subject matter covered in this Agreement. This
Agreement may not be modified or amended, nor may any right be waived, except by
a writing which expressly refers to this Agreement, states that it is intended
to be a modification, amendment or waiver and is signed by both parties in the
case of a modification or amendment or by the party granting the waiver. No
course of conduct or dealing between the parties and no custom or trade usage
shall be relied upon to vary the terms of this Agreement. The failure of a party
to insist upon strict adherence to any term of this Agreement on any occasion
shall not be considered a waiver or deprive that party of the right thereafter
to insist upon strict adherence to that term or any other term of this
Agreement.
Neither party hereto shall have the right to assign or
transfer any of its or his rights hereunder except in connection with a merger
of consolidation of the Company or a sale by the Company of all or substantially
all of its business and assets.
This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective heirs, successors, executors,
administrators and permitted assigns.
The headings in this Agreement are for convenience of
reference only and shall not affect in any way the construction or
interpretation of this Agreement.
No delay or omission to exercise any right, power or remedy
accruing to either party hereto shall impair any such right, power or remedy or
shall be construed to be a waiver of or an acquiescence to any breach hereof. No
waiver of any breach hereof shall be deemed to be a waiver of any other breach
hereof theretofore or thereafter occurring. Any waiver of any provision hereof
shall be effective only to the extent specifically set forth in an applicable
writing. All remedies afforded to either party under this Agreement, by law or
otherwise, shall be cumulative and not alternative and shall not preclude
assertion by such party of any other rights or the seeking of any other rights
or remedies against any other party.
9
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ADSOUTH PARTNERS, INC.
By:_________________________________________________
John P. Acunto, Jr., Chief Executive Officer
EXECUTIVE:
____________________________________________________
Anton Lee Wingeier
10
Exhibit 99.3 Copy of Press Release dated February 22, 2005
ADSOUTH CLOSES $810,100 PRIVATE FINANCING
Boca Raton, Florida. February 22, 2005. Adsouth Partners, Inc. (OTCBB "ADPR")
announced today the sale of its 10% convertible notes, shares of common stock
and warrants to a group of accredited investors, from which it raised gross
proceeds of $810,100. Atlas Capital Services, Inc. served as the Company's
investment banker in the transaction. The private placement was made exclusively
to accredited investors, and is described in a Form 8-K being filed with the
Securities and Exchange Commission.
John P. Acunto, Jr., Adsouth's chief executive officer, said "This financing
provides us with funds to enable us to meet our immediate working capital needs,
particularly as we are preparing the roll-out of our Simon Solutions Lip
Solution and other Dermafresh products."
Steve Pollan, Managing Director of Atlas, said "We are pleased to be able to
assist AdSouth with this financing, and we are excited about advising the
Company on its strategic needs as it expands its lines in the marketplace."
About Adsouth Partners
----------------------
Adsouth Partners is a vertically integrated direct response marketing company
that generates revenues from the placement of advertising, the production of
advertisements, creative advertising and public relations consulting services.
Since mid 2004, it has expanded its activities as it obtained the rights to
products that it markets and sells to retail outlets.
Certain statements in this news release may contain forward-looking information
within the meaning of Rule 175 under the Securities Act of 1933 and Rule 3b-6
under the Securities Exchange Act of 1934, and are subject to the Safe Harbor
created by those rules. All statements, other than statements of fact, included
in this release, including, without limitation, statements regarding potential
future plans and objectives of the company, are forward-looking statements that
involve risks and uncertainties. There can be no assurance that such statements
will prove to be accurate and actual results and future events could differ
materially from those anticipated in such statements. Technical complications
that may arise could prevent the prompt implementation of any strategically
significant plan(s) outlined above. The Company cautions that these
forward-looking statements are further qualified by other factors including, but
not limited to, those set forth in the Company's Form 10-KSB filing, its
registration statements and other filings with the United States Securities and
Exchange Commission (available at www.sec.gov). The Company undertakes no
obligation to publicly update or revise any statements in this release, whether
as a result of new information, future events or otherwise.
For further information contact: John P. Acunto, Jr., CEO of AdSouth Partners
at (561) 750-0410
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