EXHIBIT 10.41
|
|
|
|
|
Subscription Agreement Number:
|
|
April
, 2003
|
Issued to:
SUBSCRIPTION
AGREEMENT
in connection with
RATEXCHANGE
CORPORATION
Offering of
a minimum 5 Units at
$50,000 per Unit
each Unit consisting of
200,000 Shares of Series C
Convertible Preferred Stock
and
one Class B Warrant to purchase
50,000 shares of common stock.
Ratexchange Corporation
100 Pine Street, Suite 500
San Francisco, CA 94111
(415) 274-5650
NOTICES
NONE OF THE UNITS, PREFERRED STOCK OR WARRANTS
INCLUDED IN THE UNITS OR THE SECURITIES UNDERLYING PREFERRED STOCK
OR WARRANTS HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES LAWS. THESE SECURITIES ARE BEING OFFERED
AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF THESE LAWS. THE UNITS HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES REGULATORY AUTHORITY NOR HAS THE COMMISSION OR ANY SUCH
AUTHORITY PASSED UPON OR ENDORSED THE MERITS OF THE OFFERING OR THE
ACCURACY OR ADEQUACY OF THIS SUBSCRIPTION AGREEMENT AND INVESTMENT
LETTER AND/OR THE OTHER INFORMATION DOCUMENTS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST
RELY ON THEIR OWN EXAMINATION OF THE PERSON OR ENTITY CREATING THE
SECURITIES AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND
RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY
FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY.
FURTHERMORE THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE
ACCURACY OR ADEQUACY OF THIS SUBSCRIPTION AGREEMENT AND INVESTMENT
LETTER AND/OR THE OTHER INFORMATION DOCUMENTS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE. THESE SECURITIES ARE SUBJECT
TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT
OF 1933, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT
THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF INVESTMENT FOR
AN INDEFINITE PERIOD OF TIME. CONSEQUENTLY, THE UNITS SHOULD BE
CONSIDERED FOR PURCHASE AS A LONG-TERM INVESTMENT
ONLY.
THE UNDERSIGNED SHOULD NOT CONSTRUE THE
INFORMATION DOCUMENTS OR ANY COMMUNICATIONS IN CONNECTION THEREWITH
AS LEGAL, TAX OR FINANCIAL ADVICE AND, ACCORDINGLY, MUST CONSULT
HIS OWN LEGAL, ACCOUNTING AND/OR FINANCIAL ADVISERS WITH RESPECT TO
LEGAL, TAX AND RELATED MATTERS CONCERNING THIS
INVESTMENT.
UNITS SHOULD NOT BE PURCHASED BY ANY INVESTORS
SEEKING TAX ADVANTAGES. THIS INVESTMENT IS NOT A TAX SHELTER SINCE
IT DOES NOT PROVIDE DEDUCTIONS WHICH WOULD BE AVAILABLE
TO
-ii-
REDUCE INCOME FROM OTHER SOURCES. ACCORDINGLY, A
DECISION TO PURCHASE THE UNITS SHOULD BE BASED SOLELY ON THE
UNDERSIGNED’S EVALUATION OF THE ECONOMIC CONSIDERATIONS OF
THE TRANSACTION.
THE INFORMATION DOCUMENTS ARE FOR THE SOLE USE
OF, AND CONSTITUTE AN OFFER ONLY TO, THE OFFEREE WHOSE NAME APPEARS
ABOVE. ANY DISTRIBUTION OF THE INFORMATION DOCUMENTS, WHETHER IN
WHOLE OR IN PART, TO ANY PERSON OTHER THAN SUCH OFFEREE AND HIS
AUTHORIZED AGENTS, AND ANY REPRODUCTION OF THE INFORMATION
DOCUMENTS OR THE DIVULGENCE OF ANY OF THEIR CONTENTS, IS STRICTLY
PROHIBITED. THE OFFEREE NAMED ABOVE, BY ACCEPTING DELIVERY OF THE
INFORMATION DOCUMENTS, AGREES TO RETURN THE INFORMATION DOCUMENTS,
TO THE COMPANY, IF SUCH OFFEREE DOES NOT UNDERTAKE TO PURCHASE THE
SECURITIES OFFERED HEREBY.
