-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MDaSfhwqpanvOzV/cFGSmjE6FF/d3YZ1lkW8K48AaC05JJ5zLS7IY+QT0pC4XDdi gidVLfVQ0WQWa7OsCd+7Nw== 0001144204-04-001804.txt : 20040218 0001144204-04-001804.hdr.sgml : 20040218 20040218122553 ACCESSION NUMBER: 0001144204-04-001804 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 22 FILED AS OF DATE: 20040218 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROVO INTERNATIONAL INC CENTRAL INDEX KEY: 0001040850 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 133950283 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-112926 FILM NUMBER: 04612383 BUSINESS ADDRESS: STREET 1: ONE BLUE HILL PLAZA STREET 2: STE 1548 CITY: PEARL RIVER STATE: NY ZIP: 10965 BUSINESS PHONE: 9146238553 MAIL ADDRESS: STREET 1: ONE BLUE HILL PLAZA STREET 2: STE 1548 CITY: PEARL RIVER STATE: NY ZIP: 10965 FORMER COMPANY: FORMER CONFORMED NAME: FRONTLINE COMMUNICATIONS CORP DATE OF NAME CHANGE: 19981230 FORMER COMPANY: FORMER CONFORMED NAME: EASY STREET ONLINE INC DATE OF NAME CHANGE: 19970820 S-3 1 v01635_provo-s3.txt PROVO INTERNATIONAL, INC. AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 17, 2003 REGISTRATION NO. 333-______ - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 PROVO INTERNATIONAL, INC. ( Name of Registrant as Specified in Its Charter) DELAWARE 13-3950283 (State or Other (IRS Employer Jurisdiction of Incorporation or Identification Organization) Number) ONE BLUE HILL PLAZA, 7TH FLOOR PEARL RIVER, NEW YORK 10965 (845) 623-8553 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) STEPHEN J. COLE-HATCHARD CHIEF EXECUTIVE OFFICER PROVO INTERNATIONAL, INC. ONE BLUE HILL PLAZA, 7TH FLOOR PEARL RIVER, NEW YORK 10965 (845) 623-8553 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) COPY TO: SEAN P. MCGUINNESS, ESQ. SWIDLER BERLIN SHEREFF FRIEDMAN, LLP 3000 K STREET, N.W. SUITE 300 WASHINGTON, D.C. 20007 TELEPHONE: (202) 424-7500 FACSIMILE: (202) 295-8478 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- If any of the securities being registered on this Form to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the following box. [ ] If the registrant elects to deliver its latest annual report to security holders, or a complete and legal facsimile thereof, pursuant to Item 11(a) of this Form, check the following box: [ X ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] 2 CALCULATION OF REGISTRATION FEE PROPOSED MAXIMUM PROPOSED AGGREGATE MAXIMUM AMOUNT OF TITLE OF SHARES AMOUNT TO PRICE PER AGGREGATE REGISTRATION TO BE REGISTERED BE REGISTERED UNIT (1) OFFERING PRICE (1) FEE Common Stock, par value $.01 2,666,666 $ 0.60 $1,599,999 $ 202.71 per share, issuable upon conversion of four convertible promissory notes Common Stock, par value $.01 per share 500,000 $ 0.60 $300,000 $ 38.01 Common Stock, par value $.01 per share 733,334 $ 0.60 $440,000 $ 55.75 Common Stock, par value $.01 per share, issuable upon exercise of warrants 1,600,000 $ 0.60 $960,000 $ 121.63 Common Stock, par value $.01 per share, issuable upon exercise of warrants 1,250,000 $ 0.60 $750,000 $ 95.00 TOTAL REGISTRATION $ 513.10 FEE (1) Estimated, pursuant to Rule 457(c), solely for the purpose of calculating the registration fee based on the average of the high and low prices for the common stock, as reported on the American Stock Exchange Market on February 12, 2004. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. 3 SUBJECT TO COMPLETION - DATED FEBRUARY 17, 2004 THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. PROVO INTERNATIONAL, INC. 6,750,000 SHARES OF COMMON STOCK This prospectus relates to the resale of 6,750,000 shares of common stock by the selling shareholders named in this prospectus. The 6,750,000 shares of our common stock offered by this prospectus were issued to the selling shareholders in three separate transactions. See - Summary of Transactions - The Offering, at page 26. The selling shareholders will receive all of the proceeds from any sales of common stock. We will not receive any of the proceeds. Assuming that all of the warrants held by selling stockholders are exercised, we will realize proceeds of approximately $924,500. The selling shareholders may sell the shares of common stock at various times and in various types of transactions, including: block transactions, directly to purchasers through agents, brokers, dealers or underwriters, and sales "at the market" to or through a market maker or an existing trading market or otherwise. Sales not covered by this prospectus may also be made pursuant to Rule 144 or another applicable exemption under the Securities Act of 1933. Shares may be sold at the market price of the common stock at the time of a sale, at prices relating to the market price over a period of time, or at prices negotiated with the buyers of the shares. The selling shareholders will pay all brokerage fees and commissions and similar expenses. Under the terms of our registration rights agreements with the selling shareholders, we are required to pay legal, accounting and other expenses relating to the registration of the shares with the Securities and Exchange Commission. Our common stock is traded on the American Stock Exchange under the symbol "FNT." On February 12 , 2004, the last reported sale price for our common stock was $0.60 per share. ________________ INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 14 OF THIS PROSPECTUS BEFORE MAKING A DECISION TO PURCHASE OUR STOCK. ________________ NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is February __, 2004. 4 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents previously filed by Provo International, Inc. (formerly known as Frontline Communications Corporation) with the Securities and Exchange Commission are incorporated herein by reference and shall be deemed a part of this prospectus: o Annual report on Form 10-KSB for the year ended December 31, 2002, filed on April 15, 2003, amendment filed on October 6, 2003; o Quarterly report on Form 10-QSB for the quarter ended March 31, 2003, filed on May 13, 2003; o Quartlerly report on Form 10-QSB for the quarter ended June 30, 2003, filed on August 19, 2003, amendment filed on October 3, 2003; o Quarterly report on Form 10-QSB for the quarter ended September 30, 2003, filed on November 14, 2003; o Form 8-Ks filed on March 31, 2003, April 18, 2003, May 20, 2003 and September 30, 2003, and amendments thereto, filed May 6, 2003, June 17, 2003, June 18, 2003 and October 6,2003; o Definitive Proxy Statement on Form 14A filed on November 13, 2003; and o The description of our common stock contained in our Registration Statement on Form 8-A, declared effective May 5, 1998, together with any amendment or report filed with the SEC for the purpose of updating the description. All documents we file pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, after the date of this prospectus and before the termination of the offering of the securities hereby shall be deemed to be incorporated by reference in this prospectus and to be a part of this prospectus on the date of filing of the documents. Any statement incorporated in this prospectus shall be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in this prospectus or in any other subsequently filed document which also is, or is deemed to be, incorporated by reference in this prospectus modifies or supersedes the statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this prospectus or the registration statement of which it is a part. This prospectus incorporates documents by reference with respect to Provo International, Inc. that are not presented herein or delivered herewith. These documents are available without charge to any person, including any beneficial owner of our securities, to whom this prospectus is delivered, upon written or oral request to Amy Wagner-Mele, Esq., Provo International, Inc., One Blue Hill Plaza, 6th Floor, Pearl River, New York 10965, telephone: (845) 623-8553. These reports and other information can also be read and copied at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our electronic filings made through the SEC's electronic data gathering, analysis and retrieval system are publicly available through the SEC's worldwide web site (http://www.sec.gov). THE BUSINESS The following is a summary description of our business and of the business of Proyecciones y Ventas Organizadas, S.A. de C.V., ("Provo Mexico"), a company we acquired in April 2003. Because this is a summary, it does not contain all the information about us that may be important to you. You should read the more detailed information and the financial statements and related notes which are incorporated by reference in this prospectus. THE COMPANY We are a Delaware corporation. Our principal executive offices are located at One Blue Hill Plaza, 7th Floor, Pearl River, New York 10965. Our telephone number is (845) 623-8553. The address of our website is http://www.provointernational.com. The Information on our website is not part of this prospectus. We were formed during February 1997 as a Delaware corporation under the name "Easy Street Online, Inc." We changed our name to "Frontline Communications Corporation" in July 1997. On April 3, 2003, we acquired Proyecciones y Ventas 5 Organizadas, S.A. de C.V. ("Provo Mexico") and in December 2003 we changed our name to "Provo International Inc." Prior to acquiring Provo Mexico, during 2003 and during 2002 our revenues were primarily derived from providing Internet access services in the form of dial-up access, dedicated leased lines and digital subscriber line (DSL) access to individuals and businesses. The balance of our revenues during those periods were derived from website design, development and hosting services. We are now organized into three distinct divisions. Provo International is responsible for overseeing mergers, acquisitions, financing transactions and regulatory compliance activities. Provo US, a division of Provo International, is responsible for the continued management of the Internet service business, which was our core business prior to our acquisition of Provo Mexico. Provo Mexico, a wholly owned subsidiary of Provo International, continues to distribute prepaid calling cards and cellular phone airtime in Mexico. RECENT DEVELOPMENTS On April 3, 2003, we acquired Provo Mexico for consideration consisting of the following: 220,000 shares of our Series C convertible preferred stock, which was to be convertible into shares of our common stock subject to the approval of our stockholders; and a $20,000,000 secured note, which was to be payable only if our stockholders failed to timely approve the proposed issuance of common stock upon conversion of the Series C convertible preferred stock. In connection with our acquisition of Provo Mexico, we also issued 35,500 shares of our Series D convertible preferred stock to certain of our executive officers and directors, certain Provo employees and other third parties, which also was to be convertible into shares of our common stock subject to the approval of our stockholders. On November 5, 2003, we issued 220,000 shares of our Series E convertible preferred stock in exchange for all 220,000 outstanding shares of our Series C convertible preferred stock. The terms of the Series E convertible preferred stock were substantially the same as those of the Series C convertible preferred stock except that, in order to satisfy certain requirements of the American Stock Exchange pertaining to the continued listing of our securities, no share of Series E convertible preferred stock will be issuable to the two former Provo stockholders and any entity controlled by them if as a result of such conversion the shares of common stock held by them and their affiliates would exceed 49.5% of the outstanding common stock after giving effect to such conversion. On December 12, 2003 we held a meeting of our stockholders to consider and vote upon the issuance of shares of our common stock upon conversion of our Series E convertible preferred stock and our Series D convertible preferred stock, and certain other matters including the following: a two-for-three reverse split of our common stock; an increase in the number of our authorized shares of common stock from 25,000,000 shares to 100,000,000 shares; the mandatory conversion of all of our Series B convertible redeemable preferred stock into shares of our common stock upon the election of the holders of a majority thereof; and the approval of the issuance of our common stock to Fusion Capital. 6 As a result of the vote of our stockholders on December 12, 2003: 133,445 of the 220,000 outstanding shares of Series E convertible preferred stock were converted into 20,016,750 shares of common stock (and the remaining 86,555 shares of Series E convertible preferred stock remain outstanding); all 35,500 outstanding shares of Series D convertible preferred stock were converted into 3,550,000 shares of common stock; the two-for-three reverse stock split was approved, and became effective as of January 30, 2004; our authorized shares of common stock were increased from 25,000,000 shares to 100,000,000 shares; all 496,445 outstanding shares of Series B convertible redeemable preferred stock were converted into 1,985,780 shares of common stock (after giving effect to the reverse stock split); the proposed financing with Fusion Capital was approved; and the $20,000,000 secured note issued to the former stockholders of Provo Mexico was canceled. DESCRIPTION OF THE PROVO US DIVISION GENERAL Our Provo US division is a regional Internet service provider (ISP) providing Internet access, web hosting, website design, and related services to residential and small business customers throughout the Northeast United States and, through a network partnership agreement, Internet access to customers nationwide. Primarily through 18 acquisitions, the Provo US division grew its monthly revenue from $30,000 as of October 1998 to approximately $400,000 as of December 31, 2002. During that same period, the division expanded its owned Internet access geographic footprint from the New York/New Jersey metropolitan area, to a region that now includes Delaware, Eastern Pennsylvania and Northern Virginia. At December 31, 2002, the Provo US division owned and operated 12 points-of-presence (POPs) which, when combined with 1,100 POPs licensed from third parties, provide us with the capability to serve over 75% of the U.S. population. During 2002, the Provo US division concentrated its efforts and resources primarily on restructuring its operations to reduce costs, increase operating efficiency and improve customer service. As a result of the restructuring, the US division reduced its staff from approximately 70 employees at March 2001 to 28 as of December 1, 2003, and closed two regional offices, consolidating those functions into our Pearl River, New York headquarters. The Provo US division also streamlined its product offerings, eliminating certain low margin products and services, and added a broadband one-way satellite Internet access product line to its group of services. We also standardized our product pricing, and raised the monthly rates to most of our dial-up access customers to between $17.95 and $19.95 per month, depending on the term of service purchased. COMPETITION Our competitors for Internet access services in the United States include international and national telecommunications providers, such as America Online, 7 Time Warner Cable, Verizon, Earthlink, United Online (NetZero and Juno brands) and Covad Communications, as well as regional Internet service providers, such as Best Web Corporation, Fastnet Inc. and LogicalNet Corporation. Our national competitors have significantly greater financial, technical, marketing and other resources than we do, and our share of the market compared to theirs is too small to quantify. We believe that our market share in the region in which we operate is less than 1%. Many of our current and future competitors possess a wide range of products and collective new product development capabilities that exceed ours. For example, some of our competitors, such as Time Warner Cable, offer access to the Internet via cable modem. We do not possess the technical capability to offer such a service. Increased competition could result in significant price competition, which in turn could result in significant price reductions in some of our product offerings, most notably Internet access and web hosting. In addition, increased competition for new customers could result in increased sales and marketing expenses and related customer acquisition costs, which could materially adversely affect our operating results. We may not have the financial resources, technical expertise or marketing and support capabilities to compete successfully, and the software, services or technologies developed by others may render our products, services or technologies obsolete or less marketable. INDUSTRY REGULATION The following summary of regulatory developments and legislation does not describe all present and proposed federal, state and local regulations and legislation affecting us and our industry. Other proposed and existing federal, state and local legislation and regulations are currently the subject of judicial proceedings, legislative hearings and administrative proposals which could change the manner in which our industry operates. Neither the outcome of these proceedings, nor their impact upon us or our industry, can be predicted at this time. INTERNET SERVICE PROVIDER REGULATION Currently, few U.S. laws or regulations specifically regulate communications or commerce over the Internet. However, changes in the regulatory environment relating to the Internet connectivity market, including regulatory changes which directly or indirectly affect telecommunications costs or increase the likelihood or scope of competition from the regional Bell operating companies or other telecommunications carriers, could affect the prices at which we may sell our services and impact competition in our industry. Congress and the Federal Communications Commission will likely continue to explore the potential regulation of the Internet. For instance, the Federal Communications Commission may subject certain services offered by ISPs to regulation as "telecommunications service", which could result in us being subject to universal service fees, regulatory fees and other fees imposed on regulated telecommunications providers, which could cause our costs of doing business to increase substantially. Future laws and regulations could be adopted or modified to address matters such as user privacy, copyright and trademark protection, pricing, consumer protection, child protection, characteristics and quality of Internet services, libel and defamation, and sales and other taxes. Internet-related legislation and regulatory policies are continuing to develop, and we could be subject to increased regulation in the future. Laws or regulations could be adopted in the future that may decrease the growth and expansion of the Internet's use, increase our costs, or otherwise adversely affect our business. In 1998, Congress passed the Digital Millennium Copyright Act. That act provides numerous protections from certain types of copyright liability to Internet service providers that comply with its requirements. We have adopted policies and procedures in accordance with the act, however, to the extent that we have not met those requirements, third parties could seek recovery from us for copyright infringements caused by our Internet customers. The law relating to the liability of Internet service providers for 8 information carried on or disseminated through their networks is currently unsettled. It is possible that claims could be made against Internet service providers for defamation, negligence, copyright or trademark infringement or on other theories based on the nature and content of the materials disseminated through their networks. We could be required to implement measures to reduce our exposure to potential liability, which could include the expenditure of resources or the discontinuance or modification of certain product or service offerings. Costs that may be incurred as a result of contesting any claims relating to our services or the consequent imposition of liability could have a material adverse effect on our financial condition, results of operations and cash flow. PROPERTIES Our executive offices are located in Pearl River, New York, where we lease approximately 12,000 square feet of space through a lease that expires in August of 2004. We also lease approximately 2,700 square feet of space in Babylon, New York that was assumed in connection with our purchase of PNM group, Inc. (d/b/a) Planet Media. The lease expires in August of 2005. The aggregate annual rent of the two offices is approximately $308,000. In 2001, as a part of our restructuring program, we closed our regional offices in Delaware and Virginia and have terminated the leases with the landlords. We lease approximately 2,400 square feet in Howell, New Jersey under a lease that expires in May 2004 and provides for monthly rental of approximately $3,500. We have closed our office at this location and are attempting to terminate the lease. We also lease space (typically, less than 100 square feet) in various geographic locations to house the telecommunications equipment for each of our POPs. Leases for the POPs have various expiration dates through June 2004. Aggregate annual rentals for POPs are approximately $6,000. EMPLOYEES We currently employ 28 full-time individuals in our Provo US division, 24 of whom are located at our Pearl River, New York headquarters. The remaining employees are located at the Babylon, New York facility. LEGAL PROCEEDINGS From time to time, we have been a party to routine pending or threatened legal proceedings and arbitrations that are routine and incidental to our business. Based upon information presently available, and in light of legal and other defenses available to us, management does not consider the liability from any threatened or pending litigation to be material to us. DESCRIPTION OF PROVO MEXICO GENERAL Provo Mexico was formed in October 1995 by Ventura Martinez Del Rio, Sr., as a private company headquartered in Mexico City. Provo Mexico was formed to distribute prepaid (Ladatel) public telephone cards for Telefonos de Mexico, S.A. ("Telmex"), which were introduced in 1995. Telmex is the dominant telecommunications provider in Mexico. Provo Mexico quickly became the leading distributor of Ladatel cards and has maintained its leading position, which currently stands at approximately 7% of the nationwide market. Provo Mexico also distributes Multifon prepaid landline telephone time provided by Telmex and prepaid Digital PCS cellular airtime provided by Radiomovil Dipsa, S.A. de C.V. ("Telcel"). Telcel is the dominant provider of cellular airtime in Mexico. 9 Provo Mexico rapidly grew its sales of prepaid calling time to more than $100,000,000 in 2002. Currently, Telcel airtime sales represent about 30% of Provo Mexico's total annual sales, up significantly from 10% in 2000. Telcel airtime is expected to represent an increasing proportion of Provo Mexico's sales as Ladatel sales have begun to level off. Provo Mexico's principal office is located at Alvaro Oberegon No. 121 , Penthouse, Mexico City, Mexico, and its telephone number is 011 52 55 5264-6442. PRODUCTS The purpose of the services that Provo Mexico currently resells in Mexico is to allow individuals who either do not own a land line phone or cell phone or are not able to enter into continuous service contracts for these services, to make calls on an as-needed basis, in a convenient and affordable manner. Telmex calling time is offered via Ladatel cards in increments of 30, 50 and 100 pesos. Calling time is stored in a simple, single-purpose smart chip and "burns off" as it is used. Mechanisms housed within public telephones charge used calling time against the electronic balance stored in the card until no calling time remains. At this point, a new card must be purchased. Prior to the advent of these calling cards in 1995 in Mexico, public phones were coin-based. Such coin-based phones often broke down or were the subject of significant theft problems. The prepaid card program implemented by Telmex largely has remedied these problems. Prepaid Multifon calling time is offered via personal identification number (PIN)-based access. Multifon time is sold to groups of residents who share a common phone in a building such as an apartment building. Telcel calling time is also offered via PIN-based access. Telcel calling time is sold in increments of 100, 200 or 500 pesos. Users must own or share a phone to use this service. A PIN must be entered prior to making the first call. A central switch maintained by Telcel tracks remaining calling time. Users must repurchase a new block of time with a new PIN every time they exhaust their prepaid cellular calling time. In addition, Provo Mexico, in cooperation with Provo US, plans to launch a payroll card product in the U.S. and Mexico within the next two months. The Provo payroll card will enable employers to directly deposit an employee's earnings onto a bank card. The card will serve as a credit, debit and cash transfer card. Provo's revenue from the sale of the card will derive from a percentage of transaction fees on the employer and employee side. Provo plans to market the product to employers of unbanked Spanish speaking workers in the U.S. and Latin America. DESCRIPTION OF COMMISSIONS Provo Mexico has relied on Telmex to finance much of its sales growth over the past eight years, through its provision of a credit line to Provo. Telmex requires all of its distributors to pay for all resold calling time using cash or their credit line with Telmex when it is ordered. Various surplus properties owned by Provo Mexico, its principals and its business partners have been pledged to guarantee Provo Mexico's credit lines with Telmex. The average discount Provo Mexico receives related to purchases of minutes from Telmex using credit is approximately 10.8% (credit-based discounts for 30-, 50- and 100-peso cards range from 10.0% to 12.0%). This compares to an average discount rate of approximately 13.8% related to purchases of minutes paid for entirely with cash (cash-based discounts for 30-, 50- and 100-pesos cards range from 13.0% to 15.2%). Starting on March 10, 2003, Provo Mexico effectively 10 stopped purchasing calling cards using its credit lines with Telmex, thus significantly increasing its profit margins. All of Provo Mexico's calling card purchases from Telmex are currently made in cash. Provo Mexico allows its external agent, distributor and point of sale partners to retain combined commissions or discounts that typically range from 8% to 9%. Provo Mexico pays its internal sales team members commissions of 3% to 5%. Its distributor network is responsible for collecting approximately 50% of card sale proceeds and remitting the proper net proceed amounts to Provo Mexico within 21 days of taking delivery of new cards. The other half of Provo Mexico's sales are collected directly by Provo Mexico or remitted to Provo Mexico via daily deposits by Provo Mexico's agents to company-owned bank accounts. Provo Mexico has established strict remittance rules to ensure that the distributors to whom it extends credit will pay all amounts owed to Provo Mexico on a timely basis. Provo Mexico's distribution network includes several large retail chains, including Wal-Mart, Carrefour and Office Max. In addition, Provo Mexico distributes its cards in convenience stores, drug stores, restaurants, lottery stands, newspaper and magazine stands and other general stores. COMPETITION Approximately 140 distributors sell prepaid calling time purchased from Telmex and Telcel in Mexico. Provo Mexico currently maintains the largest market share position for prepaid calling time in Mexico, at approximately 7%. The next two largest competitors that sell prepaid calling time in Mexico are Tarjetas Del Noreste and DiCasa, each with a market share position of approximately 5% to 6%. Telmex has attempted to curb the size of Provo Mexico in the past, by converting sub-distributors of Provo Mexico to direct distributors for Telmex. In these instances, Telmex has agreed to pay Provo Mexico royalties to compensate Provo Mexico for the migration of its sub-distributors upstream. SUBSIDIARIES Provo Mexico currently operates as a group of seven affiliated companies. Telmex required Provo Mexico to form some of the entities because of its dominant presence in certain markets. On March 31, 2003, Provo Mexico acquired from members of the Martinez del Rio family, the controlling majority of the capital stock of the following subsidiaries: FS Provo, S.A. de C.V.; Proyecciones y Ventas Organizadas del D.F., S.A. de C.V.; Proyecciones y Ventas Organizadas de Occidente, S.A. de C.V.; Tilgo, S.A. de C.V.; Tarnor, S.A. de C.V. and PTL Administradora, S.A. de C.V. Provo Mexico's audited financial statement results include the combined total of each these companies' results, as an affiliated group. In October 2002, Provo Mexico formed Provo US, Inc., a Delaware corporation wholly-owned by Provo Mexico. Provo US is currently a shell company with no operations. It is expected that Provo US will be used for any new projects that Provo Mexico may initiate in the United States. EMPLOYEES Provo Mexico currently maintains a base of approximately 135 full-time employees and has a network of 52 independently-owned distributorships that collectively employ more than 400 sales people. Provo Mexico, in conjunction with its distributors, has developed an extensive distribution network that includes more than 20,000 point-of-sale locations. 11 PROPERTIES Provo Mexico's executive offices are located in Mexico City, Mexico where Provo Mexico uses approximately 6,000 square feet of office space. The lease is for a three year term which expires in December 2006 and the monthly rent is 44,000 pesos, approximately $4,000 at the current exchange rate. In addition, Provo Mexico leases small offices in 16 cities throughout Mexico where it maintains regional sales and distribution offices. Provo Mexico's regional offices are located in the following Mexican cities: Monterrey, Nuevo Leon; Torreon, Coahuila; Monclova, Coahuila; Chihuahua, Chihuahua; Los Mochis, Sinaloa; Guamuchil, Sinaloa; Navojoa, Sonora; Ciudad Obregon, Sonora; Agua Prieta, Sonora; Durango, Durango; Tepic, Nayarit; Jalapa, Veracruz; Cordoba, Veracruz; Veracruz, Veracruz; Teziutlan, Puebla; and Queretaro, Queretaro. The aggregate annual rent for these leases is less than $15,000. Provo Mexico's subsidiary, FS Provo, S.A. owns approximately 946 acres of forest land in El Chamal, Tamaulipas, Mexico. The land has been pledged to Telmex to secure part of Provo Mexico's credit lines with Telmex. In addition, Provo Mexico and its subsidiaries Proyecciones y Ventas Organizadas del D.F., S.A. de C.V., F.S. Provo, S.A. de C.V. and Tilgo, S.A. de C.V., own seven pieces of forest land totaling approximately 605 acres in San Gabriel, San Luis Potosi, Mexico. This land also has been pledged to Telmex to secure part of Provo Mexico's credit lines with Telmex. LEGAL PROCEEDINGS Provo Mexico is not a party to any pending legal proceedings other than ordinary course routine litigation incidental to its business. We do not believe that any of these proceedings will have a material adverse effect on our financial condition or results of operations. TELMEX SETTLEMENT In order to significantly enhance its operating margins and to position itself for renewed sales growth, on March 10, 2003, Provo Mexico entered into a settlement agreement with Telmex, whereby Provo Mexico transferred five of its surplus non-revenue generating properties to Telmex in exchange for offsets to its credit lines with Telmex for 46,650,504 pesos, approximately $4,232,107 at the current exchange rate. The settlement also provided for the transfer of Provo Mexico's corporate headquarters in Mexico City. The settlement agreement converted the balance of Provo Mexico's credit line with Telmex into a number of term loans with varying re-payment schedules. Under the settlement agreement, a payment in the principal amount of 40,000,000 pesos, approximately $3,628,777 at the current exchange rate, and was due and payable on or before December 31, 2003. This payment bears interest at a variable rate equal to the Mexican Interbank Equilibrium Rate multiplied by a factor of 1.3; the current interest rate is 8.1% per annum. Finally, the settlement agreement provides for 54 monthly payments of 746,526 pesos each, approximately $67,725 dollars at the current exchange rate, which will be due and payable by Provo Mexico to Telmex commencing on July 10, 2003 and continuing until January 10, 2008. The monthly payments bear interest at a variable rate equal to the Mexican Interbank Equilibrium Rate multiplied by a factor of 1.3; the current interest rate is 8.1% per annum. On September 9, 2003, Telmex and Provo entered into an amendment to the settlement agreement, whereby Telmex agreed to increase the value assigned to certain properties previously transferred by Provo thereby further reducing Provo's total indebtedness by 7,763,182 pesos ($704,271 at the current exchange rate). This amount will reduce the number of monthly payments payable under the settlement. No monthly payments have been made to date. We are currently in 12 negotiation with Telmex to extend the November repayment date and reschedule the repayment terms of the entire line of credit. If we are unable to renegotiate the term of our debt to Telmex, Telmex may cease to provide us with products, may refuse to do business with us or may otherwise attempt to collect the debt. Should Telmex take any such action, our operations would be adversely affected. THE OFFERING Common stock offered........... 6,750,000 shares, of which 2,850,000 are issuable upon exercise of warrants owned by six of the selling stockholders, and 2,666,666 are issuable pursuant to the terms of four convertible promissory notes. Common stock outstanding....... 31,482,779 shares. Use of Proceeds................ Assuming that all of the warrants held by the selling stockholders are exercised, we will realize gross proceeds of approximately $924,500, which will be used for working capital. We will not receive any of the proceeds from the sale of common stock by the selling stockholders. American Stock Exchange symbol. FNT RISK FACTORS................... YOU SHOULD READ THE "RISK FACTORS" SECTION BEGINNING ON PAGE 14 AND THE OTHER CAUTIONARY STATEMENTS IN THIS PROSPECTUS TO ENSURE THAT YOU UNDERSTAND THE RISKS ASSOCIATED WITH AN INVESTMENT IN OUR COMMON STOCK. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. We intend the forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in these sections. All statements regarding our expected financial position and operating results, our business strategy and our plans are forward-looking statements. These statements can sometimes be identified by our use of words such as "may," "anticipate," "expect," "intend," "believe," "estimate" or similar expressions. Our expectations in any forward-looking statements may not turn out to be correct. Our actual results could be materially different from our expectations. Important factors that could cause our actual results to be materially different from our expectations include those discussed under "Risk Factors." We have no obligation to update these statements to reflect events and circumstances after the date of this prospectus. 13 RISK FACTORS You should carefully consider the risks described below before purchasing our common stock. Our most significant risks and uncertainties are described below; however, they are not the only risks we face. If any of the following risks actually occur, our business, financial condition, or results or operations could be materially adversely affected, the trading of our common stock could decline, and you may lose all or part of your investment therein. You should acquire shares of our common stock only if you can afford to lose your entire investment. RISKS RELATED TO OUR BUSINESS WE HAVE A LIMITED OPERATING HISTORY WITH SIGNIFICANT LOSSES, AND WE EXPECT TO CONTINUE TO INCUR LOSSES FOR THE FORESEEABLE FUTURE We have yet to establish any history of profitable operations. We have incurred annual operating losses of $787,525 and $7,029,287, respectively, during the past two fiscal years of operation. As a result, at September 30, 2003 we had an accumulated deficit of $38,220,364. Our revenues have not been sufficient to sustain our operations. We expect that our revenues will not be sufficient to sustain our operations for the foreseeable future. No assurances can be given when this will occur or that we will ever be profitable. Our independent auditors have added an explanatory paragraph to their audit opinion issued in connection with the financial statements for the year ended 2002 relative to our ability to continue as a going concern. Our ability to obtain additional funding will determine our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. WE WILL REQUIRE ADDITIONAL FINANCING TO SUSTAIN OUR OPERATIONS AND WITHOUT IT WE WILL NOT BE ABLE TO CONTINUE OPERATIONS At December 31, 2002 we had a working capital deficit of $2,655,722. The report of our independent auditor for the year ended December 31, 2002 includes an explanatory paragraph to their audit opinion stating that our recurring losses from operations and working capital deficiency raise substantial doubt about our ability to continue as a going concern. We have an operating cash flow deficit of $422,359 in 2002. We do not currently have sufficient financial resources to fund our operations or those of our subsidiaries. Therefore, we need additional funds to continue these operations. COMPETITION IS SIGNIFICANT IN ALL OF OUR LINES OF BUSINESS AND IS EXPECTED TO INTENSIFY The market for each of our current and expected products and services is intensely competitive, and we expect that competition will intensify in the future. There are no substantial barriers to entry, and these industries are characterized by rapidly increasing numbers of new market entrants and new products and services. Provo Mexico's three closest competitors in Mexico - Tarjetas del Noreste, DiCasa and Distribuidora Dana - each account for approximately 6-7% of the market share for prepaid calling cards in Mexico, compared to Provo's 10% market share. More than 100 resellers of prepaid calling time currently canvass the market in Mexico. Our competitors for Internet access services in the United States include international and national telecommunications providers, such as America Online, Time Warner Cable, Verizon, Earthlink, United Online (NetZero and Juno brands) and Covad Communications, as well as regional Internet service 14 providers, such as Best Web Corporation, Fastnet Inc. and LogicalNet Corporation. Our national competitors have significantly greater financial, technical, marketing and other resources than we do, and our share of the market compared to theirs is too small to quantify. We believe that our market share in the region in which we operate is less than 1%. Many of our current and future competitors possess a wide range of products and collective new product development capabilities that exceed ours. For example, some of our competitors, such as Time Warner Cable, offer access to the Internet via cable modem. We do not possess the technical capability to offer such a service. Increased competition could result in significant price competition, which in turn could result in significant price reductions in some of our product offerings, most notably Internet access and web hosting. In addition, increased competition for new customers could result in increased sales and marketing expenses and related customer acquisition costs, which could materially adversely affect our operating results. We may not have the financial resources, technical expertise or marketing and support capabilities to compete successfully, and the software, services or technologies developed by others may render our products, services or technologies obsolete or less marketable. WE ARE DEPENDENT ON MANY VENDORS AND SUPPLIERS AND THEIR FINANCIAL DIFFICULTIES MAY ADVERSELY AFFECT OUR BUSINESS We depend on many vendors and suppliers to conduct our business. For example, Provo Mexico purchases prepaid calling cards exclusively from Telmex and Telcel. If either entity terminated its relationship with Provo Mexico, it would not have access to its principal products and its primary source of revenue would be adversely affected. While Provo Mexico may be able to purchase prepaid calling cards from other regional Mexican telecommunications providers, it is unlikely that it could re-establish itself as a leading distributor of prepaid calling cards if Telmex or Telcel refused to do business with it. We purchase telecommunications services from various telecommunications companies and competitive local exchange carriers in the United States, such a Covad Communications, Focal Communications and DSL.net, Inc. Many of these third parties have experienced substantial financial difficulties in recent months, including difficulty in raising the necessary capital to maintain their operations and in some cases leading to bankruptcies and liquidations. To the extent that we rely on these third parties for services we need in order to sell our products, the financial difficulties of these companies could have a material adverse effect on our business and prospects. While we may be able to obtain comparable services from other telecommunications providers in the event any of our suppliers ceased to supply us with services, there can be no assurance that we could obtain replacement services at prices which would allow us to maintain our profit margins. WE MAY NOT BE ABLE TO MAINTAIN OUR PROFITABILITY IF OUR SUPPLIERS REDUCE THEIR COMMISSIONS OR IF THEY CEASE DOING BUSINESS WITH US Our business substantially depends on the availability of pre-paid calling cards and the discounts and commissions given to us by Telmex and Telcel. Access to calling-cards is obtained through