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY
REPRESENTATION OR TO GIVE ANY INFORMATION WITH RESPECT TO THE
COMPANY OR THE SECURITIES OFFERED HEREBY, EXCEPT THE INFORMATION
CONTAINED HEREIN (AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME) OR
IN THE EXHIBITS HERETO AND, IF MADE OR GIVEN, SUCH REPRESENTATION
OR INFORMATION MUST NOT BE RELIED UPON. IN MAKING THE DECISION
WHETHER TO INVEST, PROSPECTIVE INVESTORS SHOULD RELY ONLY ON
INFORMATION CONTAINED IN THE INFORMATION DOCUMENTS OR IN THE
EXHIBITS HERETO. NEITHER THE DELIVERY OF THE INFORMATION DOCUMENTS
AT ANY TIME NOR ANY SALE MADE PURSUANT HERETO IMPLIES THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE SET FORTH ON THE COVER PAGE HEREOF.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK.
(SEE THE DESCRIPTION OF RISK FACTORS APPENDED HERETO AS AN
EXHIBIT.) CONSEQUENTLY, ONLY PERSONS WHO CAN AFFORD A TOTAL LOSS OF
THEIR INVESTMENT SHOULD CONSIDER THE PURCHASE OF THE UNITS.
SUBSCRIBERS WILL BE REQUIRED TO REPRESENT THAT THEY ARE FULLY
FAMILIAR WITH, UNDERSTAND AND CAN BEAR SUCH RISKS, AND UNDERSTAND
ALL OF THE TERMS OF THIS OFFERING.
THE INFORMATION DOCUMENTS DO NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY PERSON
WHO HAS NOT COMPLETED AND RETURNED A SUBSCRIPTION AGREEMENT AND A
QUALIFIED PURCHASER QUESTIONNAIRE, OR TO ANY PERSON WHOSE PURCHASER
REPRESENTATIVE, IF ANY, HAS NOT COMPLETED AND RETURNED A QUALIFIED
PURCHASER REPRESENTATIVE QUESTIONNAIRE, IN FORM AND SUBSTANCE
SATISFACTORY TO THE COMPANY.
-iii-
THE COMPANY IS MAKING THIS OFFERING ONLY TO
QUALIFIED SUBSCRIBERS AND MAY, IN ITS SOLE AND ABSOLUTE DISCRETION,
REFUSE TO ACCEPT ANY SUBSCRIPTION. THE CONVERSION RATE OF PREFERRED
STOCK AND THE EXERCISE PRICE OF THE WARRANTS HAVE BEEN ARBITRARILY
DETERMINED BY THE COMPANY AND SHOULD NOT BE CONSTRUED AS AN
INDICATION OF THE ACTUAL VALUE OF AN EQUITY INTEREST IN THE
COMPANY. THE COMPANY RESERVES THE RIGHT TO WITHDRAW OR AMEND THE
TERMS OF THIS OFFERING AT ANY TIME IN ITS SOLE AND ABSOLUTE
DISCRETION, AND TO REJECT ANY SUBSCRIPTION IN WHOLE OR IN
PART.
THE INFORMATION DOCUMENTS DO NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY IN ANY
JURISDICTION IN WHICH SUCH SALE OR OFFER OR SOLICITATION WOULD BE
PROHIBITED BY LAW.
THE COMPANY HEREBY EXTENDS TO EACH PROSPECTIVE
INVESTOR THE OPPORTUNITY TO ASK QUESTIONS OF, AND RECEIVE ANSWERS
FROM, OFFICERS OF THE COMPANY CONCERNING THE INFORMATION DOCUMENTS
AND TO OBTAIN ANY ADDITIONAL INFORMATION HE MAY CONSIDER NECESSARY
IN MAKING AN INFORMED INVESTMENT DECISION TO THE EXTENT THAT THE
COMPANY POSSESSES SUCH INFORMATION OR CAN ACQUIRE IT WITHOUT
UNREASONABLE EFFORT OR EXPENSE. ACCESS TO SUCH INFORMATION MAY BE
OBTAINED BY DIRECTING REQUESTS TO THE COMPANY.
THE INFORMATION DOCUMENTS CONTAIN SUMMARIES OF
THE TERMS OF CERTAIN DOCUMENTS, BUT REFERENCE IS HEREBY MADE TO THE
ACTUAL DOCUMENTS WHICH MAY BE OBTAINED FROM THE COMPANY AT THE
ADDRESS SET FORTH BELOW FOR COMPLETE INFORMATION CONCERNING THE
RIGHTS AND OBLIGATIONS OF THE PARTIES THERETO. ALL SUCH SUMMARIES
ARE QUALIFIED IN THEIR ENTIRETY BY THIS REFERENCE.
THE COMPANY’S ADDRESS IS RATEXCHANGE
CORPORATION, 100 PINE STREET, SUITE 500, SAN FRANCISCO, CALIFORNIA
94111-5101, ATTENTION: D. JONATHAN MERRIMAN, CHAIRMAN AND CHIEF
EXECUTIVE OFFICER. ITS TELEPHONE NUMBER IS 415-274-5650 AND ITS
FACSIMILE NUMBER IS 415-274-5669.
-iv-
SUBSCRIPTION
AGREEMENT
AND INVESTMENT
LETTER
April 24, 2003
To the Board of Directors
Ratexchange Corporation
100 Pine Street, Suite
500
San Francisco, CA 94111
RE: Subscription to Purchase Units of
Ratexchange Corporation
Gentlemen:
This will acknowledge that the undersigned
hereby agrees to irrevocably purchase from Ratexchange Corporation
(the “Company” or “RTX”),
unit(s) (collectively the “Units”) at a price of
$50,000 per Unit. RTX is a corporation organized under the laws of
the State of Delaware in 1987 under the name Venture World, Ltd. In
1999 it changed its name to NetAmerica.com Corporation and on April
24, 2000 it changed its name to Ratexchange Corporation. The
Company had no material operations prior to 1999. The Unit(s) to be
purchased by the undersigned is (are) part of a private placement
of securities (the “Offering”) by the Company of a
maximum 10 units, which is being made only to “accredited
investors” as defined herein.
Each Unit will consist of two hundred thousand
(200,000) shares of Ratexchange Corporation Series C Convertible
Preferred stock (collectively the “Preferred Stock”)
and one Class B Warrant to purchase 50,000 shares of Ratexchange
Corporation common stock (collectively the “Warrants”).
Each warrant share of the Company’s common stock will have a
par value of $0.0001 and each warrant share may be purchased for
$0.30 (the “Exercise Price”). The Warrants will have a
term of three years, unless the closing sale price for the common
stock of the Company has closed at or above $0.90 for ten
consecutive trading days. At such time the holders will receive 30
days notice upon which to exercise the Warrants prior to
termination.
Holders of the Preferred Shares will be entitled
to receive a dividend at the rate of three percent (3%) per annum
based on the number of shares of Series C Preferred Stock then held
on the last day of each quarter of the Company’s fiscal year,
beginning on June 30, 2003. The dividend will be paid in cash. Such
dividends shall accrue and accumulate until paid.
Each share of Preferred Stock shall be
convertible, at the option of the holder, at any time after the
date of issuance, into an equal number of shares of common stock.
However, the Preferred Stock will automatically convert into an
equal number of shares of common stock if the closing sale price
for the common stock of the Company has closed at or above $0.75
for ten consecutive trading days.
Page 1 of 13
Subscription Agreement and
Investment Letter for Units of
Ratexchange Corporation
For a complete description of the terms of the
Warrants please see Exhibit B , appended hereto. For a
complete description of the terms of the Preferred Stock please see
the Certificate of Designation of Series C Preferred Stock,
appended hereto as Exhibit C.