short-term agreements that our providers can terminate, significantly modify or elect not to renew. Our operating margins are sensitive to variations in whole-sale commissions given by Telmex and Telcel. Any or all of our current suppliers could decide to reduce whole-sale commissions, which would prevent us from distributing large numbers of cards and would materially reduce our business operations and profitability. OUR SALES COULD BE ADVERSELY AFFECTED IF WE LOSE ANY OF OUR LARGEST CUSTOMERS, IF THEY MATERIALLY REDUCE THEIR RELIANCE ON DISTRIBUTORS OR IF THEY ARE UNABLE TO PAY AMOUNTS DUE If any of our largest customers in Mexico were to stop or materially reduce their purchasing from us, or were unable to pay our invoices, our financial results could be adversely affected. During fiscal 2002, Provo Mexico's top five 15 customers in the aggregate accounted for approximately 17% of its sales. We generally do not have long term contracts with our retailer customers or minimum purchase requirements. In addition, there is the possibility that our larger customers could bypass distributors and begin purchasing calling cards directly from Telmex or Telcel. The concentration of sales to our largest customers also exposes us to credit risks associated with the financial viability of our customers. We believe that our sales to our largest customers will continue to represent a significant portion of our sales. WE DEPEND ON STRATEGIC RELATIONSHIPS WITH THIRD PARTIES We depend on agreements and arrangements with a variety of third party partners, including, Telmex, Telcel and our network of distributors in Mexico as well as certain providers of high-speed access capability and other competitive local exchange carriers in the United States. The loss of any of our existing strategic relationships or any inability to create new strategic partnerships in the future would cause disruptions to our business, reduce any competitive advantages that these relationships may provide over our competitors and adversely affect our ability to expand our operations. In addition, some of the third parties with which we seek to enter into relationships may view us as a competitor and refuse to do business with us. WE HAVE NUMEROUS SUB-DISTRIBUTORS IN MEXICO AND THEY MAY DIVERT OR DELAY NET SALES RECEIPTS FROM THE POINT OF SALE Provo Mexico relies on its large network of sub-distributors to collect a substantial portion of its revenues. Should any of these sub-distributors decide to or attempt to divert or delay their remittance to Provo Mexico, its need for consistent interim cash flow would be adversely affected. Moreover, we may not be able to recover the diverted funds. Significant diversions or delays in receipts of funds by Provo Mexico could have a material adverse effect on our business, financial condition and results of operations. A DISRUPTION IN THE OPERATIONS OF OUR KEY SHIPPERS COULD CAUSE A DECLINE IN OUR SALES OR A REDUCTION IN OUR EARNINGS We are dependent on a number of commercial freight carriers to deliver our products to our sub-distributors and customers. If the operations of these carriers are disrupted for any reason, we may be unable to deliver our products to our customers on a timely basis. If we cannot deliver our products in an efficient and timely manner, our sales and profitability will suffer. While the choice of carriers is a fact based determination depending on a customer's characteristics, we currently rely on Autobuses Estrella Blanca, S.A. de C.V. to deliver approximately 42% of our products. WE ARE DEPENDENT ON EFFECTIVE BILLING, CUSTOMER SERVICE AND INFORMATION SYSTEMS AND WE MAY HAVE DIFFICULTIES IN DEVELOPING, MAINTAINING AND ENHANCING THESE SYSTEMS Sophisticated back office information and processing systems are vital to our growth and our ability to control and monitor costs, bill and service customers, initiate, implement and track customer orders and achieve operating efficiencies. Since our inception, we have also been engaged in developing and integrating our essential information systems consisting of our billing system, our sales order entry system and our customer implementation system. In addition, we continue to integrate the systems of each of our acquired businesses, including Provo Mexico. These are challenging projects because all of these systems were developed by different vendors and must be coordinated through custom software and integration processes. Our sales and other core operating and financial data are generated by these systems and the accuracy of 16 this data depends on the quality and progress of the system integration project. Although we have made progress in our system integration efforts, we have not completed it and we may experience additional negative adjustments to our financial and operating data as we complete this effort. These adjustments have not had a material adverse effect on our financial or operating data to date but until we complete the entire project we cannot assure you that any such adjustments arising out of our systems integration efforts will not have a material adverse effect in the future. If we are unable to develop, acquire and integrate our operations and financial systems, our customers could experience delays in delivery of products or services, billing issues and/or lower levels of customer service. We also cannot assure you that any of our systems will be successfully implemented on a timely basis or at all or will perform as expected. Our failure to successfully implement these systems would have a material adverse effect on our business and prospects. IN ORDER TO REMAIN PROFITABLE, WE WILL NEED TO IMPLEMENT OUR BUSINESS PLAN SUCCESSFULLY, INCLUDING INCREASING OUR CUSTOMER BASES IN MEXICO AND THE UNITED STATES AND INCORPORATING NEW LINES OF BUSINESS IN AN EFFECTIVE MANNER The success of our business plan depends upon our ability to retain and increase our customer base for prepaid calling cards; attract and retain significant numbers of customers for our Internet business; and consolidate new lines of business on a timely and cost effective basis. At the same time, we will need to hire and retain skilled management, technical, marketing and other personnel and continue to expand our product and service offerings. We may not be able to implement our business plan successfully, and we may also encounter unanticipated expenses, problems or technical difficulties which could materially delay the implementation of our business plan. We have recently expanded our marketing focus and have begun to offer additional products and services, both of which may place a significant strain on us. The expansion of our product offerings will continue to place significant demands on the time and attention of our senior management and involve significant financial and other costs, including marketing and promoting our new products and services and hiring personnel to provide these new services. We may not be able to enter new markets and offer new services successfully, and we may not be able to undertake these activities while maintaining sufficient levels of customer service to retain our existing customers, either of which would have a material adverse effect on us, our reputation and our operations. OUR INABILITY TO MANAGE OUR GROWTH EFFECTIVELY COULD ADVERSELY AFFECT OUR BUSINESS Our future performance depends on our ability to continue to sell our products, effectively roll-out our proposed products and services, implement our business strategy and effectively manage our growth. Our planned growth and expansion will place significant demands on our management and operations. Our ability to manage this growth successfully will depend on: expanding our management resources, infrastructure, information and reporting systems and controls; expansion, training and management of our employee base, including attracting and retaining skilled personnel; evaluating new markets; evaluating new acquisition opportunities; monitoring operations; and controlling costs. If we are not successful in managing our growth effectively or maintaining the quality of our service, our business, financial condition and results of operations could be materially adversely affected. OUR MEXICAN SUBSIDIARIES CONDUCT A MAJORITY OF OUR OPERATIONS AND OWN A MAJORITY OF OUR OPERATING ASSETS Our Mexican subsidiaries conduct a majority of our operations, account for a majority of our revenues and own a majority of our operating assets. As a result, our ability to make any dividend payments on our common stock depends on 17 the performance of the businesses owned by our subsidiaries and such subsidiaries' ability to distribute funds to us. Under Mexican law, Mexican companies must retain part of their profits to establish certain legal reserves prior to distributing any dividends to their stockholders. In addition, any dividends received from our subsidiaries in Mexico may be subject to withholding taxes in Mexico. The rights of holders of our common stock may be subordinated to the rights of our subsidiaries' lenders. A default by a subsidiary under its debt obligations would likely result in a block on distributions from the affected subsidiary to us. In the event of bankruptcy, liquidation or dissolution of a subsidiary and following payment of its liabilities, our subsidiary may not have sufficient assets remaining to make payments to us as a stockholder or otherwise. As of September 30, 2003, Provo Mexico and its subsidiaries had outstanding indebtedness, excluding payables to related parties, of approximately $8,100,000. RISKS RELATED TO OUR ACQUISITION OF PROVO MEXICO THE FORMER STOCKHOLDERS OF PROVO MEXICO CONTROL A SUBSTANTIAL AMOUNT OF OUR COMMON STOCK Ventura Martinez del Rio, Sr., who is our Chairman, owns 10,008,400 shares (approximately 31.8%) of our common stock, and his son Ventura Martinez del Rio, Jr., who is President of Provo Mexico, owns 3,336,100 shares (approximately 10.6%) of our common stock (in each case after giving effect to the two-for-three reverse split of our common stock which took effect January 30, 2004). In addition, Mr. Martinez del Rio, Sr. owns 64,916 shares of our Series E convertible preferred stock, optionally convertible into 6,491,600 shares of our common stock, and Mr. Martinez del Rio, Jr. owns 21,639 shares of our Series E convertible preferred stock, optionally convertible into 2,163,900 shares of common stock (in each case after giving effect to the two-for-three reverse split of our common stock which took effect January 30, 2004, and subject to the 49.5% ownership limitation described above). WE MAY NOT SUCCESSFULLY INTEGRATE AND MANAGE THE OPERATIONS OF PROVO MEXICO, WHICH COULD ADVERSELY AFFECT FUTURE EARNINGS Our wholly owned subsidiary Provo Mexico has an operating history, but not under our current management. Failure to manage the combined company successfully may negatively affect our operating results. The risks of our acquisition of Provo Mexico include the following: management will have to divert time, attention and resources to integrate the businesses; Provo Mexico may have unexpected problems or risks in operations, personnel, technology or credit; we may lose Provo Mexico's current customers or employees; new management may not work smoothly with existing employees or customers; the assimilation of new operations, sites and personnel could divert resources from existing operations; management may be unable to operate successfully in an international environment; and we may have trouble instituting and maintaining uniform standards, controls, procedures and policies. We can make no assurances that we will be able to successfully integrate acquired businesses or operations that we have acquired, including Provo Mexico, or that we may acquire in the future. In addition, we may not achieve the anticipated benefits from our acquisitions. If we fail to achieve the anticipated benefits from such acquisitions, we may incur increased expenses and experience a shortfall in our anticipated revenues and we may not obtain a satisfactory return on our investment. WE HAVE A HISTORY OF LOSSES PRIOR TO THE ACQUISITION OF PROVO MEXICO AND ANTICIPATE THAT WE MAY INCUR LOSSES IN THE FUTURE 18 Since our inception and prior to our acquisition of Provo Mexico, we have incurred significant losses. For the years ended December 31, 2001 and 2002, our net losses were $7,029,287 and $787,525, respectively. Although Provo Mexico has been a profitable company for a number of years, we have little experience as a combined company and we may not be able to achieve profitability as a combined business. Moreover, we intend to engage in additional strategic acquisitions in the future. Future acquisitions may reduce our profitability. We can make no assurances that we will achieve or sustain profitability as a combined company or generate sufficient operating income to meet our working capital, capital expenditure and debt service requirements, and if we are unable to do so, this would have a material adverse effect on our business, financial condition and results of operations. WE MAY NOT REALIZE ANTICIPATED OPERATING EFFICIENCIES, WHICH COULD HURT OUR PROFITABILITY. As a result of our acquisition of Provo Mexico, we expect to improve our operations by reducing costs, expanding services and integrating administrative functions. We may not realize these operating efficiencies or may not realize them as soon as anticipated. If we do not realize operating efficiencies as anticipated, our profitability may be adversely affected. UNANTICIPATED COSTS RELATING TO OUR ACQUISITION OF PROVO COULD REDUCE OUR FUTURE RESULTS OF OPERATIONS. We believe that we have reasonably estimated the likely costs of integrating our historic operations with those of Provo Mexico. However, the possibility exists that unexpected future operating expenses such as increased personnel costs or increased taxes, as well as other types of unanticipated adverse developments, could have a material adverse effect on the results of operations and financial condition of the combined company. If unexpected costs are incurred, the acquisition could adversely affect our results of operations and earnings per share. WE HAVE INCURRED AND WILL CONTINUE TO INCUR SIGNIFICANT TRANSACTION EXPENSES AND INTEGRATION-RELATED COSTS IN CONNECTION WITH OUR ACQUISITION OF PROVO MEXICO We expect to incur charges to operations to reflect costs associated with combining the operations of the two companies. Some of these costs will be expenses subsequent to the consummation of that acquisition and will adversely affect the results of the combined company and could adversely impact the market price of our common stock. In connection with the acquisition transaction, we and Provo Mexico incurred expenses of approximately $500,000. Integration-related costs will be recognized as those actions take place subsequent to our acquisition of Provo Mexico. There can be no assurance that realization of efficiencies anticipated from the integration of the businesses, will offset additional expenses in the near term, or at all. RISKS RELATED TO OUR STOCK OUR SUBSTANTIAL LEVERAGE COULD ADVERSELY AFFECT OUR ABILITY TO RUN OUR BUSINESS Our total outstanding indebtedness as of December 31, 2003 was approximately $8.6 million, substantially all of which was secured indebtedness. Of this amount, we were obligated to pay 40,000,000 pesos ($3,628,777 at the current exchange rate) to Telmex on December 31, 2003. We are currently in negotiations with Telmex to restructure these debts so that they are payable within a longer term. We lack the funds to pay these obligations when they become due. If we cannot generate sufficient cash flow or otherwise obtain the funds necessary to make required payments on our indebtedness, or if we otherwise fail to comply with the various covenants governing our indebtedness, we will be in default under the terms of our indebtedness. If we are in default, the holders of certain of our indebtedness may accelerate the maturity of the specific indebtedness which could cause us to default on other debt obligations. In addition, if we are in default, Telmex may suspend delivery of prepaid calling cards to us. Therefore, in order to satisfy our debt obligations, we are currently pursuing additional sources of financing, including potential sources for debt 19 and equity financing (or a combination of the two), and are exploring the possibility of selling some of our assets (such as our dial-up subscriber base), so that we will have sufficient funds to pay our debts as they become due. There can be no assurance, however, that such financing will be available on terms that are acceptable to us, or on any terms. Our ability to arrange financing and the cost of the financing will depend on many factors including: general economic and capital markets conditions; conditions in the retail, telecommunications and Internet industries; regulatory developments; investor confidence and credit availability from banks and other lenders; the success of our business plan; and tax and securities laws that affect raising capital. If we cannot obtain the additional funding we require, we will make substantial reductions in the scope and size of our operations, in order to conserve cash until such funding is obtained. We also may be required to seek protection under the bankruptcy laws. WE HAVE A SIGNIFICANT NUMBER OF OUTSTANDING OPTIONS AND WARRANTS WHICH COULD DEPRESS THE MARKET PRICE OF OUR COMMON STOCK AND COULD INTERFERE WITH OUR ABILITY TO RAISE CAPITAL IN THE FUTURE As of January 31. 2004, we had outstanding options and warrants to purchase 5,490,800 shares of our common stock at exercise prices ranging from $0.01 to $12.75 per share. To the extent that the outstanding options or warrants are exercised, dilution to the percentage of ownership of our stockholders will occur. Any sales in the public market of the shares underlying such options and warrants may adversely affect prevailing market prices for our common stock. Moreover, the terms upon which we will be able to obtain additional equity capital may be adversely affected, since the holders of outstanding options and warrants can be expected to exercise them at a time when we would in all likelihood be able to obtain any needed capital on terms more favorable to us than those provided in the outstanding options and warrants. CONVERSION OF THE SERIES E CONVERTIBLE PREFERRED STOCK WILL RESULT IN SUBSTANTIAL DILUTION The 86,555 outstanding shares of Series E convertible preferred stock are convertible into a total of 8,655,500 shares of common stock (after giving effect to the proposed two-for-three reverse stock split which took effect on January 30, 2004). Holders of common stock will therefore experience dilution of their investment as a result of the conversion of the Series E convertible preferred stock. OUR STOCK PRICE HAS BEEN VOLATILE AND FUTURE SALES OF SUBSTANTIAL NUMBERS OF OUR SHARES COULD HAVE AN ADVERSE AFFECT ON THE MARKET PRICE OF OUR SHARES The market price of our common stock has been and is expected to continue to be highly volatile. Factors, including announcements of technological innovations by us or other companies, regulatory matters, new or existing products or procedures, concerns about our financial position, operating results, litigation, government regulation, developments or disputes relating to agreements, patents or proprietary rights, may have a significant impact on the market price of our stock. In addition, potential dilutive effects of future sales of shares of common stock by stockholders and by the company, including Fusion Capital pursuant to this prospectus and subsequent sale of common stock by the holders of warrants and options could have an adverse effect on the prices of our securities. The price of our common stock may continue to fluctuate in response to a 20 number of events and factors, such as: our ability to maintain and increase our profitability; changes in revenues and expense levels; the amount of our cash resources and our ability to obtain additional funding; our ability to service our debt; announcements of new lines of business, business developments, technological innovations or new products by us or our competitors; changes in government regulation; and the success of the integration of past and future acquisitions. Any of these events may cause the price of our shares to fall, which may adversely affect our business and financing opportunities. In addition, the stock market in general and the market prices for Internet companies in particular have experienced significant volatility that often has been unrelated to the operating performance or financial conditions of such companies. These broad market and industry fluctuations may adversely affect the trading price of our stock, regardless of our operating performance or prospects. FUTURE SALES OF OUR STOCK BY INSIDERS MAY ADVERSELY AFFECT OUR STOCK PRICE Many of our outstanding shares are "restricted securities" under the federal securities laws, and such shares are or will be eligible for sale subject to restrictions as to timing, manner, volume, notice and the availability of current public information regarding Provo International. A significant majority of our common stock is held by the former stockholders of Provo Mexico and by our founding management team. Sales of substantial amounts of restricted stock in the public market or sales of stock by our insiders or the perception that these sales could occur, could depress the prevailing market price for all of our securities. Sales of substantial amounts of stock by these stockholders in the public market may also make it more difficult for us to sell equity securities or equity-related securities in the future at a time and price that we deem appropriate and, to the extent these sales depress our common stock price. OUR STOCK MAY BE DELISTED FROM THE AMERICAN STOCK EXCHANGE, AND THAT COULD AFFECT ITS MARKET PRICE AND LIQUIDITY We are required to meet certain financial tests to maintain the listing of our common stock on the American Stock Exchange. If our stock price, stockholders' equity, income or market cap were to fall below the standards set by the exchange, we may not be able to maintain our American Stock Exchange listing. If we do not remain listed on the American Stock Exchange, the market price and liquidity of our common stock could be impaired. The delisting of our common stock also could deter broker-dealers from making a market in or otherwise generating interest in our common stock and could adversely affect our ability to attract investors in our common stock and raise additional capital. As a result of these factors, the value of our common stock could decline significantly. RISKS RELATED TO OPERATING IN FOREIGN MARKETS OUR BUSINESS IN MEXICO PRESENTS UNIQUE ECONOMIC AND REGULATORY RISKS A significant portion of our assets and revenues are and will be located in Mexico. Our business, therefore, is affected by prevailing conditions in the Mexican economy and is, to a significant extent, vulnerable to economic downturns and changes in government policies. The Mexican government exercises significant influence over many aspects of the Mexican economy. Accordingly, the Mexican government's actions and the policies established by legislative e, executive or judicial authorities in Mexico may affect the Mexican economy. We cannot assure you that future economic, political or diplomatic developments in or affecting Mexico will not: 21 impair our business, results of operations, financial condition and liquidity (including our ability to obtain financing); materially and adversely affect the market price of our securities (including the shares of our common stock); or negatively affect our ability to meet our obligations. WE OPERATE IN FOREIGN MARKETS AND ARE EXPOSED TO RISKS IN THOSE MARKETS THAT MAY ADVERSELY AFFECT OUR PERFORMANCE Our growth strategy involves operations in several new international markets. The following are certain risks inherent in doing business on an international level, any of which could have a material adverse effect on our business, financial condition and results of operations: regulatory limitations restricting or prohibiting us from providing our services or selling our products; unexpected changes in regulatory requirements, tariffs, customs, duties and other trade barriers; difficulties in staffing and managing foreign operations; political risks; fluctuations in currency exchange rates and restrictions on repatriation of earnings; delays from customers or government agencies; dependence upon local suppliers in international markets; potentially adverse tax consequences resulting from operating in multiple jurisdictions with different tax laws; and an economic downturn in the countries in which we expect to do business. A MAJORITY OF OUR REVENUES ARE RECEIVED IN FOREIGN CURRENCIES. CHANGES IN CURRENT EXCHANGE RATES COULD ADVERSELY AFFECT OUR BUSINESS We generate a majority of our revenues in currencies other than the U.S. dollar, and thus are subject to fluctuations in exchange rates. We may become subject to exchange control regulations that might restrict or prohibit the conversion of our revenue into U.S. dollars. The occurrence of any such factors could have a material adverse effect on our business, financial condition and results of operations as well as our ability to service our dollar denominated liabilities. USE OF PROCEEDS Assuming that all of the warrants held by selling stockholders are exercised, we will realize proceeds of approximately $924,500, all of which will be used for working capital. We have agreed to pay certain expenses in connection with this offering, currently expected to be approximately $25,000. We will not receive any of the proceeds from the sale of common stock by the selling stockholders. 22 DESCRIPTION OF CAPITAL STOCK GENERAL We are currently authorized to issue 100,000,000 shares of common stock, par value $.01 per share, and 2,000,000 shares of preferred stock, par value $.01 per share. As of February 4, 2004, there were 31,482,779 shares of common stock outstanding and 86,555 shares of Series E convertible preferred stock outstanding. COMMON STOCK The holders of our common stock are entitled to one vote for each share held of record on all matters to be voted on by stockholders. There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares voting for the election of directors can elect all of the directors then up for election. The holders of common stock are entitled to receive dividends when, as and if declared by the Board of Directors out of funds legally available therefore. In the event of liquidation, dissolution or winding up of our company, the holders of common stock are entitled to share in all assets remaining which are available for distribution to them after payment of liabilities and after provision has been made for each class of stock, if any, having preference over the common stock. Holders of shares of common stock have no conversion, preemptive or other subscription rights, and there are no redemption provisions applicable to the common stock. All of the outstanding shares of common stock are, and the shares of common stock issuable upon exercise of warrants held by selling stockholders will be, fully paid and nonassessable. PREFERRED STOCK We are authorized to issue 2,000,000 shares of preferred stock, par value $.01 per share, from time to time in one or more series, in all cases ranking senior to the common stock with respect to payment of dividends and in the event of the liquidation, dissolution or winding-up of our company. The Board has the power, without stockholder approval, to issue shares of one or more series of preferred stock, at any time, for such consideration and with such relative rights, privileges, preferences and other terms as the Board may determine, including terms relating to dividend rates, redemption rates, liquidation preferences and voting, sinking fund and conversion or other rights. The rights and terms relating to any new series of preferred stock could adversely affect the voting power or other rights of the holders of the common stock or could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of our company. As of the date of this prospectus, 86,555 shares of Series E convertible preferred stock, and no other preferred stock, were outstanding. SERIES E CONVERTIBLE PREFERRED STOCK RIGHTS AND PREFERENCES The Series E convertible preferred stock has designation, voting rights, preferences, limitations and special rights as set forth in its Certificate of Designation, filed with the Secretary of State of Delaware on November 5, 2003. The following is a summary of the material terms of the Series E convertible preferred stock. DIVIDENDS The holders of Series E convertible preferred stock are not entitled to receive any dividends. LIQUIDATION PREFERENCE 23 Each share of Series E convertible preferred stock has a preference over our common stock in all distributions upon liquidation. The liquidation preference for the Series E convertible preferred stock is $0.01 per share of Series E convertible preferred stock. CONVERSION RIGHTS Each share of Series E convertible preferred stock is subject to conversion from time to time at the option of its holder into 100 shares of common stock (after giving effect to the two-for-three reverse split of the common stock which took effect on January 30, 2004), except that that no share of Series E convertible preferred stock will be converted into common stock if as a result of such conversion the shares of common stock issuable to the two former Provo Mexico stockholders and any entity directly or indirectly controlled by them upon such conversion would exceed 49.5% of the issued and outstanding common stock upon the effectiveness of the conversion. On December 31, 2005 all of the remaining Series E convertible preferred stock that can be converted to common stock consistent with the 49.5% limitation will be mandatorily converted, and thereafter any remaining Series E convertible preferred stock will remain outstanding on a non-converting, non-voting basis. VOTING RIGHTS The holders of Series E convertible preferred stock are entitled to vote as a separate class on certain corporate actions, including changes to our certificate of incorporation and by-laws that would adversely affect the Series E convertible preferred stock, amendments to the certificate of designation for the Series E convertible preferred stock and the creation of senior or equivalent shares of capital stock. On such matters, and any other matters on which the holders of Series E convertible preferred stock are entitled under law or our certificate of incorporation to vote as a separate class, each holder is entitled to one vote for each share of Series E convertible preferred stock held. TRANSFER AGENT AND WARRANT AGENT The transfer agent and registrar for our common stock is American Stock Transfer and Trust Company, 40 Wall Street, New York, New York 10005. 24 SELLING STOCKHOLDERS The following table sets forth certain information as of February 12, 2003, relating to the selling stockholders. None of the selling stockholders has ever held any position or office with us or had any material relationship with us. SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED PRIOR TO OFFERING OWNED AFTER OFFERING(1) NAME OF BENEFICIAL OWNER NUMBER PERCENT SHARES NUMBER PERCENT BEING OFFERED Alpha Capital 2,000,000(2) 6.0% 2,000,000 0 0 Aktiengesellschaft Stonestreet Limited 1,200,000(3) 3.7% 1,200,000 0 0 Partnership Congregation Mishkan 600,000(4) 1.9% 600,000 0 0 Sholom Inc. Lucrative Investments 199,999(5) * 1999,999 0 0 Berry-Shino Securities, 266,667(6) * 266,667 0 0 Inc. Scarborough Ltd. 1,983,334(7) 6.1% 1,983,334 0 0 IIG Equity Opportunities 500,000 1.6% 500,000 0 0 Fund, Ltd. ____________ (1) Based on 31,482,779 shares outstanding. (2) Includes 1,333,333 shares which may be issued in accordance with the terms of a convertible promissory note, and 666,667 shares issuable upon exercise of warrants. (3) Includes 800,000 shares which may be issued in accordance with the terms of a convertible promissory note, and 400,000 shares issuable upon exercise of warrants. (4) Includes 400,000 shares which may be issued in accordance with the terms of a convertible promissory note, and 200,000 shares issuable upon exercise of warrants. (5) Includes 133,333 shares which may be issued in accordance with the terms of a convertible promissory note, and 66,666 shares issuable upon exercise of warrants. (6) Includes 266,667 shares issuable upon exercise of warrants. (7) Includes 1,250,000 shares issuable upon exercise of warrants. * Less than 1% SUMMARY OF TRANSACTIONS 25 THE OFFERING ALPHA CAPITAL AKTIENGESELLSCHAFT, STONESTREET LIMITED PARTNERSHIP, CONGREGATION MISHKAN SHOLOM INC., LUCRATIVE INVESTMENTS AND BERRY-SHINO SECURITIES, INC. On January 27, 2004, we entered into a series of simultaneous transactions with Alpha Capital Aktiengesellschaft, Stonestreet Limited Partnership, Congregation Mishkan Sholom Inc. and Lucrative Investments whereby we borrowed an aggregate principal amount of $1,000,000 pursuant to the terms of four convertible promissory notes. The notes each bear an interest rate of 8% per annum. The entire principal and any unpaid interest is due on January 27, 2006. The individual note holders have the right, at their option, on or prior to January 27, 2006 to convert the principal amount of the note, together with all accrued interest thereon in accordance with the provisions of and upon satisfaction of the conditions contained in the note, into fully paid and non-assessable shares of our common stock at a conversion price of $.25 per share ($.38 after adjusting for the reverse split). Also in connection with this sale, we issued the note holders warrants to acquire an aggregate of 2,000,000 shares of our common stock (1,333,333 shares after giving effect to the reverse split which took effect on January 30, 2004) at an exercise price of $0.38. We also issued Berry-Shino Securities, Inc., as placement agent, warrants to acquire an aggregate of 400,000 shares of our common stock (266,667 shares after giving effect to the reverse split which took effect on January 30, 2004) at an exercise price of $0.38 ($.58 after adjusting for the reverse split). The convertible notes with each of the investors contains a provision which prohibits the note holder from converting amounts due under the note which would result in beneficial ownership by the note holder and its affiliates in excess of 9.9% of our outstanding stock on the date of the conversion. The following table sets forth, with respect to each investor, the amount due under the convertible promissory note and the number of shares issuable upon exercise of warrants, after giving effect to the reverse split: INVESTOR PRINCIPAL AMOUNT OF CONVERTIBLE NOTE SHARES ISSUABLE UPON EXERCISE OF WARRANTS Alpha Capital Aktiengesellschaft $500,000 666,667 Stonestreet Limited Partnership $300,000 400,000 Congregation Mishkan Sholom Inc. $150,000 200,000 Lucrative Investments $50,000 66,666 ---------------------------------- TOTAL $1,000,000 1,333,333 Since the conversion price of the convertible notes was less than the market price of the common stock at the time of issuance, we will allocate a portion of the proceeds to the conversion feature, and the resulting discount will be amortized as additional interest expense. In addition, the value of the warrants issued with the convertible promissory notes will be recorded as additional interest expense over the life of the convertible notes. 26 IIG EQUITY OPPORTUNITES FUND, LTD. On April 2, 2003, we entered into a bridge financing whereby we borrowed $550,000 from IIG Equity Opportunities Fund, Ltd., an unaffiliated lender. The loan was evidenced by a secured promissory note that bore interest at the rate of 14% per annum and was secured by substantially all of our assets. The promissory note was repayable at the earlier of July 2, 2003 or upon our obtaining financing collateralized by Provo Mexico's accounts receivable. On June 25, 2003, we amended this agreement to extend its due date from July 2, 2003 to August 1, 2003. On September 23, 2003, we repaid $125,000 and amended this agreement to extend its due date from July 2, 2003 to October 3, 2003. In November 2003, we repaid an additional $100,000 due under the note and entered into an agreement with the noteholder to extend the term of the note to December 31, 2004. On January 27, 2004, we entered into a pay-off agreement with IIG Equity whereby IIG Equity agreed to accept payment of $226,453.64 in cash and 500,000 shares of our common stock (on a post-reverse split basis) as payment in full satisfaction of the remaining amount due under the note. As further consideration for the pay-off agreement, we entered into a Registration Rights Agreement with IIG Equity which obligates us to file a registration statement covering the 500,000 shares of our common stock issued to IIG Equity as partial repayment of the note. SCARBOROUGH LTD. On November 24, 2003, we entered into a subscription agreement with Scarborough Ltd in which we sold 1,666,666 shares of our common stock for $500,000. Pursuant to the subscription agreement, we also issued 750,000 warrants exerciseable at $.01 per share to Scarborough Ltd. as additional consideration (the "A Warrants"). The A Warrants are exerciseable at the option of the holder for a period of three years. We also issued to Scarborough Ltd. with a warrant to purchase an additional 1,666,666 shares (on a post-split basis) of our common stock at a purchase price of $0.30 per share (the "B Warrants"). The B Warrants are exerciseable within forty-five days of the effectiveness of this registration statement. Upon exercise of the B Warrants, we will also issue Scarborough Ltd. an additional 1,250,000 warrants (on a post-split basis) exerciseable at $0.01 per share (the "B2 Warrants"). The B Warrants and the B2 Warrants are only exerciseable if our shareholders approve the terms of the B Warrants and the B2 Warrants. On January 27, 2004, we amended the terms of the B Warrants to extend the exercise date to February 15, 2004, and to clarify that upon exercise of all or any portion of the B Warrant, the B2 Warrant must be issued. On January 30, 2004, we amended the terms of the B Warrants to provide for the purchase of 2,400,000 shares of our common stock on a post-split basis at a purchase price of $0.25 per share. PLAN OF DISTRIBUTION Sales of the shares may be made from time to time by the selling stockholders. Such sales may be made on the American Stock Exchange, in another over-the-counter market, on a national securities exchange, any of which may involve crosses and block transactions, in privately negotiated transactions or otherwise or in a combination of such transactions at prices and at terms then prevailing or at prices related to the then current market price, or at privately negotiated prices. In addition, any shares covered by this prospectus which qualify for sale pursuant to Section 4(1) of the Securities Act of 1933 or Rule 144 promulgated thereunder may be sold under such provisions rather than pursuant to this prospectus. Without limiting the generality of the foregoing, the shares may be sold in one or more of the following types of transactions: o a block trade in which the broker-dealer so engaged will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; 27 o purchases by a broker or dealer as principal and resale by such broker or dealer for its account pursuant to this prospectus; o an exchange distribution in accordance with the rules of such exchange; o ordinary brokerage transactions and transactions in which the broker solicits purchasers; and o face-to-face transactions between sellers and purchasers without a broker-dealer. In effecting sales, brokers or dealers engaged by the selling stockholders may arrange for other brokers or dealers to participate in the resale. Brokers or dealers may receive compensation in the form of commissions, discounts or concessions from selling stockholders in amounts to be negotiated in connection with the sale. Such brokers or dealers may be deemed to be "underwriters" within the meaning of the Securities Act of 1933 in connection with such sales and any such commission, discount or concession may be deemed to be underwriting discounts or commissions under the Securities Act of 1933. Compensation to be received by broker-dealers retained by the selling stockholders in excess of usual and customary commissions, will, to the extent required, be set forth in a supplement to this prospectus. Any dealer or broker participating in any distribution of the shares may be required to deliver a copy of this prospectus, including a supplement, to any person who purchases any of the shares from or through such dealer or broker. During such time as they may be engaged in a distribution of the shares the selling stockholders are required to comply with Regulation M promulgated under the Securities Exchange Act of 1934. With certain exceptions, Regulation M precludes any selling stockholder, any affiliated purchasers and any broker-dealer or other person who participates in such distribution from bidding for or purchasing, or attempting to induce any person to bid for or purchase any security which is the subject of the distribution until the entire distribution is complete. Regulation M also prohibits any bids or purchases made in order to stabilize the price of a security in connection with the distribution of that security. All of the foregoing may affect the marketability of the common stock. It is possible that a significant number of shares may be sold and, accordingly, such sales or the possibility thereof may have a depressive effect on the market price of our common stock. LEGAL MATTERS Amy Wagner-Mele, our Executive Vice President and General Counsel, will pass upon the validity of the common stock. EXPERTS Our financial statements as of December 31, 2002 and for the two years then ended incorporated by reference in this prospectus have been included in reliance upon the report of Goldstein Golub Kessler LLP, independent certified public accountants, given upon the authority of that firm as experts in accounting and auditing. The financial statements of Proyecciones y Ventas Organizadas, S. A. de C. V. incorporated by reference in this Prospectus have been audited by BDO Hernandez Marron y Cia., S.C., independent certified public accountants, to the 28 extent and for the periods set forth in their report incorporated herein by reference, and are incorporated herein in reliance upon such report given upon the authority of said firm as experts in auditing and accounting. 