The Company shall file a registration statement
on Form S-3 for the common stock that underlies the Series C
Convertible Preferred stock and Class B Warrants (collectively, the
“Underlying Shares”) with the Securities and Exchange
Commission (the “Commission”) within 90 days of the
closing of the financing and use its reasonable best efforts to
have such registration statement declared effective. The Company
will also grant the Unit purchasers certain “piggyback”
registration rights with respect to these securities. Should the
Company fail to file a registration statement listing the
Underlying Shares with the Commission within 90 days of the closing
of the financing, the holder of each Unit shall be entitled to
receive a Series B Warrant to purchase a number of shares of the
Company’s common stock equal to ten (10%) percent of the
aggregate number of Preferred Shares purchased by the holder in
this financing, with a term of three years and an exercise price
equal to the closing price of the Company’s common stock on
the American Stock Exchange on the 90 th day following the closing of this
financing.
Should the Securities and Exchange Commission
fail to declare the Company’s Form S-3 Registration Statement
effective on or before the 180 th day after the Closing, the annual
dividend rate payable on the Preferred Stock will be increased from
3.00% to 9.00% for the period of time from the 181
st
day after Closing until
the Company’s registration statement is declared effective.
Upon the Securities and Exchange Commission declaring the
registration statement effective, the annual dividend rate will
return to 3.00%. Dividends will be paid quarterly in cash,
regardless of which dividend rate is applied.
For a complete description of the terms of the
Registration Rights please see Exhibit D , appended
hereto.
The minimum number of Units that must be sold in
order to make the Offering effective will be 5 Units. All funds
received will be remitted directly to the Company. The Company
reserves the right, in its complete discretion, to sell fractions
of a Unit and to sell additional Units if demand is
present.
If all of the Units are sold, the Company will
receive gross proceeds of two hundred and fifty thousand dollars
($250,000). See the Schedule of Use of Proceeds appended hereto as
Exhibit E .
An executed copy of this Subscription Agreement
and Investment Letter and the Purchaser Questionnaire appended
hereto as Exhibit A shall be delivered to the
Company.
Upon the Company’s acceptance of the
Subscription Agreement and Investment Letter, PAYMENT FOR THE
UNITS SHALL BE MADE BY CHECK OR ELECTRONIC WIRE TRANSFER PAYABLE IN
ACCORDANCE WITH INSTRUCTIONS FROM THE COMPANY and delivered to
the Company.
Page 2 of 13
Subscription Agreement and
Investment Letter for Units of
Ratexchange Corporation
Each closing of the purchase and sale of the
Units following acceptance by the Company of subscriptions, as
evidenced by the Company’s execution of the applicable
Subscription Agreements, shall take place at the offices of the
Company.
Although the Common Stock is listed for trading
on the AMEX under the symbol “RTX,” there is no public
market for the Units, Preferred Shares or the Warrants and it is
not anticipated that a public trading market for them will ever
develop. In addition, the market for the Common Stock has been
limited. The Company intends to file a registration statement with
the Commission covering the Underlying Shares, but no
representation is made that the Commission will declare the filing
effective. In the event, however, that the registration statement
is declared effective, no assurance can be given that the
Underlying Shares will be readily tradable. ACCORDINGLY, THE
UNDERSIGNED UNDERSTANDS AND ACKNOWLEDGES THAT, EVEN AFTER THE
TERMINATION OF THE RESALE RESTRICTION PERIODS ON THE UNITS, THE
UNDERLYING SECURITIES AND THE UNDERLYING SHARES NOTED BELOW, AND/OR
THE UNDERLYING SHARES ARE REGISTERED, HE MAY BE UNABLE TO RESELL
THESE SECURITIES FOR A SIGNIFICANT PERIOD OF TIME, IF
EVER.
The undersigned acknowledges that the Unit(s),
the Preferred Shares and Warrants (the “Underlying
Securities”) he is purchasing, including any Underlying
Shares he may receive upon conversion of the Preferred Shares
and/or exercise of the Warrants, have not been registered under the
Securities Act or qualified under applicable state securities laws
and that the transferability thereof is restricted by the
registration provisions of the Act as well as such state laws.
Based upon the representations and agreements being made by him
herein, the Units and Underlying Securities are being sold to him
pursuant to an exemption from such registration provided by Section
4 (2) of the Act and Rule 506 promulgated thereunder and applicable
state securities law qualification exemptions. The undersigned
further acknowledges that the basis for these exemptions may not be
available if, notwithstanding such representations, he only intends
to hold these securities for a fixed or determinable period in the
future, or until the market price rises or falls. The undersigned
represents and warrants that he does not have any such intention.
The undersigned agrees that the documentation representing the
Underlying Securities to be received by him, as well as the
certificates representing any Underlying Shares, will bear a legend
indicating that transfer of these securities is restricted by
reason of the fact that they have not been so registered or
qualified, and that the Company will place stop-transfer
instructions with the transfer agent of its securities with respect
to any Underlying Shares registered in the name of the undersigned
or beneficially owned by him.
The undersigned represents that he is acquiring
the Unit(s) and Underlying Securities, and will acquire any
Underlying Shares, solely for his own account as principal and not
as a nominee or agent, for investment purposes only and not with a
view to resale or other distribution or fractionalization thereof,
or with the intention of selling, transferring or otherwise
disposing of all or any part of such securities for any particular
event or circumstance, except selling, transferring or disposing of
them upon full compliance with
Page 3 of 13
Subscription Agreement and
Investment Letter for Units of
Ratexchange Corporation
all applicable provisions of the Act, the
Securities Exchange Act of 1934 (the “Exchange Act”),
the Rules and Regulations promulgated by the Commission thereunder,
and any applicable state securities laws. The undersigned further
understands and agrees that (i) these securities may be sold only
if they are subsequently registered under the Act and qualified
under any applicable state securities laws or, in the opinion of
the Company’s counsel, an exemption from such registration
and qualification is available; (ii) any routine sales of these
securities made in reliance upon Rule 144 promulgated by the
Commission under the Act, can be effected only in the amounts set
forth in and pursuant to the other terms and conditions, including
applicable holding periods, of that Rule; and (iii) the Company is
under no obligation to assist him in complying with any exemption
from registration under the Act, or, except as otherwise set forth
herein and in the Certificate of Designation of Series C Preferred
Stock and Series B Warrant attached hereto as Exhibits, to register
the Units, the Preferred Stock, the Warrants or the Underlying
Shares on his behalf.
The undersigned represents and warrants that he
has received (i) a copy of the form of the Warrant appended hereto
as Exhibit B ; (ii) a copy of the form of the Certificate of
Designation of Series C Preferred Stock appended hereto as
Exhibit C ; (iii) a copy of the Registration Rights
Agreement appended hereto as Exhibit D; (iv); a Schedule of
the Use of Proceeds of this Offering appended hereto as Exhibit
E ; (v) a copy of the Company’s Form 10-Q for the
quarterly period ended March 31, 2003 appended hereto as Exhibit
F ; (vi) a copy of the Company’s Form 10-K for fiscal
year 2003 included in the Annual Report and appended hereto as
Exhibit G ; (vii) a copy of the Company’s Proxy
Statement for the Year 2003 Annual Meeting of Stockholders appended
hereto as Exhibit H ; and (viii) a Description of Risk
Factors relating to the Company and this Offering appended hereto
as Exhibit I; (all of the foregoing documents and the
Subscription Agreement collectively are herein referred to as the
“Information Documents”) and that he has read and
understood all of these documents. In addition, the undersigned is
aware that the Company files annual, quarterly and special reports,
proxy statements and other information with the Commission and he
can access these filings on the Commission’s Internet site,
which is http://www.sec.gov.