29 WHERE YOU CAN FIND INFORMATION Provo International, Inc. has filed with the SEC, a Registration Statement with respect to the securities offered by this prospectus. This prospectus, filed as part of such Registration Statement, does not contain all of the information set forth in, or annexed as exhibits to, the Registration Statement, portions of which have been omitted in accordance with the rules and regulations of the SEC. For further information with respect to Provo International, Inc. and this offering, reference is made to the Registration Statement, including exhibits filed therewith, which may be read and copied at the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its regional offices: 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, 13th Floor, New York, New York 10048. You can obtain copies of these materials at prescribed rates from the Public Reference Room of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our electronic filings made through the SEC's electronic data gathering, analysis and retrieval system are publicly available through the SEC's worldwide web site (http://www.sec.gov). 30 - --------------------------------------- --------------------------------- We have not authorized any dealer, salesperson or other person to give any information or represent anything not contained in this prospectus. You must not rely 6,750,000 Shares on any unauthorized information or representations. This prospectus does not offer to sell or buy any shares in any jurisdiction where it is unlawful. The information in this prospectus is current only as of its date. PROVO INTERNATIONAL, INC. TABLE OF CONTENTS Page ---- Incorporation of Certain Documents by Reference..................... 4 Prospectus Summary............... 4 The Business..................... 5 Common Stock The Offering..................... 13 Risk Factors..................... 14 Use of Proceeds.................. 22 Description of Capital Stock..... 23 Selling Stockholders............. 25 Plan of Distribution............. 27 ---------- Legal Matters.................... 28 Experts.......................... 28 PROSPECTUS Where You Can Find Information... 29 ---------- --------------------- ________________, 2004 - ----------------------------------------- ------------------------------------ 31 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. SEC registration $513.10 Printing and engraving costs 2,000.00 Legal fees and expenses 10,000.00 Accounting fees and expenses 10,000.00 Miscellaneous 2486.90 Total $25,000.00 ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the Delaware General Corporation Law (the "DGCL") contains the provisions entitling the Registrant's directors and officers to indemnification from judgments, fines, amounts paid in settlement, and reasonable expenses (including attorney's fees) as the result of an action or proceeding in which they may be involved by reason of having been a director or officer of the Registrant. In its Certificate of Incorporation, the Registrant has included a provision that limits, to the fullest extent now or hereafter permitted by the DGCL, the personal liability of its directors to the Registrant or its stockholders for monetary damages arising from a breach of their fiduciary duties as directors. Under the DGCL as currently in effect, this provision limits a director's liability except where such director (i) breaches his duty of loyalty to the Registrant or its stockholders, (ii) fails to act in good faith or engages in intentional misconduct or a knowing violation of law, (iii) authorizes payment of an unlawful dividend or stock purchase or redemption as provided in Section 174 of the DGCL, or (iv) obtains an improper personal benefit. This provision does not prevent the Registrant or its stockholders from seeking equitable remedies, such as injunctive relief or rescission. If equitable remedies are found not to be available to stockholders in any particular case, stockholders may not have any effective remedy against actions taken by directors that constitute negligence or gross negligence. The Certificate of Incorporation also includes provisions to the effect that (subject to certain exceptions) the Registrant shall, to the maximum extent permitted from time to time under the law of the State of Delaware, indemnify, and upon request shall advance expenses to, any director or officer to the extent that such indemnification and advancement of expenses is permitted under such law, as may from time to time be in effect. In addition, the By-Laws require the Registrant to indemnify, to the full extent permitted by law, any director, officer, employee or agent of the Registrant for acts which such person reasonably believes are not in violation of the Registrant's corporate purposes as set forth in the Certificate of Incorporation. At present, the DGCL provides that, in order to be entitled to indemnification, an individual must have acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the Registrant's best interests. 32 Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to any charter provision, by-law, contract, arrangement, statute or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. ITEM 16. EXHIBITS. EXHIBIT DESCRIPTION OF DOCUMENT NUMBER NOTES DOCUMENT ------ ----- ----------------------- 5.1 A Opinion of Amy Wagner-Mele 10.1 B Employment Agreements with Messrs. Stephen Cole-Hatchard and Nicko Feinberg 10.2 C Employment Agreement with Vasan Thatham 10.3 D 2001 Stock Incentive Plan 10.4 B 1997 Stock Option Plan of the Company 10.5 B Office Lease between Registrant and Glorious Sun Robert Martin LLC 10.6 C Amendment No. 1 to Office Lease 10.7 C Amendment No. 2 to office Lease 10.8 E Asset Purchase Agreement dated June 20, 2000 among Frontline Communications Corp., Delanet, Inc., Michael Brown and Donald McIntire 10.9 E Settlement Agreement dated June 20, 2002 among Frontline Communications Corp., Delanet, Inc., Michael Brown and Donald McIntire 10.10 F Addendum to Amended and Restated Stock Purchase Agreement between Frontline Communications Corporation, Proyecciones y Ventas Organizadas, S.A., Ventura Martinez Del Rio, Sr. and Ventura Martinez Del Rio, Jr., dated April 3, 2003 10.11 F Registration Rights Agreement dated April 3, 2003 between Frontline Communications, Ventura Martinez Del Rio, Sr., and Ventura Martinez Del Rio, Jr. 10.12 F Security Agreement dated April 3, 2002 between Frontline Communications, Ventura Martinez Del Rio, Sr. and Ventura Martinez Del Rio, Jr. 10.13 F Secured Promissory Note dated April 3, 2002 between Frontline Communications, Ventura Martinez Del Rio, Sr. and Ventura Martinez Del Rio, Jr. 10.14 F Term Loan and Security Agreement among Frontline Communications, Proyecciones y Ventas Organizadas, S.A., and IIG Equity Opportunities Fund Ltd. 10.15 F Pledge Agreement between Stephen J. Cole-Hatchard, Nicko Feinberg, Elizabeth Feinberg and IIG Equity Opportunities Fund Ltd. Dated April 3, 2003 10.16 F Registration Rights Agreement between Frontline Communications Corporation and IIG Equity Opportunities Fund Ltd dated April 3, 2003 10.17 F Limited guarantee agreement dated April 3, 2003 between Stephen J. Cole-Hatchard And IIG Equity Opportunities Fund Ltd dated April 3, 2002 10.18 F Mortgage by Stephen J. Cole-Hatchard in favor of IIG Equity Opportunities Fund Ltd dated April 3, 2003 10.19 F Mortgage and Security Agreement by Stephen J. Cole-Hatchard in favor of IIG Equity Opportunities Fund Ltd. dated April 3, 2003 10.20 F Subordination Agreement between 8% Promissory Note Holders and IIG Equity Opportunities Fund Ltd. dated April 3, 2003 10.21 H Common Stock Purchase Agreement dated as of July 1, 2003 between the Registrant and Fusion Capital, LLC 10.22 H Stock Purchase Agreement dated as of August 1, 2003 between the Registrant and William Ritger 10.23 H Registration Rights Agreement dated as of August 1, 2003 between the Registrant and William Ritger 10.24 H Warrant issued by the Registrant to William Ritger dated August 1, 2003 10.25 H General Release dated as of March 27, 2003 between the Registrant and Delanet, Inc. 10.26 H Stock Purchase Agreement dated As of September 16, 2003 between the Registrant And Platinum Partners Value Arbitrage Fund, LP 10.27 H Registration Rights Agreement dated as of September 16, 2003 between the Registrant and Platinum Partners Value Arbitrage Fund, LP 10.28 H Warrant agreement dated as of September 16, 2003 between the Registrant to Platinum Partners Value Arbitrage Fund, LP. 10.29 H Subscription Agreement dated as of June 2, 2002 between the Registrant and James Nicholson 10.30 H Warrant agreement dated as of June 2, 2002 between the Registrant and James Nicholson 10.31 H Subscription Agreement dated as of November 24, 2003 between the Registrant and Scarborough, Ltd. 10.32 H Warrant Agreement dated as of November 24, 2003 between the Registrant and Scarborough, Ltd. 10.33 H Warrant Agreement dated as of November 24, 2003 between the Registrant and Scarborough, Ltd. 10.34 A Subscription Agreement dated January 27, 2004 between the Registrant and Alpha Capital Aktiengesellschaft, Stonestreet Limited Partnership, Congregation Mishkan Sholom and Lucrative Investments 10.35 A Convertible Note dated January 27, 2004 issued to Alpha Capital Aktiengesellschaft 10.36 A Warrant agreement dated January 27,2004 issued to Alpha Capital Aktiengesellschaft 10.37 A Convertible Note dated January 27, 2004 issued to Stonestreet Limited Partnership 10.38 A Warrant agreement dated January 27,2004 issued to Stonestreet Limited Partnership 10.39 A Convertible Note dated January 27, 2004 issued to Congregation Mishkan Sholom 10.40 A Warrant agreement dated January 27, 2004 issued to Congregation Mishkan Sholom 10.41 A Convertible Note dated January 27, 2004 issued to Lucrative Investments 10.42 A Warrant Agreement dated January 27, 2004 issued to Lucrative Investments 10.43 A Warrant Agreement dated January 27, 2004 issued to Berry-Shino Securities, Inc. 10.44 A Collateral Agreement dated January 27, 2004 between Provo International Inc., Alpha Capital Aktiengesellschaft, Stonestreet Limited Partnership, Congregation Mishkan Sholom and Lucrative Investments 10.45 A Security Agreement dated January 27, 2004 between Provo International Inc., Alpha Capital Aktiengesellschaft, Stonestreet Limited Partnership, Congregation Mishkan Sholom and Lucrative Investments 10.46 A Side Letter dated January 27, 2004 between the Registrant and Scarborough Ltd. 10.47 A Amended B2-1 Warrant issued to Scarborough Ltd. 10.48 A Amended Common Stock Purchase Warrant issued to Scarborough Ltd. 10.49 A Amended A-1 Warrant issued to Scarborough Ltd. 10.50 A Registration Rights Agreement between the Registrant and IIG Equity Opportunities Fund, Ltd. 21.1 A Subsidiaries of the Registrant 23.1 A Consent of Goldstein Golub Kessler LLP 23.2 A Consent of BDO Hernandex and Marron, y Cia. 23.3 A Consent of Amy Wagner-Mele (included in Exhibit 5.1) 24.1 A Power of Attorney (included on the Signature page) ________________________________ A Filed herewith. B Incorporated by reference to the applicable exhibit contained in the Company's Registration Statement on Form SB-2 (file no. 333-34115). C Incorporated by reference to the applicable exhibit contained in the Company's Registration Statement on Form SB-2 (file no. 333-92969). D Incorporated by reference to Appendix B to the Registrant's definitive proxy statement on Schedule 14A with the SEC on July 3, 2001. E Incorporated by reference to the applicable exhibit contained in the Company's Current Report on Form 8-K dated June 20, 2002. F Incorporated by reference to the applicable exhibit contained in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2002. G Incorporated by reference to the applicable exhibit contained in the Company's definitive proxy statement on Schedule 14A filed with the SEC on November 13, 2003 H Incorporated by reference to the applicable exhibit contained in the Company's Registration Statement on Form S-3 declared effective on December 17, 2003. ITEM 17. UNDERTAKINGS. The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act; and (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high and of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that paragraphs (i) and (ii) above do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the Registrant pursuant to Section 13 and Section 15(d) of the Exchange Act that are incorporated by reference in the registration statement. (2) That, for purposes of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) That, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (5) That, insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Pearl River, State of New York, on February 17, 2004. PROVO INTERNATIONAL, INC. By:/s/ Stephen J. Cole-Hatchard ------------------------------- Stephen J. Cole-Hatchard Chief Executive Officer (Principal Executive Officer) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Stephen J. Cole-Hatchard as his or her attorney-in-fact, with full power of substitution for him in any and all capacities, to sign any and all amendments to this registration statement, including, but not limited to, post-effective amendments and any and all new registration statements filed pursuant to Rule 462 under the Securities Act of 1933 in connection with or related to the offer contemplated by this registration statement, as amended, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorney to said registration statement and any and all amendment thereto. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ VENTURA MARTINEZ DEL RIO, SR. Chairman of the Board February - --------------------------------- 17, 2004 Ventura Martinez Del Rio, Sr. /s/ STEPHEN J. COLE-HATCHARD Chief Executive Officer February - ---------------------------- and Director 17, 2004 Stephen J. Cole-Hatchard (Principal Executive Officer) /s/ NICKO FEINBERG President-U.S. Operations February - ------------------ and Director 17, 2004 Nicko Feinberg /s/ VASAN THATHAM Chief Financial Officer February - ----------------- and Vice President 17, 2004 Vasan Thatham (Principal Financial and Accounting Officer) /s/ VENTURA MARTINEZ DEL RIO, JR. President-Mexico February - --------------------------------- Operations and Director 17, 2004 Ventura Martinez Del Rio, Sr. /s/ RONALD C. SIGNORE Director February - --------------------- 17, 2004 Ronald C. Signore /s/ JESUS RODRIGUEZ Director February - ------------------- 17, 2004 Jesus Rodriguez /s/ MIGUEL MADERO Director February - ----------------- 17, 2004 Miguel Madero /s/ JAIME MARTI Director February - --------------- 17, 2004 Jamie Marti /s/ CARLOS BELLO Director February - ---------------- 17, 2004 Carlos Bello EX-5.1 3 v01635_ex5-1.txt Exhibit 5.1 February 17, 2004 Provo International, Inc. One Blue Hill Plaza 7th Floor Pearl River, NY 10965 Re: Form S-3 Registration Statement ------------------------------- Gentlemen: I am providing this opinion in connection with Registration Statement No. 333-_______ of Frontline Communications Corporation (the "Company"), on Form S-3 (the "Registration Statement"), filed under the Securities Act of 1933, as amended. Capitalized terms used herein without definition have the meanings set forth in the Registration Statement. The Registration Statement relates to 1,233,334 shares of common stock previously issued by the Company 2,850,000 shares of common stock issuable by the Company upon exercise of redeemable warrants and 2,666,666 shares of common stock issuable pursuant to the terms of four convertible promissory notes. I have examined (i) the Company's Certificate of Incorporation and its By-Laws, each as amended to date; and (ii) such other documents and records as I have deemed necessary in order to render this opinion. Based on the foregoing, it is my opinion that the shares of common stock previously issued by the Company referenced above were duly authorized, validly issued, fully paid and nonassessable by the Company. It is also my opinion that the shares of common stock issuable upon the exercise of the redeemable warrants, when issued and paid for in accordance with the terms of the redeemable warrants, will be validly issued, fully paid and nonassessable by the Company. I consent (i) to the use of this opinion as an exhibit to the Registration Statement and (ii) to the reference to my name under the caption "Legal Matters" in the Prospectus. Very truly yours, /s/ Amy Wagner-Mele Executive Vice President and General Counsel EX-10.34 4 v01635_ex10-34.txt EXHIBIT 10.34 SUBSCRIPTION AGREEMENT ---------------------- THIS SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of January 27, 2004, by and among Provo International Inc., a Delaware 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 "SEC") 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 One Million Two Hundred Thousand Dollars ($1,200,000) (the "Purchase Price") of principal amount of secured 8% promissory notes of the Company ("Note" or "Notes") convertible into shares of the Company's common stock, $.01 par value (the "Common Stock") at a per share conversion price of twenty-five cents ($.25) ("Conversion Price"); 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 (the "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. 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. The aggregate amount of the Notes to be purchased by the Subscribers on the Closing Date shall, in the aggregate, be equal to the Purchase Price. The Closing Date shall be the date that subscriber funds representing the net amount due the Company from the Purchase Price is transmitted by wire transfer or otherwise to or for the benefit of the Company. 2. Security Interest. The Subscribers will be granted a security interest in all the assets of the Company to be memorialized in a Security Agreement. The Company will execute such other agreements, documents and financing statements to be filed at the Company's expense with such jurisdictions, states and counties designated by the Subscribers. The Company will also execute all such documents reasonably necessary in the opinion of Subscriber to memorialize and further protect the security interest described herein. A form of Security Agreement is annexed hereto as EXHIBIT C. The 1 Subscribers will appoint a Collateral Agent to represent them collectively in connection with the security interest to be granted in the Company's assets. The appointment will be pursuant to a Collateral Agent Agreement, a form of which is annexed hereto as EXHIBIT D. 3. Warrants. On the Closing Date, the Company will issue Warrants to the Subscribers. One (1) Warrant will be issued for each two Shares that would be issuable upon conversion of the Notes. The per Warrant Share exercise price to acquire a Warrant Share upon exercise of a Warrant shall be equal to the closing price of the Common Stock on the trading day preceding the Closing Date, as reported by Bloomberg L.P. for the American Stock Exchange ("Amex"). The Warrants shall be exercisable for five years after the Closing Date. The exercise price of the Warrants issuable shall be equitably adjusted to offset the effect of stock splits, stock dividends, pro rata distributions of property or equity interests to the Company's shareholders, after the date of this Agreement. The entire Purchase Price shall be deemed allocated to the Common Stock. 4. Subscriber's Representations and Warranties. Each Subscriber hereby represents and warrants to and agrees with the Company as to such Subscriber that: (a) Information on Company. The Subscriber has been furnished with or has obtained from the EDGAR Website of the Securities and Exchange Commission (the "Commission") the Company's Form 10-KSB for the year ended December 31, 2002 as filed with the Commission, together with all subsequently filed Forms 10-QSB, 8-K, 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. (b) Information on Subscriber. The Subscriber is, and will be at the time of the conversion of the Notes and exercise of any of the Warrants, an "accredited investor", as such term is defined in Regulation D promulgated by the Commission under the Securities Act of 1933, as amended (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. (c) Purchase of Notes and Warrants. On the Closing Date, the Subscriber will purchase the Notes and Warrants as principal for its own account and not with a view to any distribution thereof. (d) 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 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 2 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 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. (e) 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 PROVO INTERNATIONAL INC. THAT SUCH REGISTRATION IS NOT REQUIRED." (f) 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 PROVO INTERNATIONAL INC. THAT SUCH REGISTRATION IS NOT REQUIRED." (g) 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 PROVO INTERNATIONAL INC. THAT SUCH REGISTRATION IS NOT REQUIRED." 3 (h) 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. (i) 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. (j) Correctness of Representations. Each Subscriber represents as to such Subscriber only that the foregoing representations and warranties are true and correct as of the date hereof and will be true and correct as of each closing date and unless a Subscriber otherwise notifies the Company prior to any closing date, shall be true and correct as of such closing dates. The foregoing representations and warranties shall survive the Closing Date for a period of three (3) years. 5. Company Representations and Warranties. The Company represents and warrants to and agrees with each Subscriber that: (a) Due Incorporation. The Company and each of its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the respective jurisdictions of their incorporation and have the requisite corporate power to own their properties and to carry on their business as now being conducted. The Company and each of its subsidiaries 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 on the business, operations or financial condition of the Company. (b) Outstanding Stock. All issued and outstanding shares of capital stock of the Company and each of its subsidiaries has been duly authorized and validly issued and are fully paid and non-assessable. (c) Authority; Enforceability. This Agreement, the Notes, the Warrants, the Escrow Agreement and any other agreements delivered together with this Agreement or in connection herewith 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, moratorium and similar laws of general applicability relating to or affecting creditors' rights generally and to general principles of equity; and the Company has full corporate power and authority necessary to enter into this Agreement, the Notes, the Warrants, the Escrow Agreement and such other agreements delivered together with this Agreement or in connection herewith and to perform its obligations hereunder and under all other agreements entered into by the Company relating hereto. (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 4 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), or the Reports. (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 Amex, the National Association of Securities Dealers, Inc., Nasdaq, SmallCap Market, the OTC Bulletin Board nor the Company's Shareholders is required for the execution and compliance by the Company of its obligations under this Agreement, and all other agreements entered into or to be entered into by the Company relating hereto, including, without limitation, the issuance and sale of the Securities, and the performance of the Company's obligations hereunder and under all such other agreements. (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 hereto 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 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 any of its subsidiaries or over the properties or assets of the Company or any of its affiliates, (C) the terms of any bond, debenture, note or any other evidence of indebtedness, or any agreement, stock option or other similar plan, indenture, lease, mortgage, deed of trust or other instrument to which the Company or any of its affiliates or subsidiaries is a party, by which the Company or any of its affiliates or subsidiaries is bound, or to which any of the properties of the Company or any of its affiliates or subsidiaries 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 or subsidiaries is a party except the violation, conflict, breach, or default of which would not have a material adverse effect on the Company; 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, its subsidiaries or any of its affiliates; or (iii) will not result in the activation of any anti-dilution rights or a reset or repricing of any debt or security instrument of any other debtor or equity holder 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 conversion of the Notes, and upon exercise of the Warrants, the Shares and Warrant Shares respectively, will be duly and validly issued, fully paid and nonassessable (and if registered pursuant to the 1933 Act, and resold pursuant to an effective registration statement will be free trading and unrestricted, provided that each Subscriber complies with the prospectus delivery requirements of the 1933 Act); 5 (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; and (iv) will not subject the holders thereof to personal liability by reason of being such holders. (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 this Agreement, and all other agreements entered into by the Company relating hereto. Except as disclosed on SCHEDULE 5(H) or in the Reports, 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 which litigation if adversely determined could have a material adverse effect on the Company. (i) Reporting Company. The Company is a publicly-held company subject to reporting obligations pursuant to Sections 15(d) and 13 of the Securities Exchange Act of 1934, as amended (the "1934 Act"). The Company's $.01 par value common stock is 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. (j) No Market Manipulation. The Company has not taken, and will not take, directly or indirectly, any action designed to, or that might reasonably be expected to, cause or result in stabilization or manipulation of the price of the Common Stock of the Company to facilitate the sale or resale of the 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 change in 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 Securities, when issued, will be restricted securities. 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. Each of the Company and its subsidiaries is not in violation of its Articles of Incorporation or ByLaws. Except as set forth in SCHEDULE 5(M), the Company and each of its subsidiaries are (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 on the Company or a subsidiary of the Company, (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 its 6 knowledge in violation of any statute, rule or regulation of any governmental authority which violation would have a material adverse effect on the Company or a subsidiary of the Company. (n) No Integrated Offering. Neither the Company, nor any of its subsidiaries or 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 and/or sale 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 Amex. Nor will the Company or any of its affiliates or subsidiaries take any action or steps that would cause the offer and/or sale 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. (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 listed on the Amex. The Company has not received any oral or written notice that its common stock will be delisted from the Amex nor that its common stock does not meet all requirements for the continuation of such quotation. The Company satisfies the requirements for the continued listing of its common stock on the Amex. (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 September 30, 2003 and which, individually or in the aggregate, would reasonably be expected to have a material adverse effect on the Company's financial condition, other than as set forth in SCHEDULE 5(Q). (r) No Undisclosed Events or Circumstances. Since September 30, 2003, no event or circumstance has occurred or exists with respect to the Company or its businesses, properties, operations 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 are set forth on SCHEDULE 5(S). Except as set forth in the Reports and Other Written Information and 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. 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 have studied and fully understand the nature of the Securities being sold hereby and recognize that they 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 such issuance is in the best interests of the Company. The Company specifically acknowledges that its obligation to issue the Shares upon conversion of the Note and exercise of the Warrants is binding upon the Company and enforceable, except as otherwise described in this Subscription 7 Agreement or the Note, 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. Except as set forth on SCHEDULE 5(U), there are no disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between 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. The Company is not, and is not an Affiliate (as defined in Rule 405 under the 1933 Act) of, an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (w) S-3 Eligibility. The Company currently meets, and will use commercially reasonable efforts to take all necessary action to continue to meet, the "registrant requirements" set forth in the General Instruction I.A. to Form S-3. (x) Correctness of Representations. The Company represents that the foregoing representations and warranties are true and correct as of the date hereof and will be true and correct as of each closing date, and unless the Company otherwise notifies the Subscribers prior to any closing date, shall be true and correct as of such closing dates. The foregoing representations and warranties shall survive the Closing Date for a period of three (3) years. 6. Regulation D Offering. The offer and 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 each 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. A form of the legal opinion is annexed hereto as EXHIBIT E. The Company will provide, at the Company's expense, such other legal opinions in the future as are reasonably necessary for the conversion of the Notes and exercise of the Warrants and resale of the Shares and Warrant Shares. 7.1. Conversion of Note. (a) Upon the conversion of the 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 assure that the Company's transfer agent shall 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, 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 or part thereof by telecopying an executed and completed Notice of Conversion (a form of which is annexed to 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 8 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 (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. 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 an original Note to the Company. To the extent 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 hereof, or the Mandatory Redemption Amount described in Section 7.2 hereof, beyond the Delivery Date or 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 to the Subscriber for late issuance of Shares in the form required pursuant to Section 7 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 late payment charges 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 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) or for any reason other than pursuant to the limitations set forth in Section 7.3 hereof, then at the Subscriber's election, the Company must pay to the Subscriber ten (10) business days after request by the Subscriber or on the Delivery Date (if requested 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 130%, 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 ("Mandatory Redemption 9 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. 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 9.99% 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, the Subscriber shall not be limited to aggregate conversions of only 9.99% and aggregate conversion by the Subscriber may exceed 9.99%. The Subscriber may void the conversion limitation described in this Section 7.3 upon and effective after (sixty-one) 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 9.99% amount described above and which shall be allocated to the excess above 9.99%. 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 said Note 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 130% of the amount of the Note, or aggregate purchase price of the Warrant Shares which are 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 ten (10) 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 anticipated receiving 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 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 and amount of Shares issuable upon conversion of the Notes shall be adjusted to offset the effect of stock splits, stock dividends, pro rata 10 distributions of property or equity interests to the Company's shareholders and similar events. 7.7. Redemption. The Company may not redeem or call the Note without the consent of the holder of the Note. 8. Legal Fee/Escrow Agent and Broker's Fee. (a) Legal Fee. The Company shall pay to Grushko & Mittman, P.C., a fee of $20,000 ("Legal Fees") as reimbursement for services rendered to Subscribers in connection with this Agreement and the purchase and sale of the Notes and Warrants (the "Offering") and acting as Escrow Agent for the Offering. Five Thousand Dollars ($5,000) of the Legal Fees shall be payable prior to Closing by delivery to Grushko & Mittman, P.C. of 40,000_Shares of the Company's Common Stock. The holder of such Common Stock is granted the same registration rights with respect to such Shares as the Subscribers are granted in connection with the Shares and such Common Stock is included in the definition of Registrable securities set forth in Section 10.1 of this Agreement. (b) 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 broker's fees other than Berry-Shino Securities, Inc. ("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. Anything to the contrary in this Agreement notwithstanding, each Subscriber is providing indemnification only for such Subscriber's own actions and not for any action of any other Subscriber. Each Subscriber's liability hereunder is several and not joint. The Company agrees that it will pay the Broker a fee equal to ten percent (10%) of the Purchase Price ("Broker's Fees") and ten percent (10%) of the cash proceeds received by the Company from Warrant exercise ("Warrant Exercise Compensation"). The Warrant Exercise Compensation shall be payable to the Broker within ten (10) days after receipt of Warrant exercise proceeds by the Company. The Broker will also receive on the Closing Date, one (1) Warrant for each five (5) Warrants issued to the Subscribers ("Broker's Warrants"). The Broker's Warrants will be identical to the Warrants except that the "Purchase Price" as defined in the Broker's Warrants shall be $.25 per Warrant Share. 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. All the representations, covenants, warranties, undertakings, remedies, liquidated damages, indemnification, and other rights including but not limited to registration rights made or granted to or for the benefit of the Subscribers are hereby also made and granted to the Broker in respect of the Broker's Warrants and Warrant Shares issuable upon exercise of the Broker's Warrants. References herein to Warrants and Warrant Shares shall include Broker's Warrants and Warrant Shares issuable upon exercise of the Broker's Warrants. 9. 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, a court, 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 Warrant Shares upon each national securities exchange, or quotation system, if any, upon which shares of 11 common stock are then listed (subject to official notice of issuance) and shall maintain such listing so long as any Securities are outstanding. The Company will maintain the listing of its Common Stock on the Amex, Nasdaq SmallCap Market, Nasdaq National Market System, OTC 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 Amex 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 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) Reporting Requirements. From the date of this Agreement and until at least two (2) years after the sooner of (i) the actual effectiveness ("Actual Effective Date") of the Registration Statement, or until all the Shares and Warrant Shares have been resold pursuant to the Registration Statement, the Company will (i) comply in all respects with its reporting and filing obligations under the 1934 Act, (ii) comply with all reporting requirements that are applicable to an issuer required to file reports pursuant to Section 13 and Section 15(d) of the 1934 Act, and (iii) 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 the later of two (2) years after the Actual Effective Date. Until the earlier of the resale of the Shares and the Warrant Shares by each Subscriber or at least two (2) 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 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. The Company agrees to file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to each Subscriber promptly after such filing. (e) Use of Proceeds. The Company undertakes to use the proceeds of the Subscribers' funds for the purposes set forth on SCHEDULE 9(E) hereto. A deviation from the use of proceeds set forth on SCHEDULE 9(E) of more than 10% per item or more than 20% in the aggregate shall be deemed a material breach of the Company's obligations hereunder. Except as set forth on SCHEDULE 9(E), the Purchase Price may not and will not be used for accrued and unpaid officer and director salaries, payment of financing related debt, redemption of outstanding redeemable notes or equity instruments of the Company nor non-trade obligations outstanding on the Closing Date. (f) Reservation. The Company undertakes to reserve, pro rata on behalf of each holder of a Note or Warrant, from its authorized but unissued common stock, at all times that Notes or Warrants remain outstanding, a number of common shares equal to not less than 200% of the amount of common shares necessary to allow each such holder at all times to be able to convert all such outstanding Notes held by such holder, and one common share for each Warrant Share. Failure to have sufficient shares reserved pursuant to this Section 9(f) for three (3) consecutive business days or ten (10) days in the aggregate during any 365 day period shall be an Event of Default under the Note. 12 (g) Taxes. From the date of this Agreement until two (2) years after the Closing Date, 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 until two (2) years after the Closing Date, 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. (i) Books and Records. From the date of this Agreement until two (2) years after the Closing Date, 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 until two (2) years after the Closing Date, 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) Intellectual Property. From the date of this Agreement until two (2) years after the Closing Date, the Company shall maintain in full force and effect its corporate existence, rights and franchises and all licenses and other rights to use intellectual property owned or possessed by it and reasonably deemed to be necessary to the conduct of its business. (l) Properties. From the date of this Agreement until two (2) years after the Closing Date, the Company will keep its properties in good repair, working order and condition, reasonable wear and tear excepted, and from time to time make all needful and proper repairs, renewals, replacements, additions and improvements thereto; and the Company will at all times comply with each provision of all leases to which it is a party or under which it occupies property if the breach of such provision could reasonably be expected to have a material adverse effect. (m) Confidentiality. From the date of this Agreement until two (2) years after the Closing Date, the Company agrees that 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 ten (10) days prior notice to Subscriber. (n) Blackout. The Company undertakes and covenants that until the first to occur of (i) the registration statement described in Section 11.1(iv) having been effective for one hundred and eighty (180) business days, or (ii) until all the Shares and Warrant Shares have been resold pursuant to 13 said registration statement, the Company will not enter into any acquisition, merger, exchange or sale or other transaction that could have the effect of delaying the effectiveness of any pending registration statement, causing an already effective registration statement to no longer be effective or current, or require the filing of an amendment to an already effective registration statement. (o) S-8. The Company will not file a Form S-8 with the Commission during the Exclusion Period (as defined in Section 12(a) of the Agreement) without the consent of the Subscriber except in connection with employee stock option plans and attorney compensation. 