The undersigned acknowledges that he has been
granted a reasonable time prior to the date hereof, during which he
has had the opportunity to obtain such additional information, as
he deemed necessary to permit him to make an informed decision with
respect to the purchase of his Unit(s). He also represents and
warrants that he (i) has reviewed such other documents and obtained
such other information from the Company as he deems necessary in
order for him to make an informed investment decision; (ii) has had
access to all relevant documents, instruments, books, and other
records of or pertaining to the Company and has had the opportunity
to ask questions of and receive answers from management and other
representatives of the Company; and (iii) is fully aware of the
current business prospects, financial condition, and operating
history as set forth herein and in the Information Documents
relating to the Company. Except as may be provided in this
Subscription Agreement and Investment Letter and in the other
Information Documents, he warrants that no representations,
statements or inducements were made to him to purchase the Unit(s)
and in subscribing for the Unit(s) he is not relying upon any
representations other than those contained herein or in the other
Information Documents.
Page 4 of 13
Subscription Agreement and
Investment Letter for Units of
Ratexchange Corporation
The undersigned understands that this
Subscription Agreement and Investment Letter and the other
Information Documents, contain “forward-looking
statements” within the meaning of the Private Securities
Litigation Reform Act of 1995, including without limitation,
statements regarding future cash requirements, sales forecasts, and
profit and loss, cash flow and balance sheet projections. Such
forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance and achievements of the Company, or industry results,
to be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking
statements. Such factors include, among others, general economic
and business conditions, industry capacity, industry trends,
competition, litigation, the loss of any significant management
personnel, the inability to acquire and retain significant
customers, changes in business strategy or development plans,
quality of management, availability, terms and deployment of
capital, business abilities and judgment of personnel, availability
of qualified personnel, changes in, or the failure to comply with,
government regulations, and other factors referenced herein and in
the other Information Documents.
THE UNDERSIGNED UNDERSTANDS THAT, BECAUSE OF THE
SIGNIFICANT RISK FACTORS SET FORTH HEREIN OR IN THE OTHER
INFORMATION DOCUMENTS, INCLUDING BUT NOT LIMITED TO THE DESCRIPTION
OF RISK FACTORS, IF THE OFFERING IS CONSUMMATED, HE COULD LOSE HIS
ENTIRE INVESTMENT.
The undersigned also understands that the
Company is a securities broker-dealer and investment bank focused
on emerging growth companies and growth-oriented institutional
investors. It provides sales and trading services primarily to
institutions. The Company’s mission is to become a leader in
the researching, advising, financing and trading of emerging growth
equities. The Company has 44 employees and is headquartered in San
Francisco with additional offices in Boston and Irvine, California.
Our RTX Securities subsidiary is registered with the Securities and
Exchange Commission as a broker-dealer and is a member of the
National Association of Securities Dealers, Inc.
On November 20, 2002, the Company and Forsythe
McArthur Associates Inc. (“FMA”) entered into an
agreement wherein the Company purchased an option to restructure
the terms of the Convertible Promissory Note held by FMA and dated
September 1, 2001 (See Exhibit 10-33, attached to the
Company’s Annual Report on Form 10K, filed March 28, 2002,
SEC file no. 02592121.) The Company and FMA agreed to the following
terms: 1. FMA currently holds a Convertible Promissory Note with
principal sum of $5,949,042 and accruing interest at a rate equal
to 9.0% per annum. The interest on the Convertible Promissory Note
is payable quarterly, 2. The Company will pay interest on the
Convertible Promissory Note for the fourth quarter of year 2002.
The Company will not accrue or pay additional interest on the
Convertible Promissory Note for the period from January 1, 2003
through June 30, 2003, as described further below, 3.
The
Page 5 of 13
Subscription Agreement and
Investment Letter for Units of
Ratexchange Corporation
Company will purchase an option from FMA in
exchange for 500,000 shares of the Company’s common stock and
registration rights on those shares (the “Option”). The
Option will have a term beginning on November 20, 2002 and ending
on June 30, 2003. Upon the Company’s exercise of the Option,
the Convertible Promissory Note will be cancelled and FMA will
receive the following restructured consideration in full and
complete satisfaction of all obligations owed to it by the Company:
a. $500,000 in cash; b. 2,000,000 shares of the Company’s
common stock, including demand registration rights; and c. a new
Promissory Note of principal sum equal to $1,000,000 bearing
interest at 3.5% per annum payable quarterly in cash, maturing on
December 31, 2005, 4. The 2,000,000 shares of the Company’s
common stock will include a registration rights agreement wherein
FMA will receive both piggyback and demand rights. The Company will
file the appropriate registration statement with the Securities and
Exchange Commission on or before June 30, 2003. The registration
statement will include the 500,000 shares granted to FMA for the
Option and the interest shares earned by FMA under the Restructure
Agreement of October 4, 2001. The 2,000,000 shares included in the
restructure consideration will be registered for resale if the
Company exercises the Option, 5. Beginning on January 1, 2003 and
ending on June 30, 2003, the Company will pay quarterly interest in
cash to FMA based upon the terms of the new Promissory Note, i.e.
3.5% per annum against the principal sum of $1,000,000. Should the
Company exercise the Option, no interest will be due or payable
under the Convertible Promissory Note subsequent to December 31,
2002 and the restructure terms set forth in Point 3, will apply and
continue through maturity of the new Promissory Note. The Company
may pre-pay its obligation under the new Promissory Note at anytime
prior to maturity without penalty. Should the Company not exercise
the Option; the amount of interest paid to FMA during the Option
Period will be credited against interest payments owed under the
Convertible Promissory Note that will be paid on June 30,
2003.
RTX is authorized to issue 300 million shares of
Common Stock. Of this amount, 23,067,546 shares are issued and
outstanding as of March 6, 2003. Holders of Common Stock are
entitled to receive dividends when, as and if declared by the Board
of Directors out of funds legally available therefor. They have no
preemptive or other rights to subscribe for additional shares and
the Common Stock has no redemption, sinking fund or conversion
provisions. Each share of Common Stock is entitled to one vote on
any matter submitted to the holders thereof and to equal rights in
the assets of the Company upon liquidation subject to the prior
rights of creditors and holders of any preferred stock. The
outstanding shares of Common Stock are validly issued, fully paid
and non-assessable.
The shares of Common Stock have non-cumulative
voting rights, which means that the holders of more than 50% of the
shares voting for the election of directors can elect all of the
Directors of the Company. In such event, the holders of the
remaining shares will not be able to elect any of the Directors.
After the completion of this Offering but before the conversion of
any Notes or exercise of any Warrants, the Company’s
Directors and executive officers together with their affiliates,
will own or control an aggregate of approximately 25% of the then
outstanding Common Stock.
Page 6 of 13
Subscription Agreement and
Investment Letter for Units of
Ratexchange Corporation
RTX has reserved an aggregate of 5 million
shares of Common Stock for issuance to directors, officers and
other key employees in the form of incentive or nonqualified stock
options, stock appreciation rights, or restricted stock awards
pursuant to its Ratexchange Corporation 2001 Stock Option and
Incentive Plan (the “Plan”). Additionally, there are
currently 13 million outstanding options to purchase Common Stock,
most of which are exercisable. The exercise prices range from $0.34
per share to $7.00 per share.
The Company is authorized to issue 60 million
shares of preferred stock, par value $0.0001 per share, (the
“Preferred Stock”) of which 599,999 shares of
non-redeemable Series A Convertible Preferred Stock (the
“Series A”) are currently issued and outstanding. The
Series A is convertible into Common Stock at the ratio of 1:1.
Holders of the Series A are entitled to (i) dividends in kind at
the rate of 6% per annum; (ii) a liquidation preference equal to
$2.75 per share; (iii) one vote for each share of Common Stock into
which the Series A is convertible; and (iv) nominate two directors
as long as no less than 600,000 shares of Series A stock is
outstanding.
The Company has currently issues 12,500,000
shares of non-redeemable Series B Convertible Preferred Stock (the
“Series B”). The Series B is convertible into Common
Stock at the ratio of 1:1. Holders of the Series B are entitled to
(i) dividends in cash at a rate of 3.0% per annum; (ii) one vote
for each share of Common Stock into which the Series B is
convertible; and (iii) subject to automatic conversion if the
Company’s common stock has a closing price of $0.60 or above
for 10 consecutive trading days.
The Company’s amended certificate of
incorporation authorizes the Board of Directors, without any vote
or action by the holders of the Common Stock, to issue Preferred
Stock from time to time in one or more series. The Board is
authorized to determine the number of shares and to fix the powers,
designations, preferences and relative, participating, optional or
other special rights of any series of Preferred Stock. Issuances of
Preferred Stock, if convertible into Common Stock, would be subject
to the applicable rules of the AMEX or other markets in which the
Common Stock is then quoted or listed for trading. Depending on the
terms established by the Board, any or all series of Preferred
Stock could have preference over the Common Stock with respect to
dividends and other distributions and upon the liquidation of the
Company as well as other matters.
If the Company issues any shares of Preferred
Stock with voting powers, or it issues additional shares of Common
Stock, the voting power of the currently outstanding Common Stock
would be diluted.
The Delaware General Corporation Law may subject
the Company to certain provisions which, subject to certain
exceptions, require that, any business combination of the Company
with a 15% or greater stockholder (an “Interested
Stockholder”) or an affiliate thereof is prohibited for a
period of three years following the time that such stockholder
became an Interested Stockholder, unless at or subsequent to such
time the business combination is approved by the board of directors
and authorized at an annual or special meeting of stockholders, and
not by written consent, by the affirmative vote of at least
66 2
/ 3 % of the outstanding voting stock
which is not owned by the Interested Stockholder. These provisions
could delay or frustrate the removal of incumbent directors or a
change in
Page 7 of 13
Subscription Agreement and
Investment Letter for Units of
Ratexchange Corporation
control of the Company. The undersigned
understands that the foregoing provisions could also discourage or
make more difficult a merger or other type of corporate
reorganization, whether or not management favors such transactions,
even if it could be favorable to the interests of the
stockholders.
OTC Stock Transfer, Inc. serves as the
Company’s registrar and transfer agent for its Common
Stock.
In connection with the subscription being made
hereby the undersigned also warrants and represents
that:
(a) If the undersigned is not an
individual, it has not been organized for the purpose of purchasing
the Unit(s);
(b) He has not received any general
solicitation or advertising regarding the Offering or been
furnished with any oral representation or oral information in
connection with the Offering which is not set forth herein or in
the other Information Documents;
(c) He has sufficient knowledge and
experience of financial and business matters so that he is able to
evaluate the merits and risks of purchasing the Unit(s) and has
determined that the Unit(s) is (are) a suitable investment for
him;
(d) He has the means to provide for
his personal needs, possesses the ability to bear the economic risk
hereunder indefinitely, and can afford a complete loss of his
investment;
(e) He does not have any contract,
undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third
person, with respect to the Unit(s) for which he is subscribing or
any of the Underlying Securities or Underlying Shares;
(f) His overall commitment to
investments that are not readily marketable is not disproportionate
to his net worth, and his purchase of the Unit(s) will not cause
such overall commitment to become excessive;
(g) He has carefully read and
reviewed this Subscription Agreement and Investment Letter, the
Certificate of Designation of Series B Preferred Stock, the form of
the Warrant, the Description of Risk Factors, the Schedule of Use
of Proceeds and the other Information Documents, and has asked such
questions of the Company’s management and received from them
such information as he deems necessary in order for him to make an
informed decision with respect to the purchase of the
Unit(s);
(h) He understands that the Company
will prohibit the transfer of the undersigned’s Unit(s),
Underlying Securities and Underlying Shares absent full compliance
with the Securities Act, the Exchange Act and all applicable state
securities laws, as described herein;
Page 8 of 13
Subscription Agreement and
Investment Letter for Units of
Ratexchange Corporation
(i)
(insert name of Purchaser Representative: if none, leave blank) has
acted as the undersigned’s Purchaser Representative for
purposes of the private place