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, 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 Subscribes relating hereto. (c) In no event shall the liability of any Subscriber or permitted successor hereunder or under any other agreement delivered in connection herewith be greater in amount than the dollar amount of the net proceeds received by such Subscriber upon the sale of Registrable Securities (as defined herein) giving rise to such indemnification obligation. (d) The procedures set forth in Section 11.6 shall apply to the indemnifications 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 and thirty-one (131) days after the Closing Date, but not later than three (3) years after the Closing Date ("Request Date"), the Company, 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 and Warrant Shares actually issued upon exercise of the Warrants shall prepare and file with the Commission a registration statement under the 1933 Act covering the Shares and Warrant Shares, including the Warrant Shares issuable upon exercise of the Broker's Warrants (collectively "Registrable Securities") which are the subject of such request. For purposes of Sections 11.1(i) and 11.1(ii), Registrable Securities shall not include Securities which are 14 registered for resale in an effective registration statement or included for registration in a pending registration statement, or which have been issued without further transfer restrictions after a sale or transfer pursuant to Rule 144 under the 1933 Act. In addition, upon the receipt of such request, the Company shall promptly give written notice to all other record holders of the Registrable Securities that such registration statement is to be filed and shall include in such registration statement Registrable Securities for which it has received written requests within 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"). 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. (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 not later than seventy-five (75) days after the Closing Date (the "Filing Date"), and cause to be declared effective within one hundred and thirty (130) days after the Closing Date (the "Effective Date"), a Form S-3 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. The Company will register not less than a number of shares of common stock in the aforedescribed registration statement that is equal to two hundred percent (200%) of the Shares issuable upon conversion of the Notes (using the Conversion Price on the Closing Date or the trading day immediately preceding the filing date of the Registration Statement, or any amendment thereto; whichever results in the greatest number of registrable Shares, such amount of Shares being included in the definition of Registrable Securities) and one hundred percent (100%) of the Warrant Shares issuable upon exercise of the Warrants. The Registrable Securities shall be reserved and set aside 15 exclusively for the benefit of each Subscriber, and not issued, employed or reserved for anyone other than each Subscriber. Such Registration Statement will immediately be amended or additional registration statements will be immediately 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. No securities of the Company other than the Registrable Securities will be included in the registration statement described in this Section 11.1(iv) except as disclosed on Schedule 11.1, without the written consent of Subscriber. A registration that is filed but withdrawn prior to being declared effective shall be deemed not to have been filed for purposes of this Section 11.1. 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 shares of 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), and promptly provide to the holders of Registrable Securities (the "Sellers") copies of all filings and Commission letters of comment; (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 two (2) 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 Seller's intended method of disposition set forth in such registration statement for such period; (c) furnish to the Seller, 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; (d) use its best efforts to register or qualify the Seller's Registrable Securities covered by such registration statement under the securities or "blue sky" laws of such jurisdictions as the Seller, 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 Seller 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 Seller, 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, 16 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, the 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 Seller will suffer damages if any registration statement required under Section 11.1(iv) above 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 sixty (60) days after written request and declared effective by the Commission within one hundred and twenty (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 (i) the registration statement on Form SB-2 or such other form described in Section 11.1(iv) is not filed on or before the Filing Date or is not declared effective on or before the sooner of the Effective Date, or within five (5) business days of receipt by the Company of a written or oral communication from the Commission that the registration statement described in Section 11.1(iv) will not be reviewed, (ii) if the registration statement described in Sections 11.1(i) or 11.1(ii) is not filed within sixty (60) days after such written request, or is not declared effective within one hundred and twenty (120) days after such written request, or (iii) 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 immediately by an additional registration statement filed and declared effective) for a period of time which shall exceed thirty (30) days in the aggregate per year (defined as a period of three hundred and sixty-five days commencing on the date the Registration Statement is declared effective) or more than twenty (20) consecutive days (each such event referred to in clauses (i), (ii) and (iii) 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, of the greater of (i) the Purchase Price of the Notes remaining unconverted and purchase price of Shares issued upon conversion of the Notes and actually paid "Purchase Price" (as defined in the Warrants) of Warrant Shares issued or issuable upon actual exercise of the Warrants, or (ii) the closing price of the Company's common stock on the last day of each period for which Liquidated Damages are payable, for the Registrable Securities owned of record by such holder as of and during the pendency of such Non-Registration Event which are subject to such Non-Registration Event. Payments to be made pursuant to this Section 11.4 shall be due and payable in cash within ten (10) business days after the end of each thirty (30) day period or part thereof for which Liquidated Damages are payable. It shall be deemed a Non-Registration Event if at any time after the Effective Date the Company has registered for unrestricted resale on behalf of each Subscriber fewer than one hundred and fifty percent (150%) of the amount of Common Stock issuable upon full conversion of all sums due under the Notes. 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 fee of one counsel for all Sellers are called "Registration Expenses". All underwriting discounts and selling commissions applicable to the sale of Registrable Securities, including any fees and disbursements of any additional 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 17 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 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 18 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 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 offered by it pursuant to such registration statement; and (z) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 10(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, the "Unlegended Shares Delivery Date") after the business day on which the Company has received (i) a notice that Registrable Securities have been sold either pursuant to the Registration Statement or Rule 144 under 19 the 1933 Act, (ii) a representation that the prospectus delivery requirements, or the requirements of Rule 144, as applicable, have been satisfied, and (iii) the original share certificates representing the shares of Common Stock that have been sold, 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, for the delivery of shares of Common Stock without any legends including the legends set forth in Sections 4(e) and 4(g) above, issuable 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 unsold shares of Common Stock, 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. (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 therefore 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 beyond 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 purchase all or any portion of the Shares and Warrant Shares subject to such default at a price per share equal to 130% of the Purchase Price of such Shares and Warrant Shares. 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 within ten (10) calendar 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 anticipated receiving 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. 12. (a) Right of First Refusal. From the date of this Agreement, until one hundred and eighty (180) days after the Actual Effective Date of the Registration Statement (the 20 "Exclusion Period"), the Subscribers shall be given not less than fourteen (14) 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) employee stock options or compensation plans, (ii) as full or partial consideration in connection with any merger, consolidation or purchase of substantially all of the securities or assets of any corporation or other entity, or (iii) as has been described in the Reports or Other Written Information filed or delivered prior to the Closing Date (collectively "Excepted Issuances"). The Subscribers shall have the right during the fourteen (14) business days following the notice to purchase 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. 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 original notice period or for a period of fourteen (14) business days following the notice of modification, whichever is longer, to exercise such right. In connection with a Subscriber's exercise of its rights pursuant to this Section 12(a), the Subscriber may tender some or all of the Note principal and accrued interest as payment for such other stock, securities or debt obligations being purchased. (b) Favored Nations Provision. If, at any time a Note or Warrant is outstanding or Registrable Securities are not then registered in an effective Registration Statement for unrestricted resale as required by Section 11 hereof ("Outstanding Period"), except for the Excepted Issuances, the Company shall offer, issue or agree to issue any Common Stock or securities convertible into or exercisable for shares of Common Stock to any person, firm or corporation at a price per share or conversion or exercise price per share which shall be less than the Conversion Price or upon any other term more favorable to such other investor, without the consent of a Subscriber still holding Securities, then the Subscriber is granted the right in the Subscriber's sole discretion to modify any term or condition of the Offering including but not limited to the Conversion Price or other price at which Common Stock may be purchased upon conversion of the Notes and exercise of the Warrants. The rights of the Subscriber set forth in this Section 12(b) are in addition to any other rights the Subscriber has pursuant to this Agreement 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) or 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 as described in Section 7.3 of this Agreement, then the purchase and/or issuance of such other Common Stock or Common Stock equivalents 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 or Common Stock equivalents without exceeding the maximum amount set forth in Section 7.3. The determination of when such Common Stock or Common Stock equivalents 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, 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 21 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: Provo International Inc., One Blue Hill Plaza, 7th Floor, Pearl River, New York 10965, Attn: Stephen J. Cole, Chief Executive Officer, telecopier: (845) 623-8669, with a copy by telecopier only to: Swidler Berlin Shereff Friedman, LLP, 3000 K Street, N.W., Suite 300, Washington, D.C. 20007, Attn: Sean P. McGuinness, Esq., telecopier: (202) 295-8478, (ii) if to the Subscribers, to: the address and telecopier number indicated on the signature page hereto, 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, and (iii) if to the Broker, to: Berry-Shino Securities, Inc., 45 Broadway, 9th Floor, New York, New York 10006, Attn: Asher Brand, telecopier: (212) 344-2383. (b) 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. (c) 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 either party shall be assigned by that party without prior notice to and the written consent of the other party. (d) 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. (e) 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 principles of conflicts of laws. 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. (f) 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 an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof or thereof, this being in addition to any other remedy to which any of them may be entitled by law or equity. Subject to Section 13(e) hereof, each of the Company and Subscriber hereby 22 waives, and agrees not to assert in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction 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. (g) Independent Nature of Subscribers' Obligations and Rights. The obligations of each Subscriber hereunder are several and not joint with the obligations of any other Subscriber hereunder, and no such Subscriber shall be responsible in any way for the performance of the obligations of any other hereunder. [THIS SPACE INTENTIONALLY LEFT BLANK] 23 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. PROVO INTERNATIONAL INC. a Delaware Corporation By: /s/ Stephen J. Cole-Hatchard ---------------------------- Name: Stephen J. Cole-Hatchard Title: CEO Dated: January 27, 2004
+----------------------------------+-----------------+------------------------+ |SUBSCRIBER | PURCHASE PRICE | WARRANTS ISSUABLE ON | | | | CLOSING DATE | | | | | +----------------------------------+-----------------+------------------------+ | | $500,000.00 | | | | | | | ________________________________ | | | | (Signature) | | | | ALPHA CAPITAL AKTIENGESELLSCHAFT | | | | Pradafant 7 | | | | 9490 Furstentums | | | | Vaduz, Lichtenstein | | | | Fax: 011-42-32323196 | | | | | | | +----------------------------------+-----------------+------------------------+
24 SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (B) 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. PROVO INTERNATIONAL INC. a Delaware Corporation By: /s/ Stephen J. Cole-Hatchard ---------------------------- Name: Stephen J. Cole-Hatchard Title: CEO Dated: January 27, 2004
+----------------------------------+-----------------+------------------------+ |SUBSCRIBER | PURCHASE PRICE | WARRANTS ISSUABLE ON | | | | CLOSING DATE | | | | | +----------------------------------+-----------------+------------------------+ | | $300,000.00 | | | | | | | ________________________________ | | | | (Signature) | | | | STONESTREET LIMITED PARTNERSHIP| | | | C/o Canaccord Capital Corporation| | | | 320 Bay Street, Suite 1300 | | | | Toronto, Ontario M5H 4A6, Canada | | | | Fax: (416) 956-8989 | | | | | | | +----------------------------------+-----------------+------------------------+
25 SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (C) 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. PROVO INTERNATIONAL INC. a Delaware Corporation By: /s/ Stephen J. Cole-Hatchard ---------------------------- Name: Stephen J. Cole-Hatchard Title: CEO Dated: January 27, 2004
+--------------------------------------------+-----------------+------------------------+ |SUBSCRIBER | PURCHASE PRICE | WARRANTS ISSUABLE ON | | | | CLOSING DATE | | | | | +--------------------------------------------+-----------------+------------------------+ | | $150,000.00 | | | | | | | ________________________________ | | | | (Signature) | | | | CONGREGATION MISHKAN SHOLOM INCORPORATED | | | | 9612 Van Nuys Boulevard, Suite 108 | | | | Panorama City, CA 91403 | | | | Fax: 818-892-9844 | | | | | | | +--------------------------------------------+-----------------+------------------------+
26 SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (D) 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. PROVO INTERNATIONAL INC. a Delaware Corporation By: /s/ Stephen J. Cole-Hatchard ---------------------------- Name: Stephen J. Cole-Hatchard Title: CEO Dated: January 27, 2004
+-----------------------------------+-----------------+------------------------+ |SUBSCRIBER | PURCHASE PRICE | WARRANTS ISSUABLE ON | | | | CLOSING DATE | | | | | +-----------------------------------+-----------------+------------------------+ | | $50,000.00 | | | | | | | ________________________________ | | | | (Signature) | | | | LUCRATIVE INVESTMENTS | | | | Ajeltake Island | | | | P.O. Box 1405 | | | | Majuro Marshall Island M.H. 96960 | | | | Fax: 011-35041555 | | | | | | | +-----------------------------------+-----------------+------------------------+
27 LIST OF EXHIBITS AND SCHEDULES Exhibit A Form of Warrant Exhibit B Escrow Agreement Exhibit C Security Agreement Exhibit D Collateral Agent Agreement Exhibit E Form of Legal Opinion Schedule 5(d) Additional Issuances Schedule 5(h) Litigation Schedule 5(m) Defaults Schedule 5(q) Undisclosed Liabilities Schedule 5(s) Capitalization Schedule 5(u) Disagreements with Accountants and Lawyers Schedule 9(e) Use of Proceeds Schedule 11.1 Other Securities to be Registered EX-10.35 5 v01635_ex10-35.txt EXHIBIT 10.35 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 PROVO INTERNATIONAL INC. THAT SUCH REGISTRATION IS NOT REQUIRED. CONVERTIBLE NOTE ---------------- FOR VALUE RECEIVED, PROVO INTERNATIONAL INC., a Delaware corporation (hereinafter called "Borrower"), hereby promises to pay to ALPHA CAPITAL AKTIENGESELLSCHAFT, Pradafant 7, 9490 Furstentums, Vaduz, Lichtenstein, Fax: 011-42-32323196 (the "Holder") or order, without demand, the sum of Five Hundred Thousand Dollars ($500,000.00), with simple interest accruing at the annual rate of eight percent (8%), on January 27, 2006 (the "Maturity Date"). 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 GENERAL PROVISIONS 1.1 Payment Grace Period. The Borrower shall have a ten (10) day grace period to pay any monetary amounts due under this Note, after which grace period a default interest rate of fifteen percent (15%) per annum shall apply to the amounts owed hereunder. 1.2 Conversion Privileges. The Conversion Privileges set forth in Article II shall remain in full force and effect immediately from the date hereof and until the Note is paid in full regardless of the occurrence of an Event of Default. The Note shall be payable in full on the Maturity Date, unless previously converted into Common Stock in accordance with Article II hereof; provided, that if an Event of Default has occurred (whether or not such Event of Default is continuing), the Borrower may not pay this Note on or after the Maturity Date, without the consent of the Holder. 1.3 Interest Rate. Simple interest payable on this Note shall accrue at the annual rate of eight percent (8%) and be payable upon each Conversion, June 30, 2004 and semi-annually thereafter, and on the Maturity Date, accelerated or otherwise, when the principal and remaining accrued but unpaid interest shall be due and payable, or sooner as described below. ARTICLE II CONVERSION RIGHTS The Holder shall have the right to convert the principal due under this Note into Shares of the Borrower's Common Stock, $.01 par value per share ("Common Stock") as set forth below. 2.1. Conversion into the Borrower's Common Stock. (a) The Holder shall have the right from and after the date of the issuance of this Note and then at any time until this Note is fully paid, to convert any outstanding and unpaid principal portion of this Note, and accrued interest, at the election of the Holder (the date of giving of such notice of conversion being a "Conversion Date") into fully paid and nonassessable shares of Common Stock as such stock exists on the date of issuance of this Note, or any shares of capital stock of Borrower into which such Common Stock shall hereafter be changed or reclassified, at the conversion price as defined in Section 2.1(b) hereof (the "Conversion Price"), determined as provided herein. Upon delivery to the Borrower of a Notice of Conversion as described in Section 7 of the Subscription Agreement of the Holder's written request for conversion, Borrower shall issue and deliver to the Holder within three business days from the Conversion Date ("Delivery Date") that number of shares of Common Stock for the portion of the Note converted in accordance with the foregoing. At the election of the Holder, the Borrower will deliver accrued but unpaid interest on the Note in the manner provided in Section 1.3 through the Conversion Date directly to the Holder on or before the Delivery Date (as defined in the Subscription Agreement). The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing that portion of the principal of the Note and interest to be converted, by the Conversion Price. (b) Subject to adjustment as provided in Section 2.1(c) hereof, the Conversion Price per share shall be $.25 ("Maximum Base Price"). (c) The Maximum Base Price and number and kind of shares or other securities to be issued upon conversion determined pursuant to Section 2.1(a), 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 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. At any time this Note is outstanding, except for the Excepted Issuances (as defined in the Subscription Agreement), the Borrower shall offer, issue or agree to issue any Common Stock or securities convertible into or exercisable for shares of Common Stock to any person, firm or corporation at a price per share or conversion or exercise price per share which shall be less than the Conversion Price, then the Conversion Price or other price at which Common Stock may be purchased upon conversion of this Note is automatically reduced to such lower price per share. The Borrower will notify the Holder within two business days of the occurrence of any event which results in the reduction of the Conversion Price. E. For purposes of Section 2.1(c)(D) above, Fair Market Value of a share of Common Stock as of a particular date (the "Determination Date") shall mean the Fair Market Value of a share of the Borrower's Common Stock. Fair Market Value of a share of Common Stock as of a Determination Date shall mean: (i) If the Borrower'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, Inc., then the closing or last sale price, respectively, reported for the last business day immediately preceding the Determination Date. (ii) If the Borrower'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 mean of the closing bid and asked prices reported for the last business day immediately preceding the Determination Date. (iii) Except as provided in clause (d) below, if the Borrower's Common Stock is not publicly traded, then as the Holder and the Borrower agree or in the absence of 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. (iv) 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 Borrower'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. (d) Whenever the Conversion Price is adjusted pursuant to Section 2.1(c) above, the Borrower shall promptly mail to the Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. (e) 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 of the 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. (f) The terms of this Note are modifiable by the Holder pursuant to but not limited to Section 12(b) of the Subscription Agreement. 2.2 Method of Conversion. This Note may be converted by the Holder in whole or in part as described in Section 2.1(a) hereof and the Subscription Agreement. Upon partial conversion of this Note, a new Note containing the same date and provisions of this Note shall, at the request of the Holder, be issued by the Borrower to the Holder for the principal balance of this Note and interest which shall not have been converted or paid. 2.3 Maximum Conversion. The Holder 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 Holder and its affiliates on a Conversion Date, (ii) any Common Stock issuable in connection with the unconverted portion of the Note, and (iii) 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 Holder and its affiliates of more than 9.99% of the outstanding shares of Common Stock of the Borrower 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, the Holder shall not be limited to aggregate conversions of only 9.99% and aggregate conversion by the Holder may exceed 9.99%. The Holder shall have the authority and obligation to determine whether the restriction contained in this Section 2.3 will limit any conversion hereunder and to the extent that the Holder determines that the limitation contained in this Section applies, the determination of which portion of the Notes are convertible shall be the responsibility and obligation of the Holder. The Holder may void the conversion limitation described in this Section 2.3 upon and effective after 61 days prior written 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 9.99% amount described above and which shall be allocated to the excess above 9.99%. ARTICLE III EVENT 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: 3.1 Failure to Pay Principal or Interest. The Borrower fails to pay any installment of principal, interest or other sum due under this Note when due and such failure continues for a period of ten (10) days after the due date. The ten (10) day period described in this Section 3.1 is the same ten (10) day period described in Section 1.1 hereof. 3.2 Breach of Covenant. The Borrower breaches any material covenant or other term or condition of the Subscription Agreement or this Note in any material respect and such breach, if subject to cure, continues for a period of ten (10) business days after written notice to the Borrower from the Holder. 3.3 Breach of Representations and Warranties. Any material representation or warranty of the Borrower made herein, in the Subscription Agreement, or in any agreement, statement or certificate given in writing pursuant hereto or in connection therewith shall be false or misleading in any material respect as of the date made and the Closing Date. 3.4 Receiver or Trustee. The Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business; or such a receiver or trustee shall otherwise be appointed. 3.5 Judgments. Any money judgment, writ or similar final process shall be entered or filed against Borrower or any of its property or other assets for more than $50,000, and shall remain unvacated, unbonded or unstayed for a period of forty-five (45) days. 3.6 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 and if instituted against Borrower are not dismissed within 45 days of initiation. 3.7 Delisting. Delisting of the Common Stock from the American Stock Exchange ("Amex") 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 Amex for a period of three consecutive trading days; or notification from the Amex or any Principal Market that the Borrower is not in compliance with the conditions for such continued listing on the Amex or other Principal Market. 3.8 Stop Trade. An SEC stop trade order or Principal Market trading suspension that lasts for five or more consecutive trading days. 3.9 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 and Sections 7 and 11 of the Subscription Agreement, and if required, a replacement Note. 3.10 Non-Registration Event. The occurrence of a Non-Registration Event as described in Section 11.4 of the Subscription Agreement. 3.11 Reverse Splits. The Borrower effectuates a reverse split of its common stock without the prior written consent of the Holder. 3.12 Security Agreement. An "Event of Default" as defined in the Security Agreement dated at or about the date of this Note delivered by Borrower to Holder (the "Security Agreement"). 3.13 Cross Default. A default by the Borrower of a material term, covenant, warranty or undertaking of any other agreement to which the Borrower and Holder are parties, or the occurrence of a material event of default under any such other agreement, in each case, which is not cured after any required notice and/or cure period. ARTICLE IV SECURITY INTEREST 4. Security Interest/Waiver of Automatic Stay. This Note is secured by a security interest granted to the Collateral Agent for the benefit of the Holder pursuant to the Security Agreement, as delivered by Borrower to Holder. The Borrower acknowledges and agrees that should a proceeding under any bankruptcy or insolvency law be commenced by or against the Borrower, or if any of the Collateral (as defined in the Security Agreement) should become the subject of any bankruptcy or insolvency proceeding, then the Holder should be entitled to, among other relief to which the Holder may be entitled under the Note, Security Agreement, Subscription Agreement and any other agreement to which the Borrower and Holder are parties (collectively, "Loan Documents") and/or applicable law, an order from the court granting immediate relief from the automatic stay pursuant to 11 U.S.C. Section 362 to permit the Holder to exercise all of its rights and remedies pursuant to the Loan Documents and/or applicable law. THE BORROWER EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE, THE BORROWER EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362 NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE (INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY, INTERDICT, CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE HOLDER TO ENFORCE ANY OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW. The Borrower hereby consents to any motion for relief from stay that may be filed by the Holder in any bankruptcy or insolvency proceeding initiated by or against the Borrower and, further, agrees not to file any opposition to any motion for relief from stay filed by the Holder. The Borrower represents, acknowledges and agrees that this provision is a specific and material aspect of the Loan Documents, and that the Holder would not agree to the terms of the Loan Documents if this waiver were not a part of this Note. The Borrower further represents, acknowledges and agrees that this waiver is knowingly, intelligently and voluntarily made, that neither the Holder nor any person acting on behalf of the Holder has made any representations to induce this waiver, that the Borrower has been represented (or has had the opportunity to he represented) in the signing of this Note and the Loan Documents and in the making of this waiver by independent legal counsel selected by the Borrower and that the Borrower has discussed this waiver with counsel. 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 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: Provo International Inc., One Blue Hill Plaza, 7th Floor, Pearl River, New York 10965, Attn: Stephen J. Cole, Chief Executive Officer, telecopier: (845) 623-8669, with a copy by telecopier only to: Swidler Berlin Shereff Friedman, LLP, 3000 K Street, N.W., Suite 300, Washington, D.C. 20007, Attn: Sean P. McGuinness, Esq., telecopier: (202) 295-8478, 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. 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. 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 Agreement 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. 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 Redemption. This Note may not be redeemed or paid before the Maturity Date, and if an Event of Default has occurred after the Maturity Date without the consent of the Holder. 5.9 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 right 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 on this 27th day of January, 2004. PROVO INTERNATIONAL INC. By: /s/ Stephen J. Cole-Hatchard Name: Stephen J. Cole-Hatchard Title: CEO WITNESS: ______________________________________ 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 PROVO INTERNATIONAL INC. on January 27, 2004 into Shares of Common Stock of PROVO INTERNATIONAL INC. (the "Borrower") according to the conditions set forth in such Note, as of the date written below. Date of Conversion:_____________________________________________________________ Conversion Price:_______________________________________________________________ Shares To Be Delivered:_________________________________________________________ Signature:______________________________________________________________________ Print Name:_____________________________________________________________________ Address:________________________________________________________________________ ____________________________________________________________________ EX-10.36 6 v01635_ex10-36.txt EXHIBIT 10.36 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 PROVO INTERNATIONAL INC. THAT SUCH REGISTRATION IS NOT REQUIRED. Right to Purchase 1,000,000 shares of Common Stock of Provo International Inc. (subject to adjustment as provided herein) COMMON STOCK PURCHASE WARRANT (SUBSCRIBER) No. 2004-JAN-001 Issue Date: January 27, 2004 PROVO INTERNATIONAL INC., a corporation organized under the laws of the State of Delaware (the "Company"), hereby certifies that, for value received, ALPHA CAPITAL AKTIENGESELLSCHAFT, Pradafant 7, 9490 Furstentums, Vaduz, Lichtenstein, telecopier: 011-42-32323196, 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 up to 5:00 p.m., E.S.T on January 27, 2009 (the "Expiration Date"), up to 1,000,000 fully paid and nonassessable shares of the common stock of the Company (the "Common Stock"), $.01 par value per share at a per share purchase price of $.38. 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 January 27, 2004, between the Company and the Holder. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: (a) The term "Company" shall include Provo International Inc. and any corporation which shall succeed or assume the obligations of Provo International Inc. hereunder. (b) The term "Common Stock" includes (a) the Company's Common Stock, $.01 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 4 or otherwise. 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. 1.2. 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 seven (7) 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, Inc., 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. Trustee for Warrant Holders. In the event that a bank or trust company shall have been appointed as trustee for the Holder of the Warrants pursuant to Subsection 3.2, such bank or trust company shall have all the powers and duties of a warrant agent (as hereinafter described) and shall accept, in its own name for the account of the Company or such successor person as may be entitled thereto, all amounts otherwise payable to the Company or such successor, as the case may be, on exercise of this Warrant pursuant to this Section 1. 1.7 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 five (5) 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 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. 1.8 Cashless Exercise. ------------------ (a) Payment upon exercise of this Warrant 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) Notwithstanding any provisions herein to the contrary, 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 receive 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 not employ the cashless exercise feature described above at any time that the Warrant Stock to be issued upon exercise is included for unrestricted resale in an effective Registration Statement (as defined in the Subscription Agreement). 2. Intentionally Omitted. ---------------------- 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 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. Dissolution. In the event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets, the Company, prior to such dissolution, shall at its expense deliver or cause to be delivered the stock and other securities and property (including cash, where applicable) receivable by the Holder of the Warrants after the effective date of such dissolution pursuant to this Section 3 to a bank or trust company (a "Trustee") having its principal office in New York, NY, as trustee for the Holder of the Warrants. 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. During the period this Warrant is outstanding, if the Company shall issue any shares of 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 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 an adjustment to the Purchase Price upon the issuance of the above-described security, warrant, right, or option. 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, 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. 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 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 the Subscription Agreement. The terms of the Subscription Agreement are incorporated herein by this reference. Upon the occurrence of a Non-Registration Event, or in the event the Company is unable to issue Common Stock upon exercise of this Warrant that has been registered in a Registration Statement described in Section 11 of the Subscription Agreement, within the time periods described in the Subscription Agreement, which Registration Statement must be effective for the periods set forth in the Subscription Agreement, then upon written demand made by the Holder, the Company will pay to the Holder of this Warrant, in lieu of delivering Common Stock, a sum equal to the closing price of the Company's Common Stock on the principal market or exchange upon which the Common Stock is listed for trading on the trading date immediately preceding the date notice is given by the Holder, less the Purchase Price, for each share of Common Stock designated in such notice from the Holder. 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 9.99% 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, the Holder shall not be limited to aggregate exercises which would result in the issuance of more than 9.99%. The restriction described in this paragraph may be revoked upon and effective after 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 9.99% amount described above and which shall be allocated to the excess above 9.99%. 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: Provo International Inc., One Blue Hill Plaza, 7th Floor, Pearl River, New York 10965, Attn: Stephen J. Cole, Chief Executive Officer, telecopier: (845) 623-8669, with a copy by telecopier only to: Swidler Berlin Shereff Friedman, LLP, 3000 K Street, N.W., Suite 300, Washington, D.C. 20007, Attn: Sean P. McGuinness, Esq., telecopier: (202) 295-8478; (ii) if to the Holder, to the address and telecopier number listed on the first paragraph of this Warrant, 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; and (iii) if to the Broker, to: Berry-Shino Securities, Inc., 45 Broadway, 9th Floor, New York, New York 10006, Attn: Asher Brand, telecopier: (212) 344-2383. 15. 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. IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first written above. PROVO INTERNATIONAL INC. By: /s/ Stephen J. Cole-Hatchard Name: Stephen J. Cole-Hatchard Title: CEO Witness: /s/ Amy Wagner-Mele Secretary EXHIBIT A FORM OF SUBSCRIPTION (to be signed only on exercise of Warrant) TO: PROVO INTERNATIONAL INC. The undersigned, pursuant to the provisions set forth in the attached Warrant (No.____), hereby irrevocably elects to purchase (check applicable box): ___ ________ shares of the Common Stock covered by such Warrant; or ___ the maximum number of shares of Common Stock covered by such Warrant pursuant to the cashless exercise procedure set forth in Section 2. The undersigned herewith makes payment of the full purchase price for such shares at the price per share provided for in such Warrant, which is $___________. Such payment takes the form of (check applicable box or boxes): ___ $__________ in lawful money of the United States; and/or ___ the cancellation of such portion of the attached Warrant as is exercisable for a total of _______ shares of Common Stock (using a Fair Market Value of $_______ per share for purposes of this calculation); and/or ___ the cancellation of such number of shares of Common Stock as is necessary, in accordance with the formula set forth in Section 2, to exercise this Warrant with respect to the maximum number of shares of Common Stock purchasable pursuant to the cashless exercise procedure set forth in Section 2. The undersigned requests that the certificates for such shares be issued in the name of, and delivered to _______________________________________________________________________________ whose address is ______________________________________________________________ _________________________________________ . The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable upon exercise of the within Warrant shall be made pursuant to registration of the Common Stock under the Securities Act of 1933, as amended (the "Securities Act"), or pursuant to an exemption from registration under the Securities Act. Dated:___________________ ___________________________________________ (Signature must conform to name of holder as specified on the face of the Warrant) ___________________________________________ ___________________________________________ (Address) EXHIBIT B FORM OF TRANSFEROR ENDORSEMENT (To be signed only on transfer of Warrant) For value received, the undersigned hereby sells, assigns, and transfers unto the person(s) named below under the heading "Transferees" the right represented by the within Warrant to purchase the percentage and number of shares of Common Stock of PROVO INTERNATIONAL INC. to which the within Warrant relates specified under the headings "Percentage Transferred" and "Number Transferred," respectively, opposite the name(s) of such person(s) and appoints each such person Attorney to transfer its respective right on the books of PROVO INTERNATIONAL INC. with full power of substitution in the premises.
+----------------------------------------+--------------------------------------+--------------------------------------+ |Transferees |Percentage Transferred |Number Transferred | +----------------------------------------+--------------------------------------+--------------------------------------+ | | | | | | | | +----------------------------------------+--------------------------------------+--------------------------------------+ | | | | | | | | +----------------------------------------+--------------------------------------+--------------------------------------+ | | | | | | | | +----------------------------------------+--------------------------------------+--------------------------------------+ Dated: ______________, ___________ _______________________________________________________ (Signature must conform to name of holder as specified on the face of the warrant) Signed in the presence of: _________________________________________ _______________________________________________________ (Name) _______________________________________________________ (address) ACCEPTED AND AGREED: [TRANSFEREE] _______________________________________________________ _______________________________________________________ (address) _________________________________________ (Name)
10 EX-10.37 7 v01635_ex10-37.txt EXHIBIT 10.37 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 PROVO INTERNATIONAL INC. THAT SUCH REGISTRATION IS NOT REQUIRED. CONVERTIBLE NOTE ---------------- FOR VALUE RECEIVED, PROVO INTERNATIONAL INC., a Delaware corporation (hereinafter called "Borrower"), hereby promises to pay to STONESTREET LIMITED PARTNERSHIP, c/o Canaccord Capital Corporation, 320 Bay Street, Suite 1300, Toronto, Ontario M5H 4A6, Canada, Fax: (416) 956-8989 (the "Holder") or order, without demand, the sum of Three Hundred Thousand Dollars ($300,000.00), with simple interest accruing at the annual rate of eight percent (8%), on January 27, 2006 (the "Maturity Date"). 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 GENERAL PROVISIONS 1.1 Payment Grace Period. The Borrower shall have a ten (10) day grace period to pay any monetary amounts due under this Note, after which grace period a default interest rate of fifteen percent (15%) per annum shall apply to the amounts owed hereunder. 1.2 Conversion Privileges. The Conversion Privileges set forth in Article II shall remain in full force and effect immediately from the date hereof and until the Note is paid in full regardless of the occurrence of an Event of Default. The Note shall be payable in full on the Maturity Date, unless previously converted into Common Stock in accordance with Article II hereof; provided, that if an Event of Default has occurred (whether or not such Event of Default is continuing), the Borrower may not pay this Note on or after the Maturity Date, without the consent of the Holder. 1.3 Interest Rate. Simple interest payable on this Note shall accrue at the annual rate of eight percent (8%) and be payable upon each Conversion, June 30, 2004 and semi-annually thereafter, and on the Maturity Date, accelerated or otherwise, when the principal and remaining accrued but unpaid interest shall be due and payable, or sooner as described below. ARTICLE II CONVERSION RIGHTS The Holder shall have the right to convert the principal due under this Note into Shares of the Borrower's Common Stock, $.01 par value per share ("Common Stock") as set forth below. 2.1. Conversion into the Borrower's Common Stock. (a) The Holder shall have the right from and after the date of the issuance of this Note and then at any time until this Note is fully paid, to convert any outstanding and unpaid principal portion of this Note, and accrued interest, at the election of the Holder (the date of giving of such notice of conversion being a "Conversion Date") into fully paid and nonassessable shares of Common Stock as such stock exists on the date of issuance of this Note, or any shares of capital stock of Borrower into which such Common Stock shall hereafter be changed or reclassified, at the conversion price as defined in Section 2.1(b) hereof (the "Conversion Price"), determined as provided herein. Upon delivery to the Borrower of a Notice of Conversion as described in Section 7 of the Subscription Agreement of the Holder's written request for conversion, Borrower shall issue and deliver to the Holder within three business days from the Conversion Date ("Delivery Date") that number of shares of Common Stock for the portion of the Note converted in accordance with the foregoing. At the election of the Holder, the Borrower will deliver accrued but unpaid interest on the Note in the manner provided in Section 1.3 through the Conversion Date directly to the Holder on or before the Delivery Date (as defined in the Subscription Agreement). The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing that portion of the principal of the Note and interest to be converted, by the Conversion Price. (b) Subject to adjustment as provided in Section 2.1(c) hereof, the Conversion Price per share shall be $.25 ("Maximum Base Price"). (c) The Maximum Base Price and number and kind of shares or other securities to be issued upon conversion determined pursuant to Section 2.1(a), 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 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. At any time this Note is outstanding, except for the Excepted Issuances (as defined in the Subscription Agreement), the Borrower shall offer, issue or agree to issue any Common Stock or securities convertible into or exercisable for shares of Common Stock to any person, firm or corporation at a price per share or conversion or exercise price per share which shall be less than the Conversion Price, then the Conversion Price or other price at which Common Stock may be purchased upon conversion of this Note is automatically reduced to such lower price per share. The Borrower will notify the Holder within two business days of the occurrence of any event which results in the reduction of the Conversion Price. E. For purposes of Section 2.1(c)(D) above, Fair Market Value of a share of Common Stock as of a particular date (the "Determination Date") shall mean the Fair Market Value of a share of the Borrower's Common Stock. Fair Market Value of a share of Common Stock as of a Determination Date shall mean: (i) If the Borrower'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, Inc., then the closing or last sale price, respectively, reported for the last business day immediately preceding the Determination Date. (ii) If the Borrower'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 mean of the closing bid and asked prices reported for the last business day immediately preceding the Determination Date. (iii) Except as provided in clause (d) below, if the Borrower's Common Stock is not publicly traded, then as the Holder and the Borrower agree or in the absence of 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. (iv) 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 Borrower'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. (d) Whenever the Conversion Price is adjusted pursuant to Section 2.1(c) above, the Borrower shall promptly mail to the Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. (e) 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 of the 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. (f) The terms of this Note are modifiable by the Holder pursuant to but not limited to Section 12(b) of the Subscription Agreement. 2.2 Method of Conversion. This Note may be converted by the Holder in whole or in part as described in Section 2.1(a) hereof and the Subscription Agreement. Upon partial conversion of this Note, a new Note containing the same date and provisions of this Note shall, at the request of the Holder, be issued by the Borrower to the Holder for the principal balance of this Note and interest which shall not have been converted or paid. 2.3 Maximum Conversion. The Holder 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 Holder and its affiliates on a Conversion Date, (ii) any Common Stock issuable in connection with the unconverted portion of the Note, and (iii) 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 Holder and its affiliates of more than 9.99% of the outstanding shares of Common Stock of the Borrower 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, the Holder shall not be limited to aggregate conversions of only 9.99% and aggregate conversion by the Holder may exceed 9.99%. The Holder shall have the authority and obligation to determine whether the restriction contained in this Section 2.3 will limit any conversion hereunder and to the extent that the Holder determines that the limitation contained in this Section applies, the determination of which portion of the Notes are convertible shall be the responsibility and obligation of the Holder. The Holder may void the conversion limitation described in this Section 2.3 upon and effective after 61 days prior written 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 9.99% amount described above and which shall be allocated to the excess above 9.99%. ARTICLE III EVENT 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: 3.1 Failure to Pay Principal or Interest. The Borrower fails to pay any installment of principal, interest or other sum due under this Note when due and such failure continues for a period of ten (10) days after the due date. The ten (10) day period described in this Section 3.1 is the same ten (10) day period described in Section 1.1 hereof. 3.2 Breach of Covenant. The Borrower breaches any material covenant or other term or condition of the Subscription Agreement or this Note in any material respect and such breach, if subject to cure, continues for a period of ten (10) business days after written notice to the Borrower from the Holder. 3.3 Breach of Representations and Warranties. Any material representation or warranty of the Borrower made herein, in the Subscription Agreement, or in any agreement, statement or certificate given in writing pursuant hereto or in connection therewith shall be false or misleading in any material respect as of the date made and the Closing Date. 3.4 Receiver or Trustee. The Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business; or such a receiver or trustee shall otherwise be appointed. 3.5 Judgments. Any money judgment, writ or similar final process shall be entered or filed against Borrower or any of its property or other assets for more than $50,000, and shall remain unvacated, unbonded or unstayed for a period of forty-five (45) days. 3.6 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 and if instituted against Borrower are not dismissed within 45 days of initiation. 3.7 Delisting. Delisting of the Common Stock from the American Stock Exchange ("Amex") 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 Amex for a period of three consecutive trading days; or notification from the Amex or any Principal Market that the Borrower is not in compliance with the conditions for such continued listing on the Amex or other Principal Market. 3.8 Stop Trade. An SEC stop trade order or Principal Market trading suspension that lasts for five or more consecutive trading days. 3.9 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 and Sections 7 and 11 of the Subscription Agreement, and if required, a replacement Note. 3.10 Non-Registration Event. The occurrence of a Non-Registration Event as described in Section 11.4 of the Subscription Agreement. 3.11 Reverse Splits. The Borrower effectuates a reverse split of its common stock without the prior written consent of the Holder. 3.12 Security Agreement. An "Event of Default" as defined in the Security Agreement dated at or about the date of this Note delivered by Borrower to Holder (the "Security Agreement"). 3.13 Cross Default. A default by the Borrower of a material term, covenant, warranty or undertaking of any other agreement to which the Borrower and Holder are parties, or the occurrence of a material event of default under any such other agreement, in each case, which is not cured after any required notice and/or cure period. ARTICLE IV SECURITY INTEREST 4. Security Interest/Waiver of Automatic Stay. This Note is secured by a security interest granted to the Collateral Agent for the benefit of the Holder pursuant to the Security Agreement, as delivered by Borrower to Holder. The Borrower acknowledges and agrees that should a proceeding under any bankruptcy or insolvency law be commenced by or against the Borrower, or if any of the Collateral (as defined in the Security Agreement) should become the subject of any bankruptcy or insolvency proceeding, then the Holder should be entitled to, among other relief to which the Holder may be entitled under the Note, Security Agreement, Subscription Agreement and any other agreement to which the Borrower and Holder are parties (collectively, "Loan Documents") and/or applicable law, an order from the court granting immediate relief from the automatic stay pursuant to 11 U.S.C. Section 362 to permit the Holder to exercise all of its rights and remedies pursuant to the Loan Documents and/or applicable law. THE BORROWER EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE, THE BORROWER EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362 NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE (INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY, INTERDICT, CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE HOLDER TO ENFORCE ANY OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW. The Borrower hereby consents to any motion for relief from stay that may be filed by the Holder in any bankruptcy or insolvency proceeding initiated by or against the Borrower and, further, agrees not to file any opposition to any motion for relief from stay filed by the Holder. The Borrower represents, acknowledges and agrees that this provision is a specific and material aspect of the Loan Documents, and that the Holder would not agree to the terms of the Loan Documents if this waiver were not a part of this Note. The Borrower further represents, acknowledges and agrees that this waiver is knowingly, intelligently and voluntarily made, that neither the Holder nor any person acting on behalf of the Holder has made any representations to induce this waiver, that the Borrower has been represented (or has had the opportunity to he represented) in the signing of this Note and the Loan Documents and in the making of this waiver by independent legal counsel selected by the Borrower and that the Borrower has discussed this waiver with counsel. 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 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: Provo International Inc., One Blue Hill Plaza, 7th Floor, Pearl River, New York 10965, Attn: Stephen J. Cole, Chief Executive Officer, telecopier: (845) 623-8669, with a copy by telecopier only to: Swidler Berlin Shereff Friedman, LLP, 3000 K Street, N.W., Suite 300, Washington, D.C. 20007, Attn: Sean P. McGuinness, Esq., telecopier: (202) 295-8478, 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. 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. 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 Agreement 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. 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 Redemption. This Note may not be redeemed or paid before the Maturity Date, and if an Event of Default has occurred after the Maturity Date without the consent of the Holder. 5.9 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 right 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 on this 27th day of January, 2004. PROVO INTERNATIONAL INC. By: /s/ Stephen J. Cole-Hatchard Name: Stephen J. Cole-Hatchard Title: CEO WITNESS: ______________________________________ 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 PROVO INTERNATIONAL INC. on January 27, 2004 into Shares of Common Stock of PROVO INTERNATIONAL INC. (the "Borrower") according to the conditions set forth in such Note, as of the date written below. Date of Conversion:_____________________________________________________________ Conversion Price:_______________________________________________________________ Shares To Be Delivered:_________________________________________________________ Signature:______________________________________________________________________ Print Name:_____________________________________________________________________ Address:________________________________________________________________________ ________________________________________________________________________ EX-10.38 8 v01635_ex10-38.txt EXHIBIT 10.38 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 PROVO INTERNATIONAL INC. THAT SUCH REGISTRATION IS NOT REQUIRED. Right to Purchase 600,000 shares of Common Stock of Provo International Inc. (subject to adjustment as provided herein) COMMON STOCK PURCHASE WARRANT (SUBSCRIBER) No. 2004-JAN-002 Issue Date: January 27, 2004 PROVO INTERNATIONAL INC., a corporation organized under the laws of the State of Delaware (the "Company"), hereby certifies that, for value received, STONESTREET LIMITED PARTNERSHIP, c/o Canaccord Capital Corporation, 320 Bay Street, Suite 1300, Toronto, Ontario M5H 4A6, Canada, Fax: (416) 956-8989, 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 up to 5:00 p.m., E.S.T on January 27, 2009 (the "Expiration Date"), up to 600,000 fully paid and nonassessable shares of the common stock of the Company (the "Common Stock"), $.01 par value per share at a per share purchase price of $.38. 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 January 27, 2004, between the Company and the Holder. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: (a) The term "Company" shall include Provo International Inc. and any corporation which shall succeed or assume the obligations of Provo International Inc. hereunder. (b) The term "Common Stock" includes (a) the Company's Common Stock, $.01 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 4 or otherwise. 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. 1.2. 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 seven (7) 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, Inc., 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. Trustee for Warrant Holders. In the event that a bank or trust company shall have been appointed as trustee for the Holder of the Warrants pursuant to Subsection 3.2, such bank or trust company shall have all the powers and duties of a warrant agent (as hereinafter described) and shall accept, in its own name for the account of the Company or such successor person as may be entitled thereto, all amounts otherwise payable to the Company or such successor, as the case may be, on exercise of this Warrant pursuant to this Section 1. 1.7 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 five (5) 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 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. 1.8 Cashless Exercise. (a) Payment upon exercise of this Warrant 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) Notwithstanding any provisions herein to the contrary, 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 receive 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 not employ the cashless exercise feature described above at any time that the Warrant Stock to be issued upon exercise is included for unrestricted resale in an effective Registration Statement (as defined in the Subscription Agreement). 2. Intentionally Omitted. 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 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. Dissolution. In the event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets, the Company, prior to such dissolution, shall at its expense deliver or cause to be delivered the stock and other securities and property (including cash, where applicable) receivable by the Holder of the Warrants after the effective date of such dissolution pursuant to this Section 3 to a bank or trust company (a "Trustee") having its principal office in New York, NY, as trustee for the Holder of the Warrants. 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. During the period this Warrant is outstanding, if the Company shall issue any shares of 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 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 an adjustment to the Purchase Price upon the issuance of the above-described security, warrant, right, or option. 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, 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. 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 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 the Subscription Agreement. The terms of the Subscription Agreement are incorporated herein by this reference. Upon the occurrence of a Non-Registration Event, or in the event the Company is unable to issue Common Stock upon exercise of this Warrant that has been registered in a Registration Statement described in Section 11 of the Subscription Agreement, within the time periods described in the Subscription Agreement, which Registration Statement must be effective for the periods set forth in the Subscription Agreement, then upon written demand made by the Holder, the Company will pay to the Holder of this Warrant, in lieu of delivering Common Stock, a sum equal to the closing price of the Company's Common Stock on the principal market or exchange upon which the Common Stock is listed for trading on the trading date immediately preceding the date notice is given by the Holder, less the Purchase Price, for each share of Common Stock designated in such notice from the Holder. 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 9.99% 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, the Holder shall not be limited to aggregate exercises which would result in the issuance of more than 9.99%. The restriction described in this paragraph may be revoked upon and effective after 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 9.99% amount described above and which shall be allocated to the excess above 9.99%. 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: Provo International Inc., One Blue Hill Plaza, 7th Floor, Pearl River, New York 10965, Attn: Stephen J. Cole, Chief Executive Officer, telecopier: (845) 623-8669, with a copy by telecopier only to: Swidler Berlin Shereff Friedman, LLP, 3000 K Street, N.W., Suite 300, Washington, D.C. 20007, Attn: Sean P. McGuinness, Esq., telecopier: (202) 295-8478; (ii) if to the Holder, to the address and telecopier number listed on the first paragraph of this Warrant, 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; and (iii) if to the Broker, to: Berry-Shino Securities, Inc., 45 Broadway, 9th Floor, New York, New York 10006, Attn: Asher Brand, telecopier: (212) 344-2383. 15. 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. IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first written above. PROVO INTERNATIONAL INC. By: /s/ Stephen J. Cole-Hatchard Name: Stephen J. Cole-Hatchard Title: CEO Witness: /s/ Amy Wagner-Mele - ------------------- Secretary - --------- EXHIBIT A FORM OF SUBSCRIPTION (to be signed only on exercise of Warrant) TO: PROVO INTERNATIONAL INC. The undersigned, pursuant to the provisions set forth in the attached Warrant (No.____), hereby irrevocably elects to purchase (check applicable box): ___ ________ shares of the Common Stock covered by such Warrant; or ___ the maximum number of shares of Common Stock covered by such Warrant pursuant to the cashless exercise procedure set forth in Section 2. The undersigned herewith makes payment of the full purchase price for such shares at the price per share provided for in such Warrant, which is $___________. Such payment takes the form of (check applicable box or boxes): ___ $__________ in lawful money of the United States; and/or ___ the cancellation of such portion of the attached Warrant as is exercisable for a total of _______ shares of Common Stock (using a Fair Market Value of $_______ per share for purposes of this calculation); and/or ___ the cancellation of such number of shares of Common Stock as is necessary, in accordance with the formula set forth in Section 2, to exercise this Warrant with respect to the maximum number of shares of Common Stock purchasable pursuant to the cashless exercise procedure set forth in Section 2. The undersigned requests that the certificates for such shares be issued in the name of, and delivered to _____________________________________________________ whose address is _____________________________________________________________ ______________________________________________________________________________ . The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable upon exercise of the within Warrant shall be made pursuant to registration of the Common Stock under the Securities Act of 1933, as amended (the "Securities Act"), or pursuant to an exemption from registration under the Securities Act. Dated:___________________ ____________________________________________ (Signature must conform to name of holder as specified on the face of the Warrant) ____________________________________________ ____________________________________________ (Address) EXHIBIT B FORM OF TRANSFEROR ENDORSEMENT (To be signed only on transfer of Warrant) For value received, the undersigned hereby sells, assigns, and transfers unto the person(s) named below under the heading "Transferees" the right represented by the within Warrant to purchase the percentage and number of shares of Common Stock of PROVO INTERNATIONAL INC. to which the within Warrant relates specified under the headings "Percentage Transferred" and "Number Transferred," respectively, opposite the name(s) of such person(s) and appoints each such person Attorney to transfer its respective right on the books of PROVO INTERNATIONAL INC. with full power of substitution in the premises. Transferees Percentage Transferred Number Transferred - ----------- ---------------------- ------------------ Dated: __________, _________ _________________________________________ (Signature must conform to name of holder as specified on the face of the warrant) Signed in the presence of: ____________________________ _________________________________________ (Name) _________________________________________ (address) ACCEPTED AND AGREED: _________________________________________ [TRANSFEREE] _________________________________________ (address) ____________________________ (Name) EX-10.39 9 v01635_ex10-39.txt EXHIBIT 10.39 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 PROVO INTERNATIONAL INC. THAT SUCH REGISTRATION IS NOT REQUIRED. CONVERTIBLE NOTE ---------------- FOR VALUE RECEIVED, PROVO INTERNATIONAL INC., a Delaware corporation (hereinafter called "Borrower"), hereby promises to pay to CONGREGATION MISHKAN SHOLOM INCORPORATED, 9612 Van Nuys Boulevard, Suite 108, Panorama City, CA 91403, Fax: 818-892-9844 (the "Holder") or order, without demand, the sum of One Hundred and Fifty Thousand Dollars ($150,000.00), with simple interest accruing at the annual rate of eight percent (8%), on January 27, 2006 (the "Maturity Date"). 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 GENERAL PROVISIONS 1.1 Payment Grace Period. The Borrower shall have a ten (10) day grace period to pay any monetary amounts due under this Note, after which grace period a default interest rate of fifteen percent (15%) per annum shall apply to the amounts owed hereunder. 1.2 Conversion Privileges. The Conversion Privileges set forth in Article II shall remain in full force and effect immediately from the date hereof and until the Note is paid in full regardless of the occurrence of an Event of Default. The Note shall be payable in full on the Maturity Date, unless previously converted into Common Stock in accordance with Article II hereof; provided, that if an Event of Default has occurred (whether or not such Event of Default is continuing), the Borrower may not pay this Note on or after the Maturity Date, without the consent of the Holder. 1.3 Interest Rate. Simple interest payable on this Note shall accrue at the annual rate of eight percent (8%) and be payable upon each Conversion, June 30, 2004 and semi-annually thereafter, and on the Maturity Date, accelerated or otherwise, when the principal and remaining accrued but unpaid interest shall be due and payable, or sooner as described below. ARTICLE II CONVERSION RIGHTS The Holder shall have the right to convert the principal due under this Note into Shares of the Borrower's Common Stock, $.01 par value per share ("Common Stock") as set forth below. 2.1. Conversion into the Borrower's Common Stock. (a) The Holder shall have the right from and after the date of the issuance of this Note and then at any time until this Note is fully paid, to convert any outstanding and unpaid principal portion of this Note, and accrued interest, at the election of the Holder (the date of giving of such notice of conversion being a "Conversion Date") into fully paid and nonassessable shares of Common Stock as such stock exists on the date of issuance of this Note, or any shares of capital stock of Borrower into which such Common Stock shall hereafter be changed or reclassified, at the conversion price as defined in Section 2.1(b) hereof (the "Conversion Price"), determined as provided herein. Upon delivery to the Borrower of a Notice of Conversion as described in Section 7 of the Subscription Agreement of the Holder's written request for conversion, Borrower shall issue and deliver to the Holder within three business days from the Conversion Date ("Delivery Date") that number of shares of Common Stock for the portion of the Note converted in accordance with the foregoing. At the election of the Holder, the Borrower will deliver accrued but unpaid interest on the Note in the manner provided in Section 1.3 through the Conversion Date directly to the Holder on or before the Delivery Date (as defined in the Subscription Agreement). The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing that portion of the principal of the Note and interest to be converted, by the Conversion Price. (b) Subject to adjustment as provided in Section 2.1(c) hereof, the Conversion Price per share shall be $.25 ("Maximum Base Price"). (c) The Maximum Base Price and number and kind of shares or other securities to be issued upon conversion determined pursuant to Section 2.1(a), 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 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. At any time this Note is outstanding, except for the Excepted Issuances (as defined in the Subscription Agreement), the Borrower shall offer, issue or agree to issue any Common Stock or securities convertible into or exercisable for shares of Common Stock to any person, firm or corporation at a price per share or conversion or exercise price per share which shall be less than the Conversion Price, then the Conversion Price or other price at which Common Stock may be purchased upon conversion of this Note is automatically reduced to such lower price per share. The Borrower will notify the Holder within two business days of the occurrence of any event which results in the reduction of the Conversion Price. E. For purposes of Section 2.1(c)(D) above, Fair Market Value of a share of Common Stock as of a particular date (the "Determination Date") shall mean the Fair Market Value of a share of the Borrower's Common Stock. Fair Market Value of a share of Common Stock as of a Determination Date shall mean: (i) If the Borrower'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, Inc., then the closing or last sale price, respectively, reported for the last business day immediately preceding the Determination Date. (ii) If the Borrower'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 mean of the closing bid and asked prices reported for the last business day immediately preceding the Determination Date. (iii) Except as provided in clause (d) below, if the Borrower's Common Stock is not publicly traded, then as the Holder and the Borrower agree or in the absence of 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. (iv) 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 Borrower'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. (d) Whenever the Conversion Price is adjusted pursuant to Section 2.1(c) above, the Borrower shall promptly mail to the Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. (e) 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 of the 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. (f) The terms of this Note are modifiable by the Holder pursuant to but not limited to Section 12(b) of the Subscription Agreement. 2.2 Method of Conversion. This Note may be converted by the Holder in whole or in part as described in Section 2.1(a) hereof and the Subscription Agreement. Upon partial conversion of this Note, a new Note containing the same date and provisions of this Note shall, at the request of the Holder, be issued by the Borrower to the Holder for the principal balance of this Note and interest which shall not have been converted or paid. 2.3 Maximum Conversion. The Holder 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 Holder and its affiliates on a Conversion Date, (ii) any Common Stock issuable in connection with the unconverted portion of the Note, and (iii) 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 Holder and its affiliates of more than 9.99% of the outstanding shares of Common Stock of the Borrower 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, the Holder shall not be limited to aggregate conversions of only 9.99% and aggregate conversion by the Holder may exceed 9.99%. The Holder shall have the authority and obligation to determine whether the restriction contained in this Section 2.3 will limit any conversion hereunder and to the extent that the Holder determines that the limitation contained in this Section applies, the determination of which portion of the Notes are convertible shall be the responsibility and obligation of the Holder. The Holder may void the conversion limitation described in this Section 2.3 upon and effective after 61 days prior written 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 9.99% amount described above and which shall be allocated to the excess above 9.99%. ARTICLE III EVENT 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: 3.1 Failure to Pay Principal or Interest. The Borrower fails to pay any installment of principal, interest or other sum due under this Note when due and such failure continues for a period of ten (10) days after the due date. The ten (10) day period described in this Section 3.1 is the same ten (10) day period described in Section 1.1 hereof. 3.2 Breach of Covenant. The Borrower breaches any material covenant or other term or condition of the Subscription Agreement or this Note in any material respect and such breach, if subject to cure, continues for a period of ten (10) business days after written notice to the Borrower from the Holder. 3.3 Breach of Representations and Warranties. Any material representation or warranty of the Borrower made herein, in the Subscription Agreement, or in any agreement, statement or certificate given in writing pursuant hereto or in connection therewith shall be false or misleading in any material respect as of the date made and the Closing Date. 3.4 Receiver or Trustee. The Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business; or such a receiver or trustee shall otherwise be appointed. 3.5 Judgments. Any money judgment, writ or similar final process shall be entered or filed against Borrower or any of its property or other assets for more than $50,000, and shall remain unvacated, unbonded or unstayed for a period of forty-five (45) days. 3.6 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 and if instituted against Borrower are not dismissed within 45 days of initiation. 3.7 Delisting. Delisting of the Common Stock from the American Stock Exchange ("Amex") 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 Amex for a period of three consecutive trading days; or notification from the Amex or any Principal Market that the Borrower is not in compliance with the conditions for such continued listing on the Amex or other Principal Market. 3.8 Stop Trade. An SEC stop trade order or Principal Market trading suspension that lasts for five or more consecutive trading days. 3.9 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 and Sections 7 and 11 of the Subscription Agreement, and if required, a replacement Note. 3.10 Non-Registration Event. The occurrence of a Non-Registration Event as described in Section 11.4 of the Subscription Agreement. 3.11 Reverse Splits. The Borrower effectuates a reverse split of its common stock without the prior written consent of the Holder. 3.12 Security Agreement. An "Event of Default" as defined in the Security Agreement dated at or about the date of this Note delivered by Borrower to Holder (the "Security Agreement"). 3.13 Cross Default. A default by the Borrower of a material term, covenant, warranty or undertaking of any other agreement to which the Borrower and Holder are parties, or the occurrence of a material event of default under any such other agreement, in each case, which is not cured after any required notice and/or cure period. ARTICLE IV SECURITY INTEREST 4. Security Interest/Waiver of Automatic Stay. This Note is secured by a security interest granted to the Collateral Agent for the benefit of the Holder pursuant to the Security Agreement, as delivered by Borrower to Holder. The Borrower acknowledges and agrees that should a proceeding under any bankruptcy or insolvency law be commenced by or against the Borrower, or if any of the Collateral (as defined in the Security Agreement) should become the subject of any bankruptcy or insolvency proceeding, then the Holder should be entitled to, among other relief to which the Holder may be entitled under the Note, Security Agreement, Subscription Agreement and any other agreement to which the Borrower and Holder are parties (collectively, "Loan Documents") and/or applicable law, an order from the court granting immediate relief from the automatic stay pursuant to 11 U.S.C. Section 362 to permit the Holder to exercise all of its rights and remedies pursuant to the Loan Documents and/or applicable law. THE BORROWER EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE, THE BORROWER EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362 NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE (INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY, INTERDICT, CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE HOLDER TO ENFORCE ANY OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW. The Borrower hereby consents to any motion for relief from stay that may be filed by the Holder in any bankruptcy or insolvency proceeding initiated by or against the Borrower and, further, agrees not to file any opposition to any motion for relief from stay filed by the Holder. The Borrower represents, acknowledges and agrees that this provision is a specific and material aspect of the Loan Documents, and that the Holder would not agree to the terms of the Loan Documents if this waiver were not a part of this Note. The Borrower further represents, acknowledges and agrees that this waiver is knowingly, intelligently and voluntarily made, that neither the Holder nor any person acting on behalf of the Holder has made any representations to induce this waiver, that the Borrower has been represented (or has had the opportunity to he represented) in the signing of this Note and the Loan Documents and in the making of this waiver by independent legal counsel selected by the Borrower and that the Borrower has discussed this waiver with counsel. 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 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: Provo International Inc., One Blue Hill Plaza, 7th Floor, Pearl River, New York 10965, Attn: Stephen J. Cole, Chief Executive Officer, telecopier: (845) 623-8669, with a copy by telecopier only to: Swidler Berlin Shereff Friedman, LLP, 3000 K Street, N.W., Suite 300, Washington, D.C. 20007, Attn: Sean P. McGuinness, Esq., telecopier: (202) 295-8478, 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. 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. 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 Agreement 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. 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 Redemption. This Note may not be redeemed or paid before the Maturity Date, and if an Event of Default has occurred after the Maturity Date without the consent of the Holder. 5.9 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 right 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 on this 27th day of January, 2004. PROVO INTERNATIONAL INC. By: /s/ Stephen J. Cole-Hatchard Name: Stephen J. Cole-Hatchard Title: CEO WITNESS: ______________________________________ 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 PROVO INTERNATIONAL INC. on January 27, 2004 into Shares of Common Stock of PROVO INTERNATIONAL INC. (the "Borrower") according to the conditions set forth in such Note, as of the date written below. Date of Conversion:_____________________________________________________________ Conversion Price:_______________________________________________________________ Shares To Be Delivered:_________________________________________________________ Signature:______________________________________________________________________ Print Name:_____________________________________________________________________ Address:________________________________________________________________________ ________________________________________________________________________ EX-10.40 10 v01635_ex10-40.txt EXHIBIT 10.40 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 PROVO INTERNATIONAL INC. THAT SUCH REGISTRATION IS NOT REQUIRED. Right to Purchase 300,000 shares of Common Stock of Provo International Inc. (subject to adjustment as provided herein) COMMON STOCK PURCHASE WARRANT (SUBSCRIBER) No. 2004-JAN-003 Issue Date: January 27, 2004 PROVO INTERNATIONAL INC., a corporation organized under the laws of the State of Delaware (the "Company"), hereby certifies that, for value received, CONGREGATION MISHKAN SHOLOM INCORPORATED, 9612 Van Nuys Boulevard, Suite 108, Panorama City, CA 91403, Fax: 818-892-9844, 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 up to 5:00 p.m., E.S.T on January 27, 2009 (the "Expiration Date"), up to 300,000 fully paid and nonassessable shares of the common stock of the Company (the "Common Stock"), $.01 par value per share at a per share purchase price of $.38. 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 January 27, 2004, between the Company and the Holder. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: (a) The term "Company" shall include Provo International Inc. and any corporation which shall succeed or assume the obligations of Provo International Inc. hereunder. (b) The term "Common Stock" includes (a) the Company's Common Stock, $.01 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 4 or otherwise. 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. 1.2. 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 seven (7) 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, Inc., 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. Trustee for Warrant Holders. In the event that a bank or trust company shall have been appointed as trustee for the Holder of the Warrants pursuant to Subsection 3.2, such bank or trust company shall have all the powers and duties of a warrant agent (as hereinafter described) and shall accept, in its own name for the account of the Company or such successor person as may be entitled thereto, all amounts otherwise payable to the Company or such successor, as the case may be, on exercise of this Warrant pursuant to this Section 1. 1.7 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 five (5) 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 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. 1.8 Cashless Exercise. (a) Payment upon exercise of this Warrant 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) Notwithstanding any provisions herein to the contrary, 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 receive 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 not employ the cashless exercise feature described above at any time that the Warrant Stock to be issued upon exercise is included for unrestricted resale in an effective Registration Statement (as defined in the Subscription Agreement). 2. Intentionally Omitted. 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 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. Dissolution. In the event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets, the Company, prior to such dissolution, shall at its expense deliver or cause to be delivered the stock and other securities and property (including cash, where applicable) receivable by the Holder of the Warrants after the effective date of such dissolution pursuant to this Section 3 to a bank or trust company (a "Trustee") having its principal office in New York, NY, as trustee for the Holder of the Warrants. 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. During the period this Warrant is outstanding, if the Company shall issue any shares of 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 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 an adjustment to the Purchase Price upon the issuance of the above-described security, warrant, right, or option. 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, 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. 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 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 the Subscription Agreement. The terms of the Subscription Agreement are incorporated herein by this reference. Upon the occurrence of a Non-Registration Event, or in the event the Company is unable to issue Common Stock upon exercise of this Warrant that has been registered in a Registration Statement described in Section 11 of the Subscription Agreement, within the time periods described in the Subscription Agreement, which Registration Statement must be effective for the periods set forth in the Subscription Agreement, then upon written demand made by the Holder, the Company will pay to the Holder of this Warrant, in lieu of delivering Common Stock, a sum equal to the closing price of the Company's Common Stock on the principal market or exchange upon which the Common Stock is listed for trading on the trading date immediately preceding the date notice is given by the Holder, less the Purchase Price, for each share of Common Stock designated in such notice from the Holder. 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 9.99% 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, the Holder shall not be limited to aggregate exercises which would result in the issuance of more than 9.99%. The restriction described in this paragraph may be revoked upon and effective after 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 9.99% amount described above and which shall be allocated to the excess above 9.99%. 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: Provo International Inc., One Blue Hill Plaza, 7th Floor, Pearl River, New York 10965, Attn: Stephen J. Cole, Chief Executive Officer, telecopier: (845) 623-8669, with a copy by telecopier only to: Swidler Berlin Shereff Friedman, LLP, 3000 K Street, N.W., Suite 300, Washington, D.C. 20007, Attn: Sean P. McGuinness, Esq., telecopier: (202) 295-8478; (ii) if to the Holder, to the address and telecopier number listed on the first paragraph of this Warrant, 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; and (iii) if to the Broker, to: Berry-Shino Securities, Inc., 45 Broadway, 9th Floor, New York, New York 10006, Attn: Asher Brand, telecopier: (212) 344-2383. 15. 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. IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first written above. PROVO INTERNATIONAL INC. By: /s/ Stephen J. Cole-Hatchard Name: Stephen J. Cole-Hatchard Title: CEO Witness: /s/ Amy Wagner-Mele Secretary EXHIBIT A FORM OF SUBSCRIPTION (to be signed only on exercise of Warrant) TO: PROVO INTERNATIONAL INC. The undersigned, pursuant to the provisions set forth in the attached Warrant (No.____), hereby irrevocably elects to purchase (check applicable box): ___ ________ shares of the Common Stock covered by such Warrant; or ___ the maximum number of shares of Common Stock covered by such Warrant pursuant to the cashless exercise procedure set forth in Section 2. The undersigned herewith makes payment of the full purchase price for such shares at the price per share provided for in such Warrant, which is $___________. Such payment takes the form of (check applicable box or boxes): ___ $__________ in lawful money of the United States; and/or ___ the cancellation of such portion of the attached Warrant as is exercisable for a total of _______ shares of Common Stock (using a Fair Market Value of $_______ per share for purposes of this calculation); and/or ___ the cancellation of such number of shares of Common Stock as is necessary, in accordance with the formula set forth in Section 2, to exercise this Warrant with respect to the maximum number of shares of Common Stock purchasable pursuant to the cashless exercise procedure set forth in Section 2. The undersigned requests that the certificates for such shares be issued in the name of, and delivered to ____________________________________________ whose address is __________________________________________________________ ___________________________ . The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable upon exercise of the within Warrant shall be made pursuant to registration of the Common Stock under the Securities Act of 1933, as amended (the "Securities Act"), or pursuant to an exemption from registration under the Securities Act. Dated:___________________ __________________________________________ (Signature must conform to name of holder as specified on the face of the Warrant) __________________________________________ __________________________________________ (Address) 10 2/17/2003, 1:15 PM EXHIBIT B FORM OF TRANSFEROR ENDORSEMENT (To be signed only on transfer of Warrant) For value received, the undersigned hereby sells, assigns, and transfers unto the person(s) named below under the heading "Transferees" the right represented by the within Warrant to purchase the percentage and number of shares of Common Stock of PROVO INTERNATIONAL INC. to which the within Warrant relates specified under the headings "Percentage Transferred" and "Number Transferred," respectively, opposite the name(s) of such person(s) and appoints each such person Attorney to transfer its respective right on the books of PROVO INTERNATIONAL INC. with full power of substitution in the premises.
+----------------------------------------+--------------------------------------+--------------------------------------+ |Transferees |Percentage Transferred |Number Transferred | +----------------------------------------+--------------------------------------+--------------------------------------+ | | | | | | | | +----------------------------------------+--------------------------------------+--------------------------------------+ | | | | | | | | +----------------------------------------+--------------------------------------+--------------------------------------+ | | | | | | | | +----------------------------------------+--------------------------------------+--------------------------------------+ Dated: ______________, ___________ _______________________________________________________ (Signature must conform to name of holder as specified on the face of the warrant) Signed in the presence of: _________________________________________ _______________________________________________________ (Name) _______________________________________________________ (address) ACCEPTED AND AGREED: [TRANSFEREE] _______________________________________________________ _______________________________________________________ (address) _________________________________________ (Name)
10 EX-10.41 11 v01635_ex10-41.txt EXHIBIT 10.41 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 PROVO INTERNATIONAL INC. THAT SUCH REGISTRATION IS NOT REQUIRED. CONVERTIBLE NOTE ---------------- FOR VALUE RECEIVED, PROVO INTERNATIONAL INC., a Delaware corporation (hereinafter called "Borrower"), hereby promises to pay to LUCRATIVE INVESTMENTS, Ajeltake Island, P.O. Box 1405, Majuro Marshall Island M.H. 96960, Fax: 011-35041555 (the "Holder") or order, without demand, the sum of Fifty Thousand Dollars ($50,000.00), with simple interest accruing at the annual rate of eight percent (8%), on January 27, 2006 (the "Maturity Date"). 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 GENERAL PROVISIONS 1.1 Payment Grace Period. The Borrower shall have a ten (10) day grace period to pay any monetary amounts due under this Note, after which grace period a default interest rate of fifteen percent (15%) per annum shall apply to the amounts owed hereunder. 1.2 Conversion Privileges. The Conversion Privileges set forth in Article II shall remain in full force and effect immediately from the date hereof and until the Note is paid in full regardless of the occurrence of an Event of Default. The Note shall be payable in full on the Maturity Date, unless previously converted into Common Stock in accordance with Article II hereof; provided, that if an Event of Default has occurred (whether or not such Event of Default is continuing), the Borrower may not pay this Note on or after the Maturity Date, without the consent of the Holder. 1.3 Interest Rate. Simple interest payable on this Note shall accrue at the annual rate of eight percent (8%) and be payable upon each Conversion, June 30, 2004 and semi-annually thereafter, and on the Maturity Date, accelerated or otherwise, when the principal and remaining accrued but unpaid interest shall be due and payable, or sooner as described below. 1 ARTICLE II CONVERSION RIGHTS The Holder shall have the right to convert the principal due under this Note into Shares of the Borrower's Common Stock, $.01 par value per share ("Common Stock") as set forth below. 2.1. Conversion into the Borrower's Common Stock. (a) The Holder shall have the right from and after the date of the issuance of this Note and then at any time until this Note is fully paid, to convert any outstanding and unpaid principal portion of this Note, and accrued interest, at the election of the Holder (the date of giving of such notice of conversion being a "Conversion Date") into fully paid and nonassessable shares of Common Stock as such stock exists on the date of issuance of this Note, or any shares of capital stock of Borrower into which such Common Stock shall hereafter be changed or reclassified, at the conversion price as defined in Section 2.1(b) hereof (the "Conversion Price"), determined as provided herein. Upon delivery to the Borrower of a Notice of Conversion as described in Section 7 of the Subscription Agreement of the Holder's written request for conversion, Borrower shall issue and deliver to the Holder within three business days from the Conversion Date ("Delivery Date") that number of shares of Common Stock for the portion of the Note converted in accordance with the foregoing. At the election of the Holder, the Borrower will deliver accrued but unpaid interest on the Note in the manner provided in Section 1.3 through the Conversion Date directly to the Holder on or before the Delivery Date (as defined in the Subscription Agreement). The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing that portion of the principal of the Note and interest to be converted, by the Conversion Price. (b) Subject to adjustment as provided in Section 2.1(c) hereof, the Conversion Price per share shall be $.25 ("Maximum Base Price"). (c) The Maximum Base Price and number and kind of shares or other securities to be issued upon conversion determined pursuant to Section 2.1(a), 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 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. At any time this Note is outstanding, except for the Excepted Issuances (as defined in the Subscription Agreement), the Borrower shall offer, issue or agree to issue any Common Stock or securities convertible into or exercisable for shares of Common Stock to any person, firm or corporation at a price per share or conversion or exercise price per share which shall be less than the Conversion Price, then the Conversion Price or other price at which Common Stock may be purchased upon conversion of this Note is automatically reduced to such lower price per share. The Borrower will notify the Holder within two business days of the occurrence of any event which results in the reduction of the Conversion Price. E. For purposes of Section 2.1(c)(D) above, Fair Market Value of a share of Common Stock as of a particular date (the "Determination Date") shall mean the Fair Market Value of a share of the Borrower's Common Stock. Fair Market Value of a share of Common Stock as of a Determination Date shall mean: (i) If the Borrower'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, Inc., then the closing or last sale price, respectively, reported for the last business day immediately preceding the Determination Date. (ii) If the Borrower'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 mean of the closing bid and asked prices reported for the last business day immediately preceding the Determination Date. (iii) Except as provided in clause (d) below, if the Borrower's Common Stock is not publicly traded, then as the Holder and the Borrower agree or in the absence of 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. (iv) 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 Borrower'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. (d) Whenever the Conversion Price is adjusted pursuant to Section 2.1(c) above, the Borrower shall promptly mail to the Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. (e) 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 of the 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. (f) The terms of this Note are modifiable by the Holder pursuant to but not limited to Section 12(b) of the Subscription Agreement. 2.2 Method of Conversion. This Note may be converted by the Holder in whole or in part as described in Section 2.1(a) hereof and the Subscription Agreement. Upon partial conversion of this Note, a new Note containing the same date and provisions of this Note shall, at the request of the Holder, be issued by the Borrower to the Holder for the principal balance of this Note and interest which shall not have been converted or paid. 2.3 Maximum Conversion. The Holder 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 Holder and its affiliates on a Conversion Date, (ii) any Common Stock issuable in connection with the unconverted portion of the Note, and (iii) 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 Holder and its affiliates of more than 9.99% of the outstanding shares of Common Stock of the Borrower 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, the Holder shall not be limited to aggregate conversions of only 9.99% and aggregate conversion by the Holder may exceed 9.99%. The Holder shall have the authority and obligation to determine whether the restriction contained in this Section 2.3 will limit any conversion hereunder and to the extent that the Holder determines that the limitation contained in this Section applies, the determination of which portion of the Notes are convertible shall be the responsibility and obligation of the Holder. The Holder may void the conversion limitation described in this Section 2.3 upon and effective after 61 days prior written 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 9.99% amount described above and which shall be allocated to the excess above 9.99%. ARTICLE III EVENT 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: 3.1 Failure to Pay Principal or Interest. The Borrower fails to pay any installment of principal, interest or other sum due under this Note when due and such failure continues for a period of ten (10) days after the due date. The ten (10) day period described in this Section 3.1 is the same ten (10) day period described in Section 1.1 hereof. 3.2 Breach of Covenant. The Borrower breaches any material covenant or other term or condition of the Subscription Agreement or this Note in any material respect and such breach, if subject to cure, continues for a period of ten (10) business days after written notice to the Borrower from the Holder. 3.3 Breach of Representations and Warranties. Any material representation or warranty of the Borrower made herein, in the Subscription Agreement, or in any agreement, statement or certificate given in writing pursuant hereto or in connection therewith shall be false or misleading in any material respect as of the date made and the Closing Date. 3.4 Receiver or Trustee. The Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business; or such a receiver or trustee shall otherwise be appointed. 3.5 Judgments. Any money judgment, writ or similar final process shall be entered or filed against Borrower or any of its property or other assets for more than $50,000, and shall remain unvacated, unbonded or unstayed for a period of forty-five (45) days. 3.6 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 and if instituted against Borrower are not dismissed within 45 days of initiation. 3.7 Delisting. Delisting of the Common Stock from the American Stock Exchange ("Amex") 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 Amex for a period of three consecutive trading days; or notification from the Amex or any Principal Market that the Borrower is not in compliance with the conditions for such continued listing on the Amex or other Principal Market. 3.8 Stop Trade. An SEC stop trade order or Principal Market trading suspension that lasts for five or more consecutive trading days. 3.9 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 and Sections 7 and 11 of the Subscription Agreement, and if required, a replacement Note. 3.10 Non-Registration Event. The occurrence of a Non-Registration Event as described in Section 11.4 of the Subscription Agreement. 3.11 Reverse Splits. The Borrower effectuates a reverse split of its common stock without the prior written consent of the Holder. 3.12 Security Agreement. An "Event of Default" as defined in the Security Agreement dated at or about the date of this Note delivered by Borrower to Holder (the "Security Agreement"). 3.13 Cross Default. A default by the Borrower of a material term, covenant, warranty or undertaking of any other agreement to which the Borrower and Holder are parties, or the occurrence of a material event of default under any such other agreement, in each case, which is not cured after any required notice and/or cure period. ARTICLE IV SECURITY INTEREST 4. Security Interest/Waiver of Automatic Stay. This Note is secured by a security interest granted to the Collateral Agent for the benefit of the Holder pursuant to the Security Agreement, as delivered by Borrower to Holder. The Borrower acknowledges and agrees that should a proceeding under any bankruptcy or insolvency law be commenced by or against the Borrower, or if any of the Collateral (as defined in the Security Agreement) should become the subject of any bankruptcy or insolvency proceeding, then the Holder should be entitled to, among other relief to which the Holder may be entitled under the Note, Security Agreement, Subscription Agreement and any other agreement to which the Borrower and Holder are parties (collectively, "Loan Documents") and/or applicable law, an order from the court granting immediate relief from the automatic stay pursuant to 11 U.S.C. Section 362 to permit the Holder to exercise all of its rights and remedies pursuant to the Loan Documents and/or applicable law. THE BORROWER EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE, THE BORROWER EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362 NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE (INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY, INTERDICT, CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE HOLDER TO ENFORCE ANY OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW. The Borrower hereby consents to any motion for relief from stay that may be filed by the Holder in any bankruptcy or insolvency proceeding initiated by or against the Borrower and, further, agrees not to file any opposition to any motion for relief from stay filed by the Holder. The Borrower represents, acknowledges and agrees that this provision is a specific and material aspect of the Loan Documents, and that the Holder would not agree to the terms of the Loan Documents if this waiver were not a part of this Note. The Borrower further represents, acknowledges and agrees that this waiver is knowingly, intelligently and voluntarily made, that neither the Holder nor any person acting on behalf of the Holder has made any representations to induce this waiver, that the Borrower has been represented (or has had the opportunity to he represented) in the signing of this Note and the Loan Documents and in the making of this waiver by independent legal counsel selected by the Borrower and that the Borrower has discussed this waiver with counsel. 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 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: Provo International Inc., One Blue Hill Plaza, 7th Floor, Pearl River, New York 10965, Attn: Stephen J. Cole, Chief Executive Officer, telecopier: (845) 623-8669, with a copy by telecopier only to: Swidler Berlin Shereff Friedman, LLP, 3000 K Street, N.W., Suite 300, Washington, D.C. 20007, Attn: Sean P. McGuinness, Esq., telecopier: (202) 295-8478, 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. 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. 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 Agreement 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. 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 Redemption. This Note may not be redeemed or paid before the Maturity Date, and if an Event of Default has occurred after the Maturity Date without the consent of the Holder. 5.9 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 right 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 on this 27th day of January, 2004. PROVO INTERNATIONAL INC. By: /s/ Stephen J. Cole-Hatchard Name: Stephen J. Cole-Hatchard Title: CEO WITNESS: ______________________________________ 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 PROVO INTERNATIONAL INC. on January 27, 2004 into Shares of Common Stock of PROVO INTERNATIONAL INC. (the "Borrower") according to the conditions set forth in such Note, as of the date written below. Date of Conversion:_____________________________________________________________ Conversion Price:_______________________________________________________________ Shares To Be Delivered:_________________________________________________________ Signature:______________________________________________________________________ Print Name:_____________________________________________________________________ Address:________________________________________________________________________ ________________________________________________________________________ EX-10.42 12 v01635_ex10-42.txt EXHIBIT 10.42 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 PROVO INTERNATIONAL INC. THAT SUCH REGISTRATION IS NOT REQUIRED. Right to Purchase 100,000 shares of Common Stock of Provo International Inc. (subject to adjustment as provided herein) COMMON STOCK PURCHASE WARRANT (SUBSCRIBER) No. 2004-JAN-004 Issue Date: January 27, 2004 PROVO INTERNATIONAL INC., a corporation organized under the laws of the State of Delaware (the "Company"), hereby certifies that, for value received, LUCRATIVE INVESTMENTS, Ajeltake Island, P.O. Box 1405, Majuro Marshall Island M.H. 96960, Fax: 011-35041555, 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 up to 5:00 p.m., E.S.T on January 27, 2009 (the "Expiration Date"), up to 100,000 fully paid and nonassessable shares of the common stock of the Company (the "Common Stock"), $.01 par value per share at a per share purchase price of $.38. 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 January 27, 2004, between the Company and the Holder. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: (a) The term "Company" shall include Provo International Inc. and any corporation which shall succeed or assume the obligations of Provo International Inc. hereunder. (b) The term "Common Stock" includes (a) the Company's Common Stock, $.01 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 4 or otherwise. 1 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. 1.2. 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 seven (7) 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, Inc., 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. 2 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. Trustee for Warrant Holders. In the event that a bank or trust company shall have been appointed as trustee for the Holder of the Warrants pursuant to Subsection 3.2, such bank or trust company shall have all the powers and duties of a warrant agent (as hereinafter described) and shall accept, in its own name for the account of the Company or such successor person as may be entitled thereto, all amounts otherwise payable to the Company or such successor, as the case may be, on exercise of this Warrant pursuant to this Section 1. 1.7 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 five (5) 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 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. 1.8 Cashless Exercise. (a) Payment upon exercise of this Warrant 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) Notwithstanding any provisions herein to the contrary, 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 receive 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: 3 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 not employ the cashless exercise feature described above at any time that the Warrant Stock to be issued upon exercise is included for unrestricted resale in an effective Registration Statement (as defined in the Subscription Agreement). 2. Intentionally Omitted. 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 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. Dissolution. In the event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets, the Company, prior to such dissolution, shall at its expense deliver or cause to be delivered the stock and other securities and property (including cash, where applicable) receivable by the Holder of the Warrants after the effective date of such dissolution pursuant to this Section 3 to a bank or trust company (a "Trustee") having its principal office in New York, NY, as trustee for the Holder of the Warrants. 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. 4 3.4 Share Issuance. During the period this Warrant is outstanding, if the Company shall issue any shares of 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 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 an adjustment to the Purchase Price upon the issuance of the above-described security, warrant, right, or option. 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). 5 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, 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. 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 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 the Subscription Agreement. The terms of the Subscription Agreement are incorporated herein by this reference. Upon the occurrence of a Non-Registration Event, or in the event the Company is unable to issue Common Stock upon exercise of this Warrant that has been registered in a Registration Statement described in Section 11 of the Subscription Agreement, within the time periods described in the Subscription Agreement, which Registration Statement must be effective for the periods set forth in the Subscription Agreement, then upon written demand made by the Holder, the Company will pay to the Holder of this Warrant, in lieu of delivering Common Stock, a sum equal to the closing price of the Company's Common Stock on the principal market or exchange upon which the Common Stock is listed for trading on the trading date immediately preceding the date notice is given by the Holder, less the Purchase Price, for each share of Common Stock designated in such notice from the Holder. 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 9.99% 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, the Holder shall not be limited to aggregate exercises which would result in the issuance of more than 9.99%. The restriction described in this paragraph may be revoked upon and effective after 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 9.99% amount described above and which shall be allocated to the excess above 9.99%. 6 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: Provo International Inc., One Blue Hill Plaza, 7th Floor, Pearl River, New York 10965, Attn: Stephen J. Cole, Chief Executive Officer, telecopier: (845) 623-8669, with a copy by telecopier only to: Swidler Berlin Shereff Friedman, LLP, 3000 K Street, N.W., Suite 300, Washington, D.C. 20007, Attn: Sean P. McGuinness, Esq., telecopier: (202) 295-8478; (ii) if to the Holder, to the address and telecopier number listed on the first paragraph of this Warrant, 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; and (iii) if to the Broker, to: Berry-Shino Securities, Inc., 45 Broadway, 9th Floor, New York, New York 10006, Attn: Asher Brand, telecopier: (212) 344-2383. 15. 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. 7 IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first written above. PROVO INTERNATIONAL INC. By: /s/ Stephen J. Cole-Hatchard Name: Stephen J. Cole-Hatchard Title: CEO Witness: /s/ Amy Wagner-Mele Secretary 8 EXHIBIT A FORM OF SUBSCRIPTION (to be signed only on exercise of Warrant) TO: PROVO INTERNATIONAL INC. The undersigned, pursuant to the provisions set forth in the attached Warrant (No.____), hereby irrevocably elects to purchase (check applicable box): ___ ________ shares of the Common Stock covered by such Warrant; or ___ the maximum number of shares of Common Stock covered by such Warrant pursuant to the cashless exercise procedure set forth in Section 2. The undersigned herewith makes payment of the full purchase price for such shares at the price per share provided for in such Warrant, which is $___________. Such payment takes the form of (check applicable box or boxes): ___ $__________ in lawful money of the United States; and/or ___ the cancellation of such portion of the attached Warrant as is exercisable for a total of _______ shares of Common Stock (using a Fair Market Value of $_______ per share for purposes of this calculation); and/or ___ the cancellation of such number of shares of Common Stock as is necessary, in accordance with the formula set forth in Section 2, to exercise this Warrant with respect to the maximum number of shares of Common Stock purchasable pursuant to the cashless exercise procedure set forth in Section 2. The undersigned requests that the certificates for such shares be issued in the name of, and delivered to___________________________________ whose address is____________________________________________________________. The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable upon exercise of the within Warrant shall be made pursuant to registration of the Common Stock under the Securities Act of 1933, as amended (the "Securities Act"), or pursuant to an exemption from registration under the Securities Act. Dated:___________________ _________________________________________ (Signature must conform to name of holder as specified on the face of the Warrant) _________________________________________ _________________________________________ (Address) 9 EXHIBIT B FORM OF TRANSFEROR ENDORSEMENT (To be signed only on transfer of Warrant) For value received, the undersigned hereby sells, assigns, and transfers unto the person(s) named below under the heading "Transferees" the right represented by the within Warrant to purchase the percentage and number of shares of Common Stock of PROVO INTERNATIONAL INC. to which the within Warrant relates specified under the headings "Percentage Transferred" and "Number Transferred," respectively, opposite the name(s) of such person(s) and appoints each such person Attorney to transfer its respective right on the books of PROVO INTERNATIONAL INC. with full power of substitution in the premises. Transferees Percentage Transferred Number Transferred - ----------- ---------------------- ------------------ Dated: __________, ___________ _________________________________________ (Signature must conform to name of holder as specified on the face of the warrant) Signed in the presence of: _______________________________ _________________________________________ (Name) _________________________________________ (address) ACCEPTED AND AGREED: _________________________________________ [TRANSFEREE] _________________________________________ (address) _______________________________ (Name) 10 EX-10.43 13 v01635_ex10-43.txt EXHIBIT 10.43 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 PROVO INTERNATIONAL INC. THAT SUCH REGISTRATION IS NOT REQUIRED. Right to Purchase 400,000 shares of Common Stock of Provo International Inc. (subject to adjustment as provided herein) COMMON STOCK PURCHASE WARRANT (FINDER) No. 2004-JAN-005 Issue Date: January 27, 2004 PROVO INTERNATIONAL INC., a corporation organized under the laws of the State of Delaware (the "Company"), hereby certifies that, for value received, BERRY-SHINO SECURITIES, INC., 45 Broadway, 9th Floor, New York, New York 10006, Telecopier: (212) 344-2383, 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 up to 5:00 p.m., E.S.T on January 27, 2009 (the "Expiration Date"), up to 400,000 fully paid and nonassessable shares of the common stock of the Company (the "Common Stock"), $.01 par value per share at a per share purchase price of $.25. 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 January 27, 2004, between the Company and the Subscribers of the Company's Common Stock and Warrants identical to this Warrant. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: (a) The term "Company" shall include Provo International Inc. and any corporation which shall succeed or assume the obligations of Provo International Inc. hereunder. (b) The term "Common Stock" includes (a) the Company's Common Stock, $.01 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 4 or otherwise. 1 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. 1.2. 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 seven (7) 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, Inc., 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. 2 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. Trustee for Warrant Holders. In the event that a bank or trust company shall have been appointed as trustee for the Holder of the Warrants pursuant to Subsection 3.2, such bank or trust company shall have all the powers and duties of a warrant agent (as hereinafter described) and shall accept, in its own name for the account of the Company or such successor person as may be entitled thereto, all amounts otherwise payable to the Company or such successor, as the case may be, on exercise of this Warrant pursuant to this Section 1. 1.7 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 five (5) 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 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. 1.8 Cashless Exercise. (a) Payment upon exercise of this Warrant 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) Notwithstanding any provisions herein to the contrary, 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 receive 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: 3 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 not employ the cashless exercise feature described above at any time that the Warrant Stock to be issued upon exercise is included for unrestricted resale in an effective Registration Statement (as defined in the Subscription Agreement). 2. Intentionally Omitted. 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 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. Dissolution. In the event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets, the Company, prior to such dissolution, shall at its expense deliver or cause to be delivered the stock and other securities and property (including cash, where applicable) receivable by the Holder of the Warrants after the effective date of such dissolution pursuant to this Section 3 to a bank or trust company (a "Trustee") having its principal office in New York, NY, as trustee for the Holder of the Warrants. 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. 4 3.4 Share Issuance. During the period this Warrant is outstanding, if the Company shall issue any shares of 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 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 an adjustment to the Purchase Price upon the issuance of the above-described security, warrant, right, or option. 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. 5 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, 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. 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 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 the Subscription Agreement. The terms of the Subscription Agreement are incorporated herein by this reference. Upon the occurrence of a Non-Registration Event, or in the event the Company is unable to issue Common Stock upon exercise of this Warrant that has been registered in a Registration Statement described in Section 11 of the Subscription Agreement, within the time periods described in the Subscription Agreement, which Registration Statement must be effective for the periods set forth in the Subscription Agreement, then upon written demand made by the Holder, the Company will pay to the Holder of this Warrant, in lieu of delivering Common Stock, a sum equal to the closing price of the Company's Common Stock on the principal market or exchange upon which the Common Stock is listed for trading on the trading date immediately preceding the date notice is given by the Holder, less the Purchase Price, for each share of Common Stock designated in such notice from the Holder. 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 9.99% 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, the Holder shall not be limited to aggregate exercises which would result in the issuance of more than 9.99%. The restriction described in this paragraph may be revoked upon and effective after 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 9.99% amount described above and which shall be allocated to the excess above 9.99%. 6 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: Provo International Inc., One Blue Hill Plaza, 7th Floor, Pearl River, New York 10965, Attn: Stephen J. Cole, Chief Executive Officer, telecopier: (845) 623-8669, with a copy by telecopier only to: Swidler Berlin Shereff Friedman, LLP, 3000 K Street, N.W., Suite 300, Washington, D.C. 20007, Attn: Sean P. McGuinness, Esq., telecopier: (202) 295-8478; (ii) if to the Holder, to the address and telecopier number listed on the first paragraph of this Warrant, 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; and (iii) if to the Broker, to: Berry-Shino Securities, Inc., 45 Broadway, 9th Floor, New York, New York 10006, Attn: Asher Brand, telecopier: (212) 344-2383. 15. 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. 7 IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first written above. PROVO INTERNATIONAL INC. By: /s/ Stephen J. Cole-Hatchard ------------------------------- Name: Stephen J. Cole-Hatchard Title: CEO Witness: /s/ Amy Wagner-Mele - ------------------- Amy Wagner-Mele Secretary 8 EXHIBIT A FORM OF SUBSCRIPTION (to be signed only on exercise of Warrant) TO: PROVO INTERNATIONAL INC. The undersigned, pursuant to the provisions set forth in the attached Warrant (No.____), hereby irrevocably elects to purchase (check applicable box): ___ ________ shares of the Common Stock covered by such Warrant; or ___ the maximum number of shares of Common Stock covered by such Warrant pursuant to the cashless exercise procedure set forth in Section 2. The undersigned herewith makes payment of the full purchase price for such shares at the price per share provided for in such Warrant, which is $___________. Such payment takes the form of (check applicable box or boxes): ___ $__________ in lawful money of the United States; and/or ___ the cancellation of such portion of the attached Warrant as is exercisable for a total of _______ shares of Common Stock (using a Fair Market Value of $_______ per share for purposes of this calculation); and/or ___ the cancellation of such number of shares of Common Stock as is necessary, in accordance with the formula set forth in Section 2, to exercise this Warrant with respect to the maximum number of shares of Common Stock purchasable pursuant to the cashless exercise procedure set forth in Section 2. The undersigned requests that the certificates for such shares be issued in the name of, and delivered to______________________________________ whose address is_____________________________________________________________________ _______________________________________________________________________________. The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable upon exercise of the within Warrant shall be made pursuant to registration of the Common Stock under the Securities Act of 1933, as amended (the "Securities Act"), or pursuant to an exemption from registration under the Securities Act. Dated:___________________ _________________________________________ (Signature must conform to name of holder as specified on the face of the Warrant) _________________________________________ _________________________________________ (Address) 9 EXHIBIT B FORM OF TRANSFEROR ENDORSEMENT (To be signed only on transfer of Warrant) For value received, the undersigned hereby sells, assigns, and transfers unto the person(s) named below under the heading "Transferees" the right represented by the within Warrant to purchase the percentage and number of shares of Common Stock of PROVO INTERNATIONAL INC. to which the within Warrant relates specified under the headings "Percentage Transferred" and "Number Transferred," respectively, opposite the name(s) of such person(s) and appoints each such person Attorney to transfer its respective right on the books of PROVO INTERNATIONAL INC. with full power of substitution in the premises. Transferees Percentage Transferred Number Transferred - ----------- ---------------------- ------------------ Dated: __________,__________ _________________________________________ (Signature must conform to name of holder as specified on the face of the warrant) Signed in the presence of: ____________________________ _________________________________________ (Name) _________________________________________ (address) ACCEPTED AND AGREED: _________________________________________ [TRANSFEREE] _________________________________________ (address) ____________________________ (Name) 10 EX-10.44 14 v01635_ex10-44.txt EXHIBIT 10.44 COLLATERAL AGENT AGREEMENT -------------------------- COLLATERAL AGENT AGREEMENT (this "Agreement") dated as of January 27, 2004, among Barbara R. Mittman (the "Collateral Agent"), and the parties identified on Schedule A hereto (each, individually, a "Lender" and collectively, the "Lenders"), who hold or will acquire 8% convertible promissory notes issued or to be issued by Provo International Inc. ("Provo"), a Delaware corporation, at or about the date of this Agreement and after the date of this Agreement as described in the Security Agreement referred to in Section 1(a) below (collectively herein the "Notes"). WHEREAS, the Lenders have made, are making or will be making loans to Provo to be secured by certain collateral; and WHEREAS, it is desirable to provide for the orderly administration of such collateral by requiring each Lender to appoint the Collateral Agent, and the Collateral Agent has agreed to accept such appointment and to receive, hold and deliver such collateral, all upon the terms and subject to the conditions hereinafter set forth; and WHEREAS, it is desirable to allocate the enforcement of certain rights of the Lenders under the Notes for the orderly administration thereof. NOW, THEREFORE, in consideration of the premises set forth herein and for other good and valuable consideration, the parties hereto agree as follows: 1. Collateral. ----------- (a) Contemporaneously with the execution and delivery of this Agreement by the Collateral Agent and the Lenders, (i) the Collateral Agent has or will have entered into a Security Agreement between the Collateral Agent and Provo (the "Security Agreement"), regarding the grant of a security interest in assets owned by Provo (such assets are referred to herein as the "Collateral") to the Collateral Agent, for the benefit of the Lenders and (ii) Provo is issuing the Notes to the Lenders. (b) For purposes solely of perfection of the security interests granted to the Collateral Agent, as agent on behalf of the Lenders, and on its own behalf under the Security Agreement, the Collateral Agent hereby acknowledges that any Collateral held by the Collateral Agent is held for the benefit of the Lenders in accordance with this Agreement and the Security Agreement. No reference to the Security Agreement or any other instrument or document shall be deemed to incorporate any term or provision thereof into this Agreement unless expressly so provided. (c) The Collateral Agent is to distribute in accordance with the Security Agreement any proceeds received from the Collateral which are distributable to the Lenders in proportion to their respective interests in the Obligations (as defined in the Security Agreement). 2. Appointment of the Collateral Agent. ------------------------------------ 1 (Collateral Agent Agreement) The Lenders hereby appoint the Collateral Agent (and the Collateral Agent hereby accepts such appointment) to take any action including, without limitation, the registration of any Collateral in the name of the Collateral Agent or its nominees prior to or during the continuance of an Event of Default (as defined in the Security Agreement), the exercise of voting rights upon the occurrence and during the continuance of an Event of Default, the application of any cash collateral received by the Collateral Agent to the payment of the Obligations, the exercise of any remedies given to the Collateral Agent pursuant to the Security Agreement and the exercise of any authority pursuant to the appointment of the Collateral Agent as an attorney-in-fact pursuant to the Security Agreement that the Collateral Agent deems necessary or proper for the administration of the Collateral pursuant to the Security Agreement. Upon disposition of the Collateral in accordance with the Security Agreement, the Collateral Agent shall promptly distribute any cash or Collateral in accordance with Section 10.4 of the Security Agreement. Lenders must notify Collateral Agent in writing of the issuance of Notes by Provo. The Collateral Agent will not be required to act hereunder in connection with Notes not disclosed in writing to the Collateral Agent. 3. Action by the Majority in Interest. (a) Certain Actions. Each of the Lenders covenants and agrees that only a Majority in Interest shall have the right, but not the obligation, to undertake the following actions (it being expressly understood that less than a Majority in Interest hereby expressly waive the following rights that they may otherwise have under the Notes, but only insofar as such waiver affects their right to receive proceeds from the Collateral): (i) Acceleration. If an Event of Default occurs, after the applicable cure period, if any, a Majority in Interest may, on behalf of all the Lenders, instruct the Collateral Agent to provide to Provo notice to cure such default and/or declare the unpaid principal amount of the Notes to be due and payable, together with any and all accrued interest thereon and all costs payable pursuant to such Notes; (ii) Enforcement. Upon the occurrence of any Event of Default after the applicable cure period, if any, a Majority in Interest may instruct the Collateral Agent to proceed to protect, exercise and enforce, on behalf of all the Lenders, their rights and remedies under the Notes against Provo, and such other rights and remedies as are provided by law or equity; (iii) Waiver of Past Defaults. A Majority in Interest may instruct the Collateral Agent to waive any Event of Default by written notice to Provo, and the other Lenders; and (iv) Amendment. A Majority in Interest may instruct the Collateral Agent to waive, amend, supplement or modify any term, condition or other provision in the Notes or Security Agreement in accordance with the terms of the Notes or Security Agreement so long as such waiver, amendment, supplement or modification is made with respect to all of the Notes and with the same force and effect with respect to each of the Notes. (b) Permitted Subordination. A Majority in Interest may instruct the Collateral Agent to agree to subordinate any Collateral to any claim and may enter into any agreement with Provo to evidence such subordination; provided, however, that subsequent to any such subordination, each Note shall remain pari passu with the other Notes held by the Lenders. 2 (Collateral Agent Agreement) (c) Further Actions. A Majority in Interest may instruct the Collateral Agent to take any action that it may take under this Agreement by instructing the Collateral Agent in writing to take such action on behalf of all the Lenders. (d) Majority in Interest. For so long as any obligations remain outstanding on the Notes, Majority in Interest shall mean Lenders who hold not less than seventy-five percent (75%) of the outstanding principal amount of the Notes. 4. Power of Attorney. ------------------ (a) To effectuate the terms and provisions hereof, the Lenders hereby appoint the Collateral Agent as their attorney-in-fact (and the Collateral Agent hereby accepts such appointment) for the purpose of carrying out the provisions of this Agreement including, without limitation, taking any action on behalf of, or at the instruction of, the Majority in Interest at the written direction of the Majority in Interest and executing any consent authorized pursuant to this Agreement and taking any action and executing any instrument that the Collateral Agent may deem necessary or advisable (and lawful) to accomplish the purposes hereof. (b) All acts done under the foregoing authorization are hereby ratified and approved and neither the Collateral Agent nor any designee nor agent thereof shall be liable for any acts of commission or omission, for any error of judgment, for any mistake of fact or law except for acts of gross negligence or willful misconduct. (c) This power of attorney, being coupled with an interest, is irrevocable while this Agreement remains in effect. 5. Expenses of the Collateral Agent. The Lenders shall pay any and all costs and expenses incurred by the Collateral Agent, all waivers, releases, discharges, satisfactions, modifications and amendments of this Agreement, the administration and holding of the Collateral, insurance expenses, and the enforcement, protection and adjudication of the parties' rights hereunder by the Collateral Agent, including, without limitation, the reasonable disbursements, expenses and fees of the attorneys the Collateral Agent may retain, if any, each of the foregoing in proportion to their holdings of the Notes. 6. Reliance on Documents and Experts. The Collateral Agent shall be entitled to rely upon any notice, consent, certificate, affidavit, statement, paper, document, writing or communication (which may be by telegram, cable, telex, telecopier, or telephone) reasonably believed by it to be genuine and to have been signed, sent or made by the proper person or persons, and upon opinions and advice of its own legal counsel, independent public accountants and other experts selected by the Collateral Agent. 7. Duties of the Collateral Agent; Standard of Care. (a) The Collateral Agent's only duties are those expressly set forth in this Agreement, and the Collateral Agent hereby is authorized to perform those duties in accordance with commercially reasonable practices. The Collateral Agent may exercise or otherwise enforce any of its rights, powers, privileges, remedies and interests under this Agreement and applicable law or perform any of its duties under this Agreement by or through its officers, employees, attorneys, or agents. 3 (Collateral Agent Agreement) (b) The Collateral Agent shall act in good faith and with that degree of care that an ordinarily prudent person in a like position would use under similar circumstances. (c) Any funds held by the Collateral Agent hereunder need not be segregated from other funds except to the extent required by law. The Collateral Agent shall be under no liability for interest on any funds received by it hereunder. 8. Resignation. The Collateral Agent may resign and be discharged of its duties hereunder at any time by giving written notice of such resignation to the other parties hereto, stating the date such resignation is to take effect. Within five (5) days of the giving of such notice, a successor collateral agent shall be appointed by the Majority in Interest; provided, however, that if the Lenders are unable so to agree upon a successor within such time period, and notify the Collateral Agent during such period of the identity of the successor collateral agent, the successor collateral agent may be a person designated by the Collateral Agent, and any and all fees of such successor collateral agent shall be the joint and several obligation of the Lenders. The Collateral Agent shall continue to serve until the effective date of the resignation or until its successor accepts the appointment and receives the Collateral held by the Collateral Agent but shall not be obligated to take any action hereunder. The Collateral Agent may deposit any Collateral with the Supreme Court of the State of New York for New York County or any such other court in New York State that accepts such Collateral. 9. Exculpation. The Collateral Agent and its officers, employees, attorneys and agents, shall not incur any liability whatsoever for the holding or delivery of documents or the taking of any other action in accordance with the terms and provisions of this Agreement, for any mistake or error in judgment, for compliance with any applicable law or any attachment, order or other directive of any court or other authority (irrespective of any conflicting term or provision of this Agreement), or for any act or omission of any other person engaged by the Collateral Agent in connection with this Agreement, unless occasioned by the exculpated person's own gross negligence or willful misconduct; and each party hereto hereby waives any and all claims and actions whatsoever against the Collateral Agent and its officers, employees, attorneys and agents, arising out of or related directly or indirectly to any or all of the foregoing acts, omissions and circumstances. 10. Indemnification. The Lenders hereby agree to indemnify, reimburse and hold harmless the Collateral Agent and its directors, officers, employees, attorneys and agents, jointly and severally, from and against any and all claims, liabilities, losses and expenses that may be imposed upon, incurred by, or asserted against any of them, arising out of or related directly or indirectly to this Agreement or the Collateral, except such as are occasioned by the indemnified person's own gross negligence or willful misconduct. 11. Miscellaneous. -------------- (a) Rights and Remedies Not Waived. No act, omission or delay by the Collateral Agent shall constitute a waiver of the Collateral Agent's rights and remedies hereunder or otherwise. No single or partial waiver by the Collateral Agent of any default hereunder or right or remedy that it may have shall operate as a waiver of any other default, right or remedy or of the same default, right or remedy on a future occasion. (b) Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York without regard to principles of conflicts or choice of 4 (Collateral Agent Agreement) law (or any other law that would make any substantive laws of any state other than the State of New York applicable hereto). (c) Waiver of Jury Trial and Setoff; Consent to Jurisdiction; Etc. (i) In any litigation in any court with respect to, in connection with, or arising out of this Agreement or any instrument or document delivered pursuant to this Agreement, or the validity, protection, interpretation, collection or enforcement hereof or thereof, or any other claim or dispute howsoever arising, between the Collateral Agent and the Lenders or any Lender, then each Lender, to the fullest extent it may legally do so, (i) waives the right to interpose any setoff, recoupment, counterclaim or cross-claim in connection with any such litigation, irrespective of the nature of such setoff, recoupment, counterclaim or cross-claim, unless such setoff, recoupment, counterclaim or cross-claim could not, by reason of any applicable federal or state procedural laws, be interposed, pleaded or alleged in any other action; and (ii) WAIVES TRIAL BY JURY IN CONNECTION WITH ANY SUCH LITIGATION AND ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. EACH LENDER AGREES THAT THIS SECTION 11(C) IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND ACKNOWLEDGE THAT THE COLLATERAL AGENT WOULD NOT ENTER THIS AGREEMENT IF THIS SECTION 11(C) WERE NOT PART OF THIS AGREEMENT. (ii) Each Lender irrevocably consents to the exclusive jurisdiction of any State or Federal Court located within the County of New York, State of New York, in connection with any action or proceeding arising out of or relating to this Agreement or any document or instrument delivered pursuant to this Agreement or otherwise. In any such litigation, each Lender waives, to the fullest extent it may effectively do so, personal service of any summons, complaint or other process and agree that the service thereof may be made by certified or registered mail directed to such Lender at its address for notice determined in accordance with Section 11(e) hereof. Each Lender hereby waives, to the fullest extent it may effectively do so, the defenses of forum non conveniens and improper venue. (d) Admissibility of this Agreement. Each of the Lenders agrees that any copy of this Agreement signed by it and transmitted by telecopier for delivery to the Collateral Agent shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence. (e) Address for Notices. Any notice or other communication under the provisions of this Agreement shall be given in writing and delivered in person, by reputable overnight courier or delivery service, by facsimile machine (receipt confirmed) with a copy sent by first class mail on the date of transmissions, or by registered or certified mail, return receipt requested, directed to its addresses set forth below (or to any new address of which any party hereto shall have informed the others by the giving of notice in the manner provided herein): In the case of the Collateral Agent, to it at: Barbara R. Mittman 551 Fifth Avenue, Suite 1601 New York, New York 10176 Fax: (212) 697-3575 5 (Collateral Agent Agreement) In the case of the Lenders, to: To the address and telecopier number set forth on Schedule A hereto. In the case of Provo, to: Provo International Inc. One Blue Hill Plaza, 7th Floor Pearl River, New York 10965 Attn: Stephen J. Cole, Chief Executive Officer Fax: (845) 623-8669 With a copy by email, fax, or first class mail only to: Swidler Berlin Shereff Friedman, LLP 3000 K Street, N.W., Suite 300 Washington, D.C. 20007 Attn: Sean P. McGuinness, Esq. Fax: (202) 295-8478 (f) Amendments and Modification; Additional Lender. No provision hereof shall be modified, altered, waived or limited except by written instrument expressly referring to this Agreement and to such provision, and executed by the parties hereto. Any transferee of a Note who acquires a Note after the date hereof will become a party hereto by signing the signature page and sending an executed copy of this Agreement to the Collateral Agent and receiving a signed acknowledged from the Collateral Agent. (g) Fee. Upon the occurrence of an Event of Default, the Lenders collectively shall pay the Collateral Agent the sum of $10,000 to apply against an hourly fee of $350 to be paid to the Collateral Agent by the Lenders for services rendered pursuant to this Agreement. All payments due to the Collateral Agent under this Agreement including reimbursements must be paid when billed. The Collateral Agent may refuse to act on behalf of or make a distribution to any Lender who is not current in payments to the Collateral Agent. Payments required pursuant to this Agreement shall be pari passu to the Lenders' interests in the Notes. The Collateral Agent is hereby authorized to deduct any sums due the Collateral Agent from Collateral in the Collateral Agent's possession. (h) 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. (i) Successors and Assigns. Whenever in this Agreement reference is made to any party, such reference shall be deemed to include the successors, assigns, heirs and legal representatives of such party. No party hereto may transfer any rights under this Agreement, unless the transferee agrees to 6 (Collateral Agent Agreement) be bound by, and comply with all of the terms and provisions of this Agreement, as if an original signatory hereto on the date hereof. (j) Captions: Certain Definitions. The captions of the various sections and paragraphs of this Agreement have been inserted only for the purposes of convenience; such captions are not a part of this Agreement and shall not be deemed in any manner to modify, explain, enlarge or restrict any of the provisions of this Agreement. As used in this Agreement the term "person" shall mean and include an individual, a partnership, a joint venture, a corporation, a limited liability company, a trust, an unincorporated organization and a government or any department or agency thereof. (k) Severability. In the event that any term or provision of this Agreement shall be finally determined to be superseded, invalid, illegal or otherwise unenforceable pursuant to applicable law by an authority having jurisdiction and venue, that determination shall not impair or otherwise affect the validity, legality or enforceability (i) by or before that authority of the remaining terms and provisions of this Agreement, which shall be enforced as if the unenforceable term or provision were deleted, or (ii) by or before any other authority of any of the terms and provisions of this Agreement. (l) Entire Agreement. This Agreement contains the entire agreement of the parties and supersedes all other agreements and understandings, oral or written, with respect to the matters contained herein. (m) Schedules. The Collateral Agent is authorized to annex hereto any schedules referred to herein. [THIS SPACE INTENTIONALLY LEFT BLANK] 7 (Collateral Agent Agreement) IN WITNESS WHEREOF, the parties hereto have caused this Collateral Agent Agreement to be signed, by their respective duly authorized officers or directly, as of the date first written above. "LENDERS" /s/ /s/ - ------------------------------------ --------------------------------------- ALPHA CAPITAL AKTIENGESELLSCHAFT STONESTREET LIMITED PARTNERSHIP /s/ - ------------------------------------ CONGREGATION MISHKAN SHOLOM INCORPORATED - ------------------------------------ LUCRATIVE INVESTMENTS /s/ Barbara Mittman - ------------------------------------ --------------------------------------- BARBARA R. MITTMAN - Collateral Agent Acknowledged: PROVO INTERNATIONAL INC. By: /s/ Stephen J. Cole-Hatchard --------------------------------- Name: Stephen J. Cole-Hatchard Title: CEO THIS COLLATERAL AGENT AGREEMENT MAY BE SIGNED BY FACSIMILE SIGNATURE AND DELIVERED BY CONFIRMED FACSIMILE TRANSMISSION. 8 (Collateral Agent Agreement) SCHEDULE A TO COLLATERAL AGENT AGREEMENT
+------------------------------------------------+-----------------------------+ |LENDER | PRINCIPAL AMOUNT OF NOTE | +------------------------------------------------+-----------------------------+ |ALPHA CAPITAL AKTIENGESELLSCHAFT | $500,000.00 | |Pradafant 7 | | |9490 Furstentums | | |Vaduz, Lichtenstein | | |Fax: 011-42-32323196 | | +------------------------------------------------+-----------------------------+ |STONESTREET LIMITED PARTNERSHIP | $300,000.00 | |C/o Canaccord Capital Corporation | | |320 Bay Street, Suite 1300 | | |Toronto, Ontario M5H 4A6, Canada | | |Fax: (416) 956-8989 | | +------------------------------------------------+-----------------------------+ |CONGREGATION MISHKAN SHOLOM INCORPORATED | $150,000.00 | |9612 Van Nuys Boulevard, Suite 108 | | |Panorama City, CA 91403 | | |Fax: 818-892-9844 | | +------------------------------------------------+-----------------------------+ |LUCRATIVE INVESTMENTS | $50,000.00 | |Ajeltake Island | | |P.O. Box 1405 | | |Majuro Marshall Island M.H. 96960 | | |Fax: 011-35041555 | | +------------------------------------------------+-----------------------------+ |TOTALS | $1,000,000.00 | +------------------------------------------------+-----------------------------+
9 (Collateral Agent Agreement) EX-10.45 15 v01635_ex10-45.txt Exhibit 10.45 SECURITY AGREEMENT ------------------ 1. Identification. This Security Agreement (the "Agreement"), dated as of January 27, 2004, is entered into by and between Provo International Inc., a Delaware corporation ("Provo" or "Debtor"), and Barbara Mittman, as collateral agent acting in the manner and to the extent described in the Collateral Agent Agreement defined below (the "Collateral Agent"), for the benefit of the parties identified on Schedule A hereto (collectively, the "Lenders"). 2. Recitals. 2.1 The Lenders have made or are making loans to Provo (the "Loans"). It is beneficial to Provo that the Loans were made, are being made and will be made. 2.2 The Loans are evidenced by certain 8% convertible promissory notes (each a "Convertible Notes") issued by Provo on or about the date of this Agreement pursuant to subscription agreements ("Subscription Agreement"). The Notes are further identified on Schedule A hereto and were and will be executed by Provo as "Borrower" or "Debtor" for the benefit of each Lender as the "Holder" or "Lender" thereof. 2.3 In consideration of the Loans made by Lenders to Provo and for other good and valuable consideration, and as security for the performance by Provo of its obligations under the Notes and as security for the repayment of the Loans and all other sums due from Debtor to Lenders arising under the Notes, Subscription Agreements, and any other agreement between or among them (collectively, the "Obligations"), Provo, for good and valuable consideration, receipt of which is acknowledged, has agreed to grant to the Collateral Agent, for the benefit of the Lenders, a security interest in the Collateral (as such term is hereinafter defined), on the terms and conditions hereinafter set forth. Obligations includes all future advances by Lenders to Provo. 2.4 The Lenders have appointed Barbara Mittman as Collateral Agent pursuant to that certain Collateral Agent Agreement dated at or about January 27, 2004 ("Collateral Agent Agreement"), among the Lenders and Collateral Agent. -1- (Security Agreement) 2.5 The following defined terms which are defined in the Uniform Commercial Code in effect in the State of New York on the date hereof are used herein as so defined: Accounts, Chattel Paper, Documents, Equipment, General Intangibles, Instruments, Inventory and Proceeds. 3. Grant of General Security Interest in Collateral. ------------------------------------------------- 3.1 As security for the Obligations of Debtor, Provo hereby grants the Collateral Agent, for the benefit of the Lenders, a security interest in the Collateral. 3.2 "Collateral" shall mean all of the following property of Provo: All now owned and hereafter acquired right, title and interest of Provo in, to and in respect of all accounts, goods, real or personal property, all present and future books and records relating to the foregoing and all products and proceeds of the foregoing, as each is set forth below: (i) Accounts: All now owned and hereafter acquired right, title and interest of Provo in, to and in respect of all: Accounts, interests in goods represented by Accounts, returned, reclaimed or repossessed goods with respect thereto and rights as an unpaid vendor; contract rights; Chattel Paper; investment property; General Intangibles (including but not limited to, tax and duty claims and refunds, registered and unregistered patents, trademarks, service marks, certificates, copyrights trade names, applications for the foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer lists, licenses, whether as licensor or licensee, choses in action and other claims, and existing and future leasehold interests in equipment, real estate and fixtures); Documents; Instruments; letters of credit, bankers' acceptances or guaranties; cash moneys, deposits; securities, bank accounts, deposit accounts, credits and other property now or hereafter owned or held in any capacity by Provo, as well as its affiliates, agreements or property securing or relating to any of the items referred to above; (ii) Goods: All now owned and hereafter acquired right, title and interest of Provo in, to and in respect of goods, including, but not limited to: (A) All Inventory, wherever located, whether now owned or hereafter acquired, of whatever kind, nature or description, including all raw materials, work-in-process, finished goods, and materials to be used or consumed in Provo' business; and all names or marks affixed to or to be affixed thereto for purposes of selling same by the seller, manufacturer, lessor or licensor thereof and all Inventory which may be returned to Provo by its customers or repossessed by Provo and all of Provo' right, title and interest in and to the foregoing (including all of Provo' rights as a seller of goods); (B) All Equipment and fixtures, wherever located, whether now owned or hereafter acquired, including, without limitation, all machinery, motor vehicles, furniture and fixtures, and any and all additions, substitutions, replacements (including spare parts), and accessions thereof and thereto (including, but not limited to Provo' rights to acquire any of the foregoing, whether by exercise of a purchase option or otherwise); -2- (Security Agreement) (iii) Property: All now owned and hereafter acquired right, title and interests of Provo in, to and in respect of any real or other personal property in or upon which Provo has or may hereafter have a security interest, lien or right of setoff; (iv) Books and Records: All present and future books and records relating to any of the above including, without limitation, all computer programs, printed output and computer readable data in the possession or control of the Provo, any computer service bureau or other third party; and (v) Products and Proceeds: All products and Proceeds of the foregoing in whatever form and wherever located, including, without limitation, all insurance proceeds and all claims against third parties for loss or destruction of or damage to any of the foregoing. 3.3 The Collateral Agent is hereby specifically authorized, after the Maturity Date (defined in the Notes), accelerated or otherwise, or after an Event of Default (as defined herein) and the expiration of any applicable cure period, to transfer any Collateral into the name of the Collateral Agent and to take any and all action deemed advisable to the Collateral Agent to remove any transfer restrictions affecting the Collateral. 4. Perfection of Security Interest. -------------------------------- Provo shall execute and deliver to the Collateral Agent UCC-1 Financing Statements. The Collateral Agent is instructed to file the Financing Statements in such jurisdictions deemed advisable to the Collateral Agent, including but not limited to Delaware and New York. These Financing Statements are deemed to have been filed for the benefit of the Collateral Agent and Lenders identified on Schedule A hereto. 5. Distribution on Liquidation. ---------------------------- 5.1 If any sum is paid as a liquidating distribution on or with respect to the Collateral, Provo shall deliver same to the Collateral Agent to be applied to the Obligations, then due, in accordance with the terms of the Notes. 5.2 Prior to any Event of Default, Provo shall be entitled to exercise all voting power pertaining to any of the Collateral, provided such exercise is not contrary to the interests of the Lenders and does not impair the Collateral. 6. Further Action By Provo; Covenants and Warranties. -------------------------------------------------- 6.1 Collateral Agent at all times shall have a perfected security interest in the Collateral. Subject to the security interests described herein, Provo has and will continue to have full title to the Collateral free from any liens, leases, encumbrances, judgments or other claims. Collateral Agent's security interest in the Collateral constitutes and will continue to constitute a first, prior and indefeasible security interest in favor of Collateral Agent. Provo will do all acts and things, and will execute and file all -3- (Security Agreement) instruments (including, but not limited to, security agreements, financing statements, continuation statements, etc.) reasonably requested by Collateral Agent to establish, maintain and continue the perfected security interest of Collateral Agent in the Collateral, and will promptly on demand, pay all costs and expenses of filing and recording, including the costs of any searches reasonably deemed necessary by Collateral Agent from time to time to establish and determine the validity and the continuing priority of the security interest of Collateral Agent, and also pay all other claims and charges that, in the opinion of Collateral Agent, exercised in good faith, is reasonably likely to materially prejudice, imperil or otherwise affect the Collateral or their security interests therein. 6.2 Other than in the ordinary course of business, and except for Collateral which is substituted by assets of identical or greater value or which has become obsolete or is of inconsequential in value, Provo will not sell, transfer, assign or pledge those items of Collateral (or allow any such items to be sold, transferred, assigned or pledged), without the prior written consent of Collateral Agent. Although Proceeds of Collateral are covered by this Agreement, this shall not be construed to mean that Collateral Agent consents to any sale of the Collateral, except as provided herein. Sales of Collateral in the ordinary course of business shall be free of the security interest of Lenders and Collateral Agent and Lenders and Collateral Agent shall promptly execute such documents (including without limitation releases and termination statements) as may be required by Debtor to evidence or effectuate the same. 6.3 Provo will, at all reasonable times and upon reasonable notice, allow Collateral Agent or its representatives free and complete access to the Collateral and all of Provo's records which in any way relate to the Collateral, for such inspection and examination as Collateral Agent reasonably deems necessary. 6.4 Provo, at its sole cost and expense, will protect and defend this Security Agreement, all of the rights of Collateral Agent hereunder, and the Collateral against the claims and demands of all other parties, except those of holders of senior or permitted liens. 6.5 Provo will promptly notify Collateral Agent of any levy, distraint or other seizure by legal process or otherwise of any part of the Collateral, and of any threatened or filed claims or proceedings that are reasonably likely to affect or impair any of the rights of Collateral Agent under this Security Agreement in any material respect. 6.6 Provo, at its own expense, will obtain and maintain in force insurance policies covering losses or damage to those items of Collateral which constitute physical personal property. The insurance policies to be obtained by Provo shall be in form and amounts reasonably acceptable to Collateral Agent. Provo shall make the Collateral Agent a loss payee thereon to the extent of its interest. Collateral Agent is hereby irrevocably (until the Obligations are paid in full) appointed Provo' attorney-in-fact to endorse any check or draft that may be payable to Provo so that Collateral Agent may collect the proceeds payable for any loss under such insurance. The proceeds of such insurance (subject to the rights of senior secured parties), less any costs and expenses incurred or paid by Collateral Agent in the collection thereof, shall be applied either toward the cost of the repair or replacement of the items damaged or destroyed, or on account of any sums secured hereby, whether or not then due or payable. -4- (Security Agreement) 6.7 Collateral Agent may, at its option, and without any obligation to do so, pay, perform and discharge any and all amounts, costs, expenses and liabilities herein agreed to be paid or performed by Provo, upon Provo' failure to do so, and all amounts expended by Collateral Agent in so doing shall become part of the Obligations secured hereby, and shall be immediately due and payable by Provo to Collateral Agent upon demand and shall bear interest at the lesser of 18% per annum or the highest legal amount from the dates of such expenditures until paid. 6.8 Upon the request of Collateral Agent, Provo will furnish within five (5) business days thereafter to Collateral Agent, or to any proposed assignee of this Security Agreement, a written statement in form reasonably satisfactory to Collateral Agent, duly acknowledged, certifying the amount of the principal and interest then owing under the Obligations, whether to its knowledge any claims, offsets or defenses exist against the Obligations or against this Security Agreement, or any of the terms and provisions of any other agreement of Provo securing the Obligations. In connection with any assignment by Collateral Agent of this Security Agreement, Provo hereby agrees to cause the insurance policies required hereby to be carried by Provo, if any, to be endorsed in form satisfactory to Collateral Agent or to such assignee, with loss payable clauses in favor of such assignee, and to cause such endorsements to be delivered to Collateral Agent within ten (10) calendar days after request therefor by Collateral Agent. 6.9 Provo will, at its own expense, make, execute, endorse, acknowledge, file and/or deliver to the Collateral Agent from time to time such vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, powers of attorney, certificates, reports and other reasonable assurances or instruments and take further steps relating to the Collateral and other property or rights covered by the security interest hereby granted, as the Collateral Agent may reasonably require to perfect its security interest hereunder. 6.10 Provo represents and warrants that it is the true and lawful exclusive owner of the Collateral, free and clear of any liens and encumbrances. 6.11 Provo hereby agrees not to divest itself of any right under the Collateral except as permitted herein absent prior written approval of the Collateral Agent. 6.12 Lenders understand that Provo is presently in negotiations with its creditor, Telephonos de Mexico, SA ("Telmex"), to sell or exchange certain assets of Provo in exchange for a corresponding reduction in Provo's debt owed to Telmex. Specifically, Provo has proposed to sell the Internet Service Provider customer base, comprised of approximately 9,000 dial-up customers generating annual revenue of approximately $2,400,000 (the "Dial-Up Assets"), to Telmex in exchange for a reduction in the amount owed to Telmex of not less than $1,250,000. Accordingly, notwithstanding anything to the contrary in this Agreement or in any other transaction document delivered herewith, Lenders agree that the sale of the ISP Assets to Telmex in return for a reduction in debt owed to Telmex or the sale of the ISP Assets to a third party, so long as the proceeds of such sale are used exclusively to reduce the debt owed to Telmex, shall not constitute a default under the terms of this Agreement or any other transaction document. -5- (Security Agreement) 7. Power of Attorney. ------------------ After the occurrence and during the uncured continuation of an Event of Default thereunder, Provo hereby irrevocably constitutes and appoints the Collateral Agent as the true and lawful attorney of Provo, with full power of substitution, in the place and stead of Provo and in the name of Provo or otherwise, at any time or times, in the discretion of the Collateral Agent, to take any action and to execute any instrument or document which the Collateral Agent may deem necessary or advisable to accomplish the purposes of this Agreement. This power of attorney is coupled with an interest and is irrevocable until the Obligations are satisfied. 8. Performance By The Collateral Agent. ------------------------------------ If Provo fails to perform any material covenant, agreement, duty or obligation of Provo under this Agreement, the Collateral Agent may, after any applicable cure period, at any time or times in its discretion, take action to effect performance of such obligation. All reasonable expenses of the Collateral Agent incurred in connection with the foregoing authorization shall be payable by Provo as provided in Paragraph 12.1 hereof. No discretionary right, remedy or power granted to the Collateral Agent under any part of this Agreement shall be deemed to impose any obligation whatsoever on the Collateral Agent with respect thereto, such rights, remedies and powers being solely for the protection of the Collateral Agent. 9. Event of Default. An event of default ("Event of Default") shall be deemed to have occurred hereunder upon the occurrence of any event of default as defined in the Notes, Subscription Agreement, and any other agreement to which Provo and a Lender are parties. Upon and after any Event of Default, after the applicable cure period, if any, any or all of the Obligations shall become immediately due and payable at the option of the Collateral Agent, for the benefit of the Lenders, and the Collateral Agent may dispose of Collateral as provided below. A default by Provo of any of its material obligations pursuant to this Agreement shall be an Event of Default hereunder and an event of default as defined in the Notes, and Subscription Agreement. 10. Disposition of Collateral and Collateral Shares. ------------------------------------------------ Upon and after any Event of Default which is then continuing, 10.1 The Collateral Agent may exercise its rights with respect to each and every component of the Collateral, without regard to the existence of any other security or source of payment for the Obligations. In addition to other rights and remedies provided for herein or otherwise available to it, the Collateral Agent shall have all of the rights and remedies of a lender on default under the Uniform Commercial Code then in effect in the State of New York. 10.2 If any notice to Provo of the sale or other disposition of Collateral is required by then applicable law, five business (5) days prior written notice (which Provo agrees is reasonable notice within -6- (Security Agreement) the meaning of Section 9-504(3) of the Uniform Commercial Code) to Provo of the time and place of any sale of Collateral which Provo hereby agrees may be by private sale. The rights granted in this Section are in addition to any and all rights available to Collateral Agent under the Uniform Commercial Code. 10.3 The Collateral Agent is authorized, at any such sale, if the Collateral Agent deems it advisable to do so, in order to comply with any applicable securities laws, to restrict the prospective bidders or purchasers to persons who will represent and agree, among other things, that they are purchasing the Collateral for their own account for investment, and not with a view to the distribution or resale thereof, or otherwise to restrict such sale in such other manner as the Collateral Agent deems advisable to ensure such compliance. Sales made subject to such restrictions shall be deemed to have been made in a commercially reasonable manner. 10.4 All proceeds received by the Collateral Agent for the benefit of the Lenders in respect of any sale, collection or other enforcement or disposition of Collateral, shall be applied (after deduction of any amounts payable to the Collateral Agent pursuant to Paragraph 12.1 hereof) against the Obligations pro rata among the Lenders in proportion to their interests in the Obligations. Upon payment in full of all Obligations, Provo shall be entitled to the return of all Collateral, including cash, which has not been used or applied toward the payment of Obligations or used or applied to any and all costs or expenses of the Collateral Agent incurred in connection with the liquidation of the Collateral (unless another person is legally entitled thereto). Any assignment of Collateral by the Collateral Agent to Provo shall be without representation or warranty of any nature whatsoever and wholly without recourse. To the extent allowed by law, each Lender may purchase the Collateral and pay for such purchase by offsetting any sums owed to such Lender by Provo arising under the Obligations or any other source. 11. Waiver of Automatic Stay. Provo acknowledges and agrees that should a proceeding under any bankruptcy or insolvency law be commenced by or against Provo, or if any of the Collateral (as defined in this Security Agreement) should become the subject of any bankruptcy or insolvency proceeding, then the Collateral Agent should be entitled to, among other relief to which the Collateral Agent or Lenders may be entitled under the Note, Subscription Agreement and any other agreement to which the Debtor, Lenders or Collateral Agent are parties, (collectively "Loan Documents") and/or applicable law, an order from the court granting immediate relief from the automatic stay pursuant to 11 U.S.C. Section 362 to permit the Collateral Agent to exercise all of its rights and remedies pursuant to the Loan Documents and/or applicable law. PROVO EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE, PROVO EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362 NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE (INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY, INTERDICT, CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE COLLATERAL AGENT TO ENFORCE ANY OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW. Provo hereby consents to any motion for relief from stay which may be filed by the Collateral Agent in any bankruptcy or insolvency proceeding initiated by or against Provo, and further agrees not to file any opposition to any motion for relief from stay filed by the Collateral Agent. Provo represents, acknowledges and agrees that this provision is a specific and material aspect of this Agreement, -7- (Security Agreement) and that the Collateral Agent would not agree to the terms of this Agreement if this waiver were not a part of this Agreement. Provo further represents, acknowledges and agrees that this waiver is knowingly, intelligently and voluntarily made, that neither the Collateral Agent nor any person acting on behalf of the Collateral Agent has made any representations to induce this waiver, that Provo has been represented (or has had the opportunity to be represented) in the signing of this Agreement and in the making of this waiver by independent legal counsel selected by Provo and that Provo has had the opportunity to discuss this waiver with counsel. Provo further agrees that any bankruptcy or insolvency proceeding initiated by Provo will only be brought in the Federal Court within the Southern District of New York. 12. Miscellaneous. -------------- 12.1 Expenses. Provo shall pay to the Collateral Agent, on demand, the amount of any and all reasonable expenses, including, without limitation, attorneys' fees, legal expenses and brokers' fees, which the Collateral Agent may incur in connection with (a) sale, collection or other enforcement or disposition of Collateral; (b) exercise or enforcement of any the rights, remedies or powers of the Collateral Agent hereunder or with respect to any or all of the Obligations; or (c) failure by Provo to perform and observe any agreements of Provo contained herein which are performed by the Collateral Agent. 12.2 Waivers, Amendment and Remedies. No course of dealing by the Collateral Agent and no failure by the Collateral Agent to exercise, or delay by the Collateral Agent in exercising, any right, remedy or power hereunder shall operate as a waiver thereof, and no single or partial exercise thereof shall preclude any other or further exercise thereof or the exercise of any other right, remedy or power of the Collateral Agent. No amendment, modification or waiver of any provision of this Agreement and no consent to any departure by Provo therefrom, shall, in any event, be effective unless contained in a writing signed by the Collateral Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. The rights, remedies and powers of the Collateral Agent, not only hereunder, but also under any instruments and agreements evidencing or securing the Obligations and under applicable law are cumulative, and may be exercised by the Collateral Agent from time to time in such order as the Collateral Agent may elect. 12.3 Notices. All notices or other communications given or made hereunder shall be in writing and shall be personally delivered or deemed delivered the first business day after being faxed (provided that a copy is delivered by first class mail) to the party to receive the same at its address set forth below or to such other address as either party shall hereafter give to the other by notice duly made under this Section:
To Provo: Provo International Inc. One Blue Hill Plaza, 7th Floor Pearl River, New York 10965 Attn: Stephen J. Cole, Chief Executive Officer Fax: (845) 623-8669
-8- (Security Agreement)
With a copy to: Swidler Berlin Shereff Friedman, LLP 3000 K Street, N.W., Suite 300 Washington, D.C. 20007 Attn: Sean P. McGuinness, Esq. Fax: (202) 295-8478 To Lenders: To the addresses and telecopier numbers set forth on Schedule A To the Collateral Agent: Barbara R. Mittman Grushko & Mittman, P.C. 551 Fifth Avenue, Suite 1601 New York, New York 10176 Fax: (212) 697-3575
Any party may change its address by written notice in accordance with this paragraph. 12.4 Term; Binding Effect. This Agreement shall (a) remain in full force and effect until payment and satisfaction in full of all of the Obligations; (b) be binding upon Provo, and its successors and permitted assigns; and (c) inure to the benefit of the Collateral Agent, for the benefit of the Lenders and their respective successors and assigns. All the rights and benefits granted by Debtor to the Collateral Agent and Lenders in the Loan Documents and other agreements and documents delivered in connection therewith are deemed granted to both the Collateral Agent and Lenders. 12.5 Captions. The captions of Paragraphs, Articles and Sections in this Agreement have been included for convenience of reference only, and shall not define or limit the provisions hereof and have no legal or other significance whatsoever. 12.6 Governing Law; Venue; Severability. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts or choice of law, except to the extent that the perfection of the security interest granted hereby in respect of any item of Collateral may be governed by the law of another jurisdiction. Any legal action or proceeding against Provo with respect to this Agreement may be brought in the courts of the State of New York or of the United States for the Southern District of New York, and, by execution and delivery of this Agreement, Provo hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. Provo hereby irrevocably waives any objection which they may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement brought in the aforesaid courts and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. If any provision of this Agreement, or the application thereof to any person or circumstance, is held invalid, such invalidity shall not affect any other provisions which can be given effect without the invalid provision or application, and to this end the provisions hereof shall be severable and the remaining, valid provisions shall remain of full force and effect. -9- (Security Agreement) -10- (Security Agreement) 12.7 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. [THIS SPACE INTENTIONALLY LEFT BLANK] -11- (Security Agreement) IN WITNESS WHEREOF, the undersigned have executed and delivered this Security Agreement, as of the date first written above. "DEBTOR" "THE COLLATERAL AGENT" PROVO INTERNATIONAL INC. BARBARA R. MITTMAN a Delaware corporation By: /s/ Stephen J. Cole-Hatchard /s/ Barbara Mittman -------------------------------------- ---------------------------- Its: Chief Executive Officer APPROVED BY "LENDERS": ______________________________________ ____________________________________ ALPHA CAPITAL AKTIENGESELLSCHAFT STONESTREET LIMITED PARTNERSHIP ______________________________________ CONGREGATION MISHKAN SHOLOM INCORPORATED ______________________________________ LUCRATIVE INVESTMENTS THIS SECURITY AGREEMENT MAY BE SIGNED BY FACSIMILE SIGNATURE AND DELIVERED BY CONFIRMED FACSIMILE TRANSMISSION. -12- (Security Agreement) SCHEDULE A TO SECURITY AGREEMENT --------------------------------
+---------------------------------------------------+--------------------------+ |LENDER | PRINCIPAL AMOUNT OF | | | NOTE | +---------------------------------------------------+--------------------------+ |ALPHA CAPITAL AKTIENGESELLSCHAFT | $500,000.00 | |Pradafant 7 | | |9490 Furstentums | | |Vaduz, Lichtenstein | | |Fax: 011-42-32323196 | | | | | +---------------------------------------------------+--------------------------+ |STONESTREET LIMITED PARTNERSHIP | $300,000.00 | |C/o Canaccord Capital Corporation | | |320 Bay Street, Suite 1300 | | |Toronto, Ontario M5H 4A6, Canada | | |Fax: (416) 956-8989 | | | | | +---------------------------------------------------+--------------------------+ |CONGREGATION MISHKAN SHOLOM INCORPORATED | $150,000.00 | |9612 Van Nuys Boulevard, Suite 108 | | |Panorama City, CA 91403 | | |Fax: 818-892-9844 | | +---------------------------------------------------+--------------------------+ |LUCRATIVE INVESTMENTS | $50,000.00 | |Ajeltake Island | | |P.O. Box 1405 | | |Majuro Marshall Island M.H. 96960 | | |Fax: 011-35041555 | | +---------------------------------------------------+--------------------------+ |TOTALS | $1,000,000.00 | +---------------------------------------------------+--------------------------+
-13- (Security Agreement) EX-10.46 16 v01635_ex10-46.txt EXHIBIT 10.46 PROVO INTERNATIONAL, INC. ONE BLUE HILL PLAZA, P.O. BOX 1548 PEARL RIVER, NEW YORK 10965 Clive Dakin Scarborough Ltd. c/o Euroba Management Limited 73 Front Street, 4th Floor Hamilton HM 12 Bermuda January 23, 2004 RE: AMENDMENT OF WARRANTS Dear Mr. Dakin: Reference is made to that certain Subscription Agreement (the "Agreement"), dated November 25, 2003, among Provo International, Inc. f/k/a Frontline Communications Corporation (the "Company") and the Scarborough Ltd ("Scarborough"), pursuant to which the Company issued to Scarborough in a private placement (the "Placement"): (i) 1,666,666 shares of the Company's common stock, $.01 par value ("Common Stock"), (ii) one (1) three-year warrant (the "A Warrant") to purchase 750,000 shares of the Company's Common Stock at an exercise price equal to $.01 per share, and (iii) one (1) forty-five (45) day warrant (subject to extension as provided therein) (the "B Warrant") to purchase 1,666,666 shares of the Company's Common Stock at an exercise price equal to $.30 per share plus, upon exercise of the B Warrant, one (1) three-year warrant (the "B2 Warrant") to purchase 1,250,000 shares of the Company's Common Stock at an exercise price equal to $.01 per share (collectively, the A, B and B2 Warrants, the "Warrants"). The original A and B2 Warrants shall be replaced with amended A and B2 Warrants to revise language regarding adjustment for a stock split and to issue the B2 Warrant as of the date hereof, in the forms attached as Exhibits A and B2. The B Warrant has been amended to extend the exercise date to February 15, 2004, and to clarify that upon exercise of all or any portion of the B Warrant, the B2 Warrant must be issued, in the form attached as Exhibit B. In addition, in accordance with section 4.2 of the Agreement, we acknowledge that the thirty (30) calendar day automatic registration period for the B2 Warrants begins with the date hereof. Very truly yours, PROVO INTERNATIONAL, INC. By: /s/ Stephen J. Cole-Hatchard Name: Stephen J. Cole-Hatchard Title: CEO Agreed and accepted: SCARBOROUGH LTD. By: /s/ Clive Dakin Name: Clive Dakin Title: EX-10.47 17 v01635_ex10-47.txt EXHIBIT B2 EXHIBIT 10.47 THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER THE STATE SECURITIES LAWS AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED UNLESS EITHER (A) COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS, OR (B) THE CORPORATION HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION TO THE EFFECT THAT NO REGISTRATION OR QUALIFICATION IS LEGALLY REQUIRED FOR SUCH TRANSFER. Warrant No. B2-1 Number of Shares: 1,250,000 Date of Issuance: As of January 27, 2004 Provo International, Inc. f/k/a Frontline Communications Corporation -------------------------------------------------------------------- Common Stock Purchase Warrant ----------------------------- (Void after January 27, 2006) Provo International, Inc. f/k/a Frontline Communications Corporation, a Delaware corporation (the "Company"), for value received, hereby certifies that Scarborough Ltd. (the "Registered Holder"), is entitled, subject to the terms set forth below, to purchase from the Company, at any time or from time to time on or after the date of exercise of the B Warrant in connection with the Subscription Agreement between the Company and the Registered Holder, dated November 25, 2003, 1,250,000 shares of Common Stock (the "Common Stock") $0.01 par value per share, of the Company, at a purchase price of $0.01 per share. The shares purchasable upon exercise of this Warrant, and the purchase price per share, each as adjusted from time to time pursuant to the provisions of this Warrant, are hereinafter referred to as the "Warrant Shares" and the "Purchase Price," respectively. 1 1. Exercise; Issuance of Certificates. (a) Exercise. This Warrant may be exercised by the Registered Holder, in whole or in part, by surrendering this Warrant, with the purchase form appended hereto as Exhibit I duly executed by such Registered Holder or by such Registered Holder's duly authorized attorney, at the principal office of the Company, or at such other office or agency as the Company may designate, accompanied by payment in full, in lawful money of the United States, of the Purchase Price payable in respect of the number of Warrant Shares purchased upon such exercise. (b) Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the day on which this Warrant shall have been surrendered to the Company as provided in subsection 1(a) above (the "Exercise Date"). At such time, the person or persons in whose name or names any certificates for Warrant Shares shall be issuable upon such exercise as provided in subsection 1(c) below shall be deemed to have become the holder or holders of record of the Warrant Shares represented by such certificates. (c) As soon as practicable after the exercise of this Warrant in full or in part, the Company, at its expense, will cause to be issued in the name of, and delivered to, the Registered Holder, or as the Registered Holder (upon payment by the Registered Holder of any applicable transfer taxes) may direct but subject to Section 4 hereof: (i) a certificate or certificates for the number of full Warrant Shares to which the Registered Holder shall be entitled upon such exercise plus, in lieu of any fractional share to which such Registered Holder would otherwise be entitled, cash in an amount determined pursuant to Section 3 hereof; and (ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof) of like tenor, calling in the aggregate on the face or faces thereof for the number of Warrant Shares equal (without giving effect to any adjustment therein) to the number of Warrant Shares called for on the face of this Warrant minus the sum of the number of such shares purchased by the Registered Holder upon such exercise. 2. Adjustment of Purchase Price and Number of Warrant Shares. The Purchase Price and the number of Warrant Shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 2. (a) Subdivision or Combination of Stock. If outstanding shares of the Company's Common Stock shall be subdivided into a greater number of shares or a dividend in such stock shall be paid in respect of such stock, or any transaction having substantially similar effect shall have been consummated by the Company, the Purchase Price in effect immediately prior to such transaction shall not be proportionately reduced and the number of Warrant Shares purchasable upon the exercise of this Warrant shall not change from the number stated on the face of this Warrant. If outstanding shares of the Company's Common Stock shall be combined into a smaller number of shares, the Purchase Price in effect immediately prior to such combination shall not be proportionately increased and the number of Warrant Shares purchasable upon the exercise of this Warrant shall not change from the number stated on the face of this Warrant. 2 (b) Reorganization, Reclassification, Consolidation, Merger or Sale. If there shall occur any capital reorganization or reclassification of the Company's Common Stock (other than a change in par value or a subdivision or combination), or any consolidation or merger of the Company with or into another corporation, or a transfer of all or substantially all of the assets of the Company, shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities, or other assets or property (an "Organic Change"), then, as part of such Organic Change, lawful provision shall be made so that the Registered Holder of this Warrant shall have the right thereafter to receive upon the exercise hereof the kind and amount of shares of stock or other securities or property which such Registered Holder would have been entitled to receive if, immediately prior to such Organic Change such Registered Holder had held the number of shares of Common Stock which were then purchasable upon the exercise of this Warrant. In any such case, appropriate adjustment (as reasonably determined in good faith by the Board of Directors of the Company) shall be made in the application of the provisions set forth herein with respect to the rights and interests thereafter of the Registered Holder of this Warrant, such that the provisions set forth in this Section 2 shall thereafter be applicable, as nearly as is reasonably practicable, in relation to any shares of stock or other securities or property thereafter deliverable upon the exercise of this Warrant. (c) When any adjustment is required to be made in the Purchase Price or the number of Warrant Shares purchasable upon exercise of this Warrant, the Company shall promptly mail to the Registered Holder a certificate setting forth the Purchase Price or the number of Warrant Shares purchasable upon exercise of this Warrant after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Such certificate shall also set forth the kind and amount of stock or other securities or property into which this Warrant shall be exercisable following the occurrence of any of the events specified in subsection 2(b) above. 3. Fractional Shares. The Company shall not be required upon the exercise of this Warrant to issue any fractional shares, but shall make an adjustment therefor in cash on the basis of the fair market value per share of Common Stock. For purposes of the foregoing, fair market value of one share of Common Stock, shall be determined as follows: (i) If the Common Stock is listed on a national securities exchange, the American Stock Exchange, the Nasdaq National Market, the Nasdaq system, or another nationally recognized exchange or quotation system as of the Exercise Date, the fair market value per share of the Common Stock shall be deemed to be the last reported sale price per share of the Common Stock on the Exercise Date, or, if no such price is reported on such date, such price on the next preceding business day (provided that if no such price is reported on the next preceding business day, the fair market value per share shall be determined pursuant to clause (ii)). (ii) If the Common Stock is not listed on a national securities exchange, the American Stock Exchange, the Nasdaq National Market, the Nasdaq System, or another nationally recognized exchange or quotation system on the Exercise Date, the fair market value per share shall be determined by the Company's Board of Directors in good faith. 3 4. Requirements for Transfer. (a) This Warrant and the Warrant Shares shall not be sold or transferred unless either (i) they first shall have been registered under the Securities Act of 1933, as amended (the "Act"), and any applicable state securities laws, or (ii) the Company first shall have been furnished with an opinion of legal counsel, reasonably satisfactory to the Company, to the effect that such sale or transfer is exempt from the registration requirements of the Act and any applicable state securities laws. (b) Each certificate representing this Warrant or Warrant Shares shall bear a legend substantially in the following form: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER STATE SECURITIES LAWS AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS EITHER (A) COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS OR (B) THE CORPORATION HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION TO THE EFFECT THAT NO REGISTRATION OR QUALIFICATION IS LEGALLY REQUIRED FOR SUCH TRANSFER." The foregoing legend shall be removed from the certificates representing any Warrants or Warrant Shares, at the request of the holder thereof, at such time as they become eligible for resale pursuant to Rule 144(k) under the Act. 5. No Voting or Dividend Rights. Nothing contained in this Warrant shall be construed as conferring upon the Registered Holder the right to vote or to consent or to receive notice as a stockholder of the Company or any other matters or any rights whatsoever as a stockholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the Warrant Shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised. Until the exercise of this Warrant, the Registered Holder shall not have or exercise any rights by virtue hereof as a stockholder of the Company. 6. Notices of Record Date, etc. In case: (a) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving entity), or any transfer of all or substantially all of the assets of the Company; or 4 (b) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, then, and in each such case, the Company will mail or cause to be mailed to the Registered Holder of this Warrant a notice specifying, as the case may be, (i) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other stock or securities at the time deliverable upon the exercise of this Warrant) shall be entitled to exchange their shares of Common Stock (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up. Such notice shall be mailed at least ten (10) days prior to the record date or effective date for the event specified in such notice. 7. Reservation of Stock. The Company will at all times reserve and keep available, solely for issuance and delivery upon the exercise of this Warrant, such number of Warrant Shares and other stock, securities and property, as from time to time shall be issuable upon the exercise of this Warrant. 8. Exchange of Warrants. Upon the surrender by the Registered Holder of any Warrant or Warrants, properly endorsed, to the Company at the principal office of the Company, the Company will, subject to the provisions of Section 4 hereof, issue and deliver to or upon the order of such Registered Holder, at the Company's expense, a new Warrant or Warrants of like tenor, in the name of such Registered Holder or as such Registered Holder (upon payment by such Registered Holder of any applicable transfer taxes) may direct, 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 or Warrants so surrendered. 9. Lost Warrants. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with surety in an amount reasonably satisfactory to the Company if requested by the Company), or (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor. 10. Transfers, etc. (a) The Company will maintain a register containing the names and addresses of the Registered Holders of this Warrant. Any Registered Holder may change its address as shown on the warrant register by written notice to the Company requesting such change. (b) Subject to the provisions of Section 4 hereof, this Warrant and all rights hereunder are transferable, in whole or in part, upon surrender of this Warrant with a properly executed assignment (in the form of Exhibit II hereto) at the principal office of the Company. (c) Until any transfer of this Warrant is made in the warrant register, the Company may treat the Registered Holder of this Warrant as the absolute owner hereof for all purposes; provided, however, that if and when this Warrant is properly assigned in blank, the Company may (but shall not be obligated to) treat the bearer hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. 5 11. Mailing of Notices, etc. All notices and other communications from the Company to the Registered Holder of this Warrant shall be mailed by first-class certified or registered mail, postage prepaid, to the address furnished to the Company in writing by the last Registered Holder of this Warrant who shall have furnished an address to the Company in writing. All notices and other communications from the Registered Holder of this Warrant or in connection herewith to the Company shall be mailed by first-class certified or registered mail, postage prepaid, to the Company at its principal office set forth below. If the Company should at any time change the location of its principal office to a place other than as set forth below, it shall give prompt written notice to the Registered Holder of this Warrant and thereafter all references in this Warrant to the location of its principal office at the particular time shall be as so specified in such notice. 12. Change or Waiver. Any term of this Warrant may be changed or waived only by an instrument in writing signed by the party against which enforcement of the change or waiver is sought. 13. Headings. The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning of any provision of this Warrant. 14. Governing Law. This Warrant will be governed by and construed in accordance with the corporate laws of the State of New York. IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its officer thereunto duly authorized. PROVO INTERNATIONAL, INC. f/k/a FRONTLINE COMMUNICATIONS CORPORATION _____________________________________ By: Stephen J. Cole-Hatchard Title: CEO [Corporate Seal] ATTEST: ______/s/___________________ [ Amy Wagner-Mele] [ Secretary ] Address of principal office: One Blue Hill Plaza, 7th Floor P.O. Box 1548 Pearl River, New York 10965 6 (SIGNATURE PAGE TO COMMON STOCK PURCHASE WARRANT) 7 EXHIBIT I --------- PURCHASE FORM ------------- To: Provo International, Inc. f/k/a Frontline Communications Corporation Dated:______________ The undersigned, pursuant to the provisions set forth in the attached Warrant (No. B2-1), hereby irrevocably elects to purchase ________ shares of Common Stock covered by such Warrant. The undersigned herewith makes payment of $____________, in lawful money of the United States, representing the full purchase price for such shares at the price per share provided for in such Warrant. Signature:_________________ 8 EXHIBIT II ---------- ASSIGNMENT FORM --------------- FOR VALUE RECEIVED, ________________________________________hereby sells, assigns and transfers all of the rights of the undersigned under the attached Warrant (No. B2-1) with respect to the number of shares of Common Stock covered thereby set forth below, unto: Name of Assignee Address No. of Shares - ---------------- ------- ------------- Dated:___________________ Signature:_______________________ Dated:___________________ Witness:_________________________ 9 EX-10.48 18 v01635_ex10-48.txt EXHIBIT B Exhibit 10.48 Void after February 15, 2004* This Warrant and any shares acquired upon the exercise of this Warrant have not been registered under the Securities Act of 1933. This Warrant and such shares may not be sold or transferred in the absence of such registration or an exemption therefrom under said Act. This Warrant and such shares may not be transferred except upon the conditions specified in this Warrant, and no transfer of this Warrant or such shares shall be valid or effective unless and until such conditions shall have been complied with. ---------------- COMMON STOCK PURCHASE WARRANT Provo International, Inc. f/k/a Frontline Communications Corporation, a Delaware corporation (the "Company"), having its principal office at One Blue Hill Plaza, 7th Floor, P.O. Box 1548, Pearl River, New York, 10965 hereby certifies that, for value received, Scarborough Ltd., or assigns, is entitled, subject to the terms set forth below, to purchase from the Company at any time on or from time to time after November 25, 2003 and before 5:00 P.M., New York City time, on February 15, 2004, (i) 1,666,666 shares of Common Stock of the Company (also referred to herein as "B Warrant Shares") and (ii) a warrant ("B2 Warrant") exercisable at $0.01 to purchase 1,250,000 shares of Common Stock of the Company in the form attached hereto as Exhibit A, at $.30 per B Warrant Share (the "Purchase Price"). The number and character of such shares of Common Stock and the Purchase Price are subject to adjustment as provided herein. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: (a) The term "Company" includes the Company and any corporation which shall succeed to or assume the obligations of the Company hereunder. (b) The term "Common Stock" includes all stock of any class or classes (however designated) of the Company, the holders of which shall have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference, and the holders of which shall ordinarily, in the absence of contingencies, be entitled to vote for the election of a majority of directors of the - -------- * Or such later date as provided pursuant to paragraph 21. Company (even though the right so to vote has been suspended by the happening of such a contingency). (c) The "Original Issue Date" is November 25, 2003, the date as of which this Warrant was first issued. (d) 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, upon the exercise of this 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 6 or otherwise. Other Securities shall include, but not be limited to the B2 Warrants and shares of Common Stock issuable upon exercise of the B-2 Warrants. (e) The term "Purchase Price per share" shall be the then applicable exercise price for one share of Common Stock. (f) The term "Owner" refers to a record owner of this Warrant (or subdivision thereof) or the holder of any Common Stock or Other Securities issuable upon exercise of this Warrant (or subdivision thereof). (g) The terms "registered" and "registration" refer to a registration effected by filing a registration statement in compliance with the Securities Act, to permit the disposition of Common Stock (or Other Securities) issued or issuable upon the exercise of this Warrant, and any post-effective amendments and supplements filed or required to be filed to permit any such disposition. (h) The term "Securities Act" means the Securities Act of 1933, as amended, as the same shall be in effect at the time. 2 1. REGISTRATION, ETC. The Company has agreed to register the Common Stock issuable upon exercise of this warrant, and the Common Stock issuable upon exercise of the B-2 Warrants; pursuant to the terms of a Subscription Agreement by and between the Company and the Owner dated November 25, 2003 ("Subscription Agreement"). 2. SALE OR EXERCISE WITHOUT REGISTRATION. If, at the time of any exercise, transfer or surrender for exchange of this Warrant or of Common Stock (or Other Securities) previously issued upon the exercise of this Warrant, or Common Stock (or Other Securities) shall not be registered under the Securities Act, the Company may require, as a condition of allowing such exercise, transfer or exchange, that the holder or transferee of this Warrant or Common Stock (or Other Securities), as the case may be, furnish to the Company a satisfactory opinion of counsel to the effect that such exercise, transfer or exchange may be made without registration under the Securities Act, provided that the disposition thereof shall at all times be within the control of such holder or transferee, as the case may be, and provided further that nothing contained in this section 2 shall relieve the Company from complying with any request for registration pursuant to section 1 hereof. The first holder of this Warrant represents to the Company that it is acquiring this Warrant for investment and not with a view to the distribution thereof. 3. EXERCISE OF WARRANT; PARTIAL EXERCISE. 3.1 EXERCISE IN FULL. Subject to the provisions hereof, this Warrant may be exercised in full by the holder hereof by surrender of this Warrant, with the form of subscription at the end hereof duly executed by such holder, to the Escrow Agent (as defined in the Subscription Agreement to be released, to the Company pursuant to the terms and conditions of the Escrow Agreement (as defined in the Subscription Agreement) in the amount obtained by multiplying the number of shares of Common Stock called for on the face of this Warrant (without giving effect to any adjustment therein) by the Purchase Price. 3.2 PARTIAL EXERCISE. Subject to the provisions hereof, this Warrant may be exercised in part by surrender of this Warrant in the manner and at the place provided in subsection 3.1 except that the amount payable by the holder upon any partial exercise shall be the amount obtained by multiplying (a) the number of shares of Common Stock (without giving effect to any adjustment therein) designated by the holder in the subscription at the end hereof by (b) the Purchase Price. Upon 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 or Warrants 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, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock equal (without giving effect to any adjustment therein) to the number of such shares called for on the face of this Warrant minus the number of such shares designated by the holder in the subscription at the end hereof. 3.3 ISSUE OF B2 WARRANT. Upon full or partial exercise of this Warrant, the B2 Warrant shall be issued to the Owner of this Warrant. 3.4 COMPANY TO REAFFIRM OBLIGATIONS. The Company will, at the time of any exercise of this Warrant, upon the request of the holder hereof, acknowledge in writing its continuing obligation to afford to such holder any rights (including, without limitation, any right 4 to registration of the shares of Common Stock or Other Securities issued upon such exercise) to which such holder shall continue to be entitled after such exercise in accordance with the provisions of this Warrant, PROVIDED that if the Company shall fail to take any of the actions specified by this paragraph, such failure shall not affect the continuing obligation of the Company to afford such holder any such rights 4. DELIVERY OF STOCK CERTIFICATES, ETC., ON EXERCISE. As soon as practicable after the exercise of this Warrant in full or in part, and in any event within three (3) 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 the holder hereof, or as such holder (upon payment by such holder of any applicable transfer taxes) may direct, a certificate or certificates for the number of full paid and non-assessable shares of Common Stock (or Other Securities) to which such holder shall be entitled upon 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 current market value of one full share, 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 5 or otherwise and such certificates shall be delivered to the Escrow Agent (as defined in the Subscription Agreement) to be held and released pursuant to the terms of an Escrow Agreement (as defined in the Subscription Agreement). 5. ADJUSTMENT FOR DIVIDENDS IN OTHER STOCK, PROPERTY, ETC., RECLASSIFICATION, ETC. In case at any time or from time to time after the Original Issue Date the holders of Common Stock (or Other Securities) shall have received, or (on or after the record date fixed for the determination of stockholders eligible to receive) shall have become entitled to receive, without payment therefor (a) other or additional stock or other securities or property (other than cash) by way of dividend, or (b) any cash paid or payable (including, without limitation, by way of dividend), or (c) other or additional (or less) stock or other securities or property (including cash) by way of spin-off, split-up, reclassification, recapitalization, combination of shares or similar corporate rearrangement, then, and in each such case the holder of this Warrant, upon the exercise hereof as provided in section 3, shall be entitled to receive the amount of stock and other securities and property (including cash in the cases referred to in subdivisions (b) and (c) of this section 5) which such holder would hold on the date of such exercise if on the Original Issue Date he had been the holder of record of the number of shares of Common Stock called for on the face of this Warrant as well as the number of shares of Common Stock issuable upon exercise of the B-2 Warrant and had thereafter, during the period from the Original Issue Date to and including the date of such exercise, retained such shares and all such other or additional (or less) stock and other securities and property (including cash in the cases referred to in subdivisions (b) and (c) of this section 5) receivable by him as aforesaid during such period, giving effect to all adjustments called for during such period by sections 6 and 7 hereof. 4 6. REORGANIZATION, CONSOLIDATION, MERGER, ETC. In case the Company after the Original Issue Date 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, the holder of this Warrant, upon the exercise hereof as provided in section 3 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 be entitled to receive (and the Company shall be entitled to deliver), in lieu of the Common Stock (or Other Securities) issuable upon 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 has so exercised this Warrant and the B-2 Warrant immediately prior thereto, all subject to further adjustment thereafter as provided in sections 5 and 7 hereof. 7. OTHER ADJUSTMENTS. 7.1 GENERAL. In any case to which sections 5 and 6 hereof are not applicable, where the Company shall issue or sell shares of its Common Stock after the Original Issue Date and prior to the expiration of this Warrant, then the Purchase Price in effect hereunder shall simultaneously with such issuance or sale be reduced to equal the price at which the Company sells or issues Common Stock subsequent to the Original Issue Date, provided that such price is lower than the Purchase Price, and the number of shares of Common Stock issuable upon exercise hereof shall be increased so that the percentage of the Company represented by the shares of Common Stock issuable upon exercise of this Warrant is not reduced as a result of such issuance or sale. 7.2 CONVERTIBLE SECURITIES. In case the Company shall issue or sell any securities convertible into Common Stock of the Company ("Convertible Securities") after the date hereof, then such issue or sale shall be deemed to be an issue or sale (as of the date of issue or sale of such Convertible Securities) of such maximum number of shares of Common Stock that may be issuable upon conversion of the Convertible Securities, provided that, if such Convertible Securities shall by their terms provide for a decrease or decreases, with the passage of time, in the conversion rate or rate of exchange upon the conversion or exchange thereof, the number of shares deemed issued or sold upon the issuance or sale of such Convertible Securities shall, forthwith upon any such decrease becoming effective, be readjusted to reflect the same, and provided further, that upon the expiration of such rights of conversion or exchange of such Convertible Securities, if any thereof shall not have been exercised, the adjusted Purchase Price per share and the number of shares of Common Stock and other Securities issuable upon exercise of this Warrant shall forthwith be readjusted and thereafter be the price and number of shares which would have been in effect had an adjustment been made on the basis that the only shares of Common Stock so issued or sold were issued or sold upon the conversion of exchange of such Convertible Securities. 7.3 RIGHTS AND OPTIONS. In case the Company shall grant any rights or options to subscribe for, purchase or otherwise acquire Common Stock, then the granting of such rights 5 or options shall be deemed to be an issue or sale (as of the date of the granting of such rights or options) of such maximum number of shares of Common Stock issuable upon exercise of such rights or options, provided that, if such rights or options shall by their terms provide for an increase or increases, with the passage of time, in the number of shares issuable by the Company upon the exercise thereof, the number of shares of Common Stock deemed issued upon such grant shall, forthwith upon any such increase becoming effective, be readjusted to reflect the same, and provided, further, that upon the expiration of such rights or options, if any thereof shall not have been exercised, the adjusted Purchase Price per share and the number of shares issuable upon exercise of this Warrant and the B-2 Warrant shall forthwith be readjusted and thereafter be the price which it would have been had an adjustment been made on the basis that the only shares of Common Stock so issued or sold were those issued or sold upon the exercise of such rights or options. 8. CONVERSION LIMITATION. In order to comply with rules of the American Stock Exchange relating to shareholder approval of a transaction by an issuer other than in a public offering, this Warrant together with the Shares and Warrant Shares issued pursuant to the Subscription Agreement shall not be exercisable into the number of shares of Common Stock that, in the aggregate, would result in the issuance of more than 19.9% of the shares of Common Stock outstanding immediately prior to the transaction contemplated by the Subscription Agreement (the "Conversion Limitation") until such time as the Company receives shareholder approval of the transaction (the "Approval"). The Company agrees to seek the Approval after December 12, 2003 but no later than January 20, 2004. The Company shall have received proxies from each of the executive officers and directors of the Company agreeing to vote in favor of the Approval. 9. FURTHER ASSURANCES. The Company will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares of stock upon the exercise of Warrant and the B-2 Warrant from time to time outstanding. 10. ACCOUNTANTS' CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable upon the exercise of this Warrant, the Company at its expense will promptly cause the Company's regularly retained auditor to compute such adjustment or readjustment in accordance with the terms of this 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, and the number of shares of Common Stock outstanding or deemed to be outstanding. The Company will forthwith mail a copy of each such certificate to the holder of this Warrant. 11. NOTICES OF RECORD DATE, ETC. In the event of (a) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend payable out of earned surplus of the Company) or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, or 6 (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any transfer of all or substantially all the assets of the Company to or consolidation or merger of the Company with or into any other person, or (c) any voluntary or involuntary dissolution, liquidation or winding-up of the Company, or (d) any proposed issue or grant by the Company of any shares of stock of any class or any other securities, or any right or option to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities (other than the issue of Common Stock on the exercise of this Warrant), then and in each such event the Company will mail or cause to be mailed to the holder of this Warrant a notice specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up is to take place, and the time, if any, as of which the holders of record of Common Stock (or Other Securities) shall be entitled to exchange their shares of Common Stock (or Other Securities) for securities or other property deliverable upon such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up, and (iii) the amount and character of any stock or other securities, or rights or options with respect thereto, proposed to be issued or granted, the date of such proposed issue or grant and the persons or class of persons to whom such proposed issue or grant and the persons or class of persons to whom such proposed issue or grant is to be offered or made. Such notice shall be mailed at least 20 days prior to the date therein specified. 12. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF WARRANTS. The Company will at all times reserve and keep available, solely for issuance and delivery upon the exercise of this Warrant, all shares of Common Stock (or Other Securities) from time to time issuable upon the exercise of this Warrant and the B-2 Warrant. 13. LISTING ON SECURITIES EXCHANGES, REGISTRATION. If the Company at any time after the Original Issue Date shall list any Common Stock on any national securities exchange and shall register such Common Stock under the Securities Exchange Act of 1934 (as then in effect, or any similar statute then in effect), the Company will, at its expense, simultaneously list on such exchange, upon official notice of issuance upon the exercise of this Warrant, and maintain such listing of all shares of Common Stock from time to time issuable upon the exercise of this Warrant, and the Company will so list on any national securities exchange, will so register and will maintain such listing of, any Other Securities if and at the time that any securities of like class or similar type shall be listed on such national securities exchange by the Company. 14. EXCHANGE OF WARRANTS. Subject to the provisions of section 2 hereof, upon surrender for exchange of this Warrant, properly endorsed, to the Company, the Company at its own expense will issue and deliver to or upon the order of the holder thereof a new Warrant of like tenor, in the name of such holder or as such holder (upon payment by such holder of any 7 applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face of this Warrant. 15. REPLACEMENT OF WARRANTS. Upon 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, upon delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, upon surrender and cancellation of this Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. 16. WARRANT AGENT. The Company may, by written notice to each holder of this Warrant, appoint an agent having an office in New York, New York, for the purpose of issuing Common Stock (or Other Securities) upon the exercise of this Warrant pursuant to section 3, exchanging this Warrant pursuant to section 14, and replacing this Warrant pursuant to section 14, 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 agent. 17. REMEDIES. The Company stipulates that the remedies at law of the holder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 18. NEGOTIABILITY, ETC. This Warrant is issued upon the following terms, to all of which each holder or owner hereof by the taking hereof consents and agrees: (a) subject to the provisions hereof, title to this Warrant may be transferred by endorsement (by the holder hereof executing the form of assignment at the end hereof) and delivery in the same manner as in the case of a negotiable instrument transferable by endorsement and delivery; (b) subject to the foregoing, any person in possession of this Warrant properly endorsed is authorized to represent himself as absolute owner hereof and is empowered to transfer absolute title hereto by endorsement and delivery hereof to a bona fide purchaser hereof for value, each prior taker or owner waives and renounces all of his equities or rights in this Warrant in favor of each such bona fide purchaser and each such bona fide purchaser shall acquire absolute title hereto and to all rights represented hereby, and (c) 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. 8 19. NOTICES, ETC. All notices and other communications from the Company to the holder of this Warrant shall be mailed by first class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company in writing by such holder, or, until an address is so furnished, to and at the address of the last holder of this Warrant who has so furnished an address to the Company. 20. 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 is being delivered in the State of New York and shall be construed and enforced in accordance with and governed by the laws of such State. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. 21. EXTENDED EXPIRATION. The right to exercise this Warrant shall expire at 5.00 P.M., New York City time , on February 15, 2004, provided, however, that if a registration statement has not been filed or declared effective providing for the registration of the shares of Common Stock issuable upon exercise of the B-2 Warrants prior to the expiration date of the right to exercise this Warrant, then the right to exercise this Warrant shall be extended and shall expire forty-five (45) days after the effective date of such registration statement. 22. ASSIGNABILITY. This Warrant is fully assignable at any time. 9 Dated: January 27, 2004 Provo International, Inc. f/k/a Frontline Communications Corporation By: /s/ Stephen J. Cole-Hatchard Name: Stephen J. Cole-Hatchard Title: CEO [Corporate Seal] Attest: /s/ Amy Wagner-Mele Secretary 10 FORM OF SUBSCRIPTION (To be signed only upon exercise of Warrant) To: Provo International, Inc. f/k/a Frontline Communications Corporation One Blue Hill Plaza, 7th Floor P.O. Box 1548 Pearl River, New York 10965 The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, * shares of Common Stock of Provo International, Inc. f/k/a Frontline Communications Corporation and herewith makes payment of $ _____ therefor, and requests that the certificates for such shares be issued in the name of, and delivered to, ________________________, whose address is ___________________________________. Dated: ----------------- (Signature must conform in all respects to name of holder as specified on the face of the Warrant) (Address) * Insert here the number of shares called for on the face of the Warrant (or, in the case of a partial exercise, the portion thereof as to which the Warrant is being exercised), in either case without making any adjustment for additional Common Stock or any other stock or other securities or property or cash which, pursuant to the adjustment provisions of the Warrant, may be deliverable upon exercise. 11 FORM OF ASSIGNMENT (To be signed only upon transfer of Warrant) For value received, the undersigned hereby sells, assigns and transfers unto ________________________________ the right represented by the within Warrant to purchase shares of Common Stock of Provo International, Inc. f/k/a Frontline Communications Corporation, which the within Warrant relates, and appoints _____________ as Attorney-in-Fact to transfer such right on the books of ___________________ with full power of substitution in the premises. The Warrant being transferred hereby is the Common Stock Purchase Warrant issued by Provo International, Inc. f/k/a Frontline Communications Corporation, as of November 25, 2003, and amended on January __, 2004. Dated: ----------------- (Signature must conform in all respects to name of holder as specified on the face of the Warrant) (Address) Signature guaranteed by a Bank or Trust Company having its principal office in New York City or by a Member Firm of the New York or American Stock Exchange 12 EX-10.49 19 v01635_ex10-49.txt EXHIBIT 10.49 THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER THE STATE SECURITIES LAWS AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED UNLESS EITHER (A) COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS, OR (B) THE CORPORATION HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION TO THE EFFECT THAT NO REGISTRATION OR QUALIFICATION IS LEGALLY REQUIRED FOR SUCH TRANSFER. Warrant No. A-1 Number of Shares: 750,000 Date of Issuance: As of November 25, 2003 Date of Amendment: As of January 27, 2004 Provo International, Inc. f/k/a Frontline Communications Corporation -------------------------------------------------------------------- Common Stock Purchase Warrant ----------------------------- (Void after November 25, 2006) Provo International, Inc. f/k/a Frontline Communications Corporation, a Delaware corporation (the "Company"), for value received, hereby certifies that Scarborough Ltd. (the "Registered Holder"), is entitled, subject to the terms set forth below, to purchase from the Company, at any time or from time to time on or after the date of issuance and on or before November 25, 2006, at not later than 5:00 p.m. EST, 750,000 shares of Common Stock (the "Common Stock") $0.01 par value per share, of the Company, at a purchase price of $0.01 per share. The shares purchasable upon exercise of this Warrant, and the purchase price per share, each as adjusted from time to time pursuant to the provisions of this Warrant, are hereinafter referred to as the "Warrant Shares" and the "Purchase Price," respectively. 1. Exercise; Issuance of Certificates. ----------------------------------- (a) Exercise. This Warrant may be exercised by the Registered Holder, in whole or in part, by surrendering this Warrant, with the purchase form appended hereto as Exhibit I duly executed by such Registered Holder or by such Registered Holder's duly authorized attorney, at the principal office of the Company, or at such other office or agency as the Company may designate, accompanied by payment in full, in lawful money of the United States, of the Purchase Price payable in respect of the number of Warrant Shares purchased upon such exercise. (b) Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the day on which this Warrant shall have been surrendered to the Company as provided in subsection 1(a) above (the "Exercise Date"). At such time, the person or persons in whose name or names any certificates for Warrant Shares shall be issuable upon such exercise as provided in subsection 1(c) below shall be deemed to have become the holder or holders of record of the Warrant Shares represented by such certificates. (c) As soon as practicable after the exercise of this Warrant in full or in part, the Company, at its expense, will cause to be issued in the name of, and delivered to, the Registered Holder, or as the Registered Holder (upon payment by the Registered Holder of any applicable transfer taxes) may direct but subject to Section 4 hereof: (i) a certificate or certificates for the number of full Warrant Shares to which the Registered Holder shall be entitled upon such exercise plus, in lieu of any fractional share to which such Registered Holder would otherwise be entitled, cash in an amount determined pursuant to Section 3 hereof; and (ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof) of like tenor, calling in the aggregate on the face or faces thereof for the number of Warrant Shares equal (without giving effect to any adjustment therein) to the number of Warrant Shares called for on the face of this Warrant minus the sum of the number of such shares purchased by the Registered Holder upon such exercise. 2. Adjustment of Purchase Price and Number of Warrant Shares. The Purchase Price and the number of Warrant Shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 2. (a) Subdivision or Combination of Stock. If outstanding shares of the Company's Common Stock shall be subdivided into a greater number of shares or a dividend in such stock shall be paid in respect of such stock, or any transaction having substantially similar effect shall have been consummated by the Company, the Purchase Price in effect immediately prior to such transaction shall not be proportionately reduced and the number of Warrant Shares purchasable upon the exercise of this Warrant shall not change from the number stated on the face of this Warrant. If outstanding shares of the Company's Common Stock shall be combined into a smaller number of shares, the Purchase Price in effect immediately prior to such combination shall not be proportionately increased and the number of Warrant Shares purchasable upon the exercise of this Warrant shall not change from the number stated on the face of this Warrant. (b) Reorganization, Reclassification, Consolidation, Merger or Sale. If there shall occur any capital reorganization or reclassification of the Company's Common Stock (other than a change in par value or a subdivision or combination), or any consolidation or merger of the Company with or into another corporation, or a transfer of all or substantially all of the assets of the Company, shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities, or other assets or property (an "Organic Change"), then, as part of such 2 Organic Change, lawful provision shall be made so that the Registered Holder of this Warrant shall have the right thereafter to receive upon the exercise hereof the kind and amount of shares of stock or other securities or property which such Registered Holder would have been entitled to receive if, immediately prior to such Organic Change such Registered Holder had held the number of shares of Common Stock which were then purchasable upon the exercise of this Warrant. In any such case, appropriate adjustment (as reasonably determined in good faith by the Board of Directors of the Company) shall be made in the application of the provisions set forth herein with respect to the rights and interests thereafter of the Registered Holder of this Warrant, such that the provisions set forth in this Section 2 shall thereafter be applicable, as nearly as is reasonably practicable, in relation to any shares of stock or other securities or property thereafter deliverable upon the exercise of this Warrant. (c) When any adjustment is required to be made in the Purchase Price or the number of Warrant Shares purchasable upon exercise of this Warrant, the Company shall promptly mail to the Registered Holder a certificate setting forth the Purchase Price or the number of Warrant Shares purchasable upon exercise of this Warrant after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Such certificate shall also set forth the kind and amount of stock or other securities or property into which this Warrant shall be exercisable following the occurrence of any of the events specified in subsection 2(b) above. 3. Fractional Shares. The Company shall not be required upon the exercise of this Warrant to issue any fractional shares, but shall make an adjustment therefor in cash on the basis of the fair market value per share of Common Stock. For purposes of the foregoing, fair market value of one share of Common Stock, shall be determined as follows: (i) If the Common Stock is listed on a national securities exchange, the American Stock Exchange, the Nasdaq National Market, the Nasdaq system, or another nationally recognized exchange or quotation system as of the Exercise Date, the fair market value per share of the Common Stock shall be deemed to be the last reported sale price per share of the Common Stock on the Exercise Date, or, if no such price is reported on such date, such price on the next preceding business day (provided that if no such price is reported on the next preceding business day, the fair market value per share shall be determined pursuant to clause (ii)). (ii) If the Common Stock is not listed on a national securities exchange, the American Stock Exchange, the Nasdaq National Market, the Nasdaq System, or another nationally recognized exchange or quotation system on the Exercise Date, the fair market value per share shall be determined by the Company's Board of Directors in good faith. 4. Requirements for Transfer. (a) This Warrant and the Warrant Shares shall not be sold or transferred unless either (i) they first shall have been registered under the Securities Act of 1933, as amended (the "Act"), and any applicable state securities laws, or (ii) the Company first shall have been furnished with an opinion of legal counsel, reasonably satisfactory to the Company, to the effect that such sale or transfer is exempt from the registration requirements of the Act and any applicable state securities laws. 3 (b) Each certificate representing this Warrant or Warrant Shares shall bear a legend substantially in the following form: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER STATE SECURITIES LAWS AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS EITHER (A) COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS OR (B) THE CORPORATION HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION TO THE EFFECT THAT NO REGISTRATION OR QUALIFICATION IS LEGALLY REQUIRED FOR SUCH TRANSFER." The foregoing legend shall be removed from the certificates representing any Warrants or Warrant Shares, at the request of the holder thereof, at such time as they become eligible for resale pursuant to Rule 144(k) under the Act. 5. No Voting or Dividend Rights. Nothing contained in this Warrant shall be construed as conferring upon the Registered Holder the right to vote or to consent or to receive notice as a stockholder of the Company or any other matters or any rights whatsoever as a stockholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the Warrant Shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised. Until the exercise of this Warrant, the Registered Holder shall not have or exercise any rights by virtue hereof as a stockholder of the Company. 6. Notices of Record Date, etc. In case: (a) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving entity), or any transfer of all or substantially all of the assets of the Company; or (b) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, then, and in each such case, the Company will mail or cause to be mailed to the Registered Holder of this Warrant a notice specifying, as the case may be, (i) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record 4 of Common Stock (or such other stock or securities at the time deliverable upon the exercise of this Warrant) shall be entitled to exchange their shares of Common Stock (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up. Such notice shall be mailed at least ten (10) days prior to the record date or effective date for the event specified in such notice. 7. Reservation of Stock. The Company will at all times reserve and keep available, solely for issuance and delivery upon the exercise of this Warrant, such number of Warrant Shares and other stock, securities and property, as from time to time shall be issuable upon the exercise of this Warrant. 8. Exchange of Warrants. Upon the surrender by the Registered Holder of any Warrant or Warrants, properly endorsed, to the Company at the principal office of the Company, the Company will, subject to the provisions of Section 4 hereof, issue and deliver to or upon the order of such Registered Holder, at the Company's expense, a new Warrant or Warrants of like tenor, in the name of such Registered Holder or as such Registered Holder (upon payment by such Registered Holder of any applicable transfer taxes) may direct, 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 or Warrants so surrendered. 9. Lost Warrants. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with surety in an amount reasonably satisfactory to the Company if requested by the Company), or (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor. 10. Transfers, etc. (a) The Company will maintain a register containing the names and addresses of the Registered Holders of this Warrant. Any Registered Holder may change its address as shown on the warrant register by written notice to the Company requesting such change. (b) Subject to the provisions of Section 4 hereof, this Warrant and all rights hereunder are transferable, in whole or in part, upon surrender of this Warrant with a properly executed assignment (in the form of Exhibit II hereto) at the principal office of the Company. (c) Until any transfer of this Warrant is made in the warrant register, the Company may treat the Registered Holder of this Warrant as the absolute owner hereof for all purposes; provided, however, that if and when this Warrant is properly assigned in blank, the Company may (but shall not be obligated to) treat the bearer hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. 11. Mailing of Notices, etc. All notices and other communications from the Company to the Registered Holder of this Warrant shall be mailed by first-class certified or registered mail, postage prepaid, to the address furnished to the Company in writing by the last Registered Holder of this Warrant who shall have furnished an address to the Company in writing. All notices and other communications from the Registered Holder of this Warrant or in connection 5 herewith to the Company shall be mailed by first-class certified or registered mail, postage prepaid, to the Company at its principal office set forth below. If the Company should at any time change the location of its principal office to a place other than as set forth below, it shall give prompt written notice to the Registered Holder of this Warrant and thereafter all references in this Warrant to the location of its principal office at the particular time shall be as so specified in such notice. 12. Change or Waiver. Any term of this Warrant may be changed or waived only by an instrument in writing signed by the party against which enforcement of the change or waiver is sought. 13. Headings. The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning of any provision of this Warrant. 14. Governing Law. This Warrant will be governed by and construed in accordance with the corporate laws of the State of New York. IN WITNESS WHEREOF, the Company has caused this amended Warrant to be duly executed by its officer thereunto duly authorized. PROVO INTERNATIONAL, INC. f/k/a FRONTLINE COMMUNICATIONS CORPORATION /s/ Stephen J. Cole-Hatchard By: Stephen J. Cole-Hatchard Title: CEO [Corporate Seal] ATTEST: _________________________ [ Amy Wagner-Mele ] [ Secretary ] Address of principal office: One Blue Hill Plaza, 7th Floor P.O. Box 1548 Pearl River, New York 10965 (SIGNATURE PAGE TO COMMON STOCK PURCHASE WARRANT) 6 EXHIBIT I --------- PURCHASE FORM To: Provo International, Inc. f/k/a Frontline Communications Corporation Dated:______________ The undersigned, pursuant to the provisions set forth in the attached Warrant (No. A-1), hereby irrevocably elects to purchase ________ shares of Common Stock covered by such Warrant. The undersigned herewith makes payment of $____________, in lawful money of the United States, representing the full purchase price for such shares at the price per share provided for in such Warrant. Signature: _______________________________ 7 EXHIBIT II ---------- ASSIGNMENT FORM FOR VALUE RECEIVED, ________________________________________hereby sells, assigns and transfers all of the rights of the undersigned under the attached Warrant (No. A-1) with respect to the number of shares of Common Stock covered thereby set forth below, unto: Name of Assignee Address No. of Shares - ---------------- ------- ------------- Dated:_________________________ Signature:______________________________ Dated:_________________________ Witness:________________________________ 8 EX-10.50 20 v01635_ex10-50.txt EXHIBIT 10.50 THIS REGISTRATION RIGHTS AGREEMENT dated as of January 27, 2004, between PROVO INTERNATIONAL, INC. f/k/a FRONTLINE COMMUNICATIONS CORPORATION, a Delaware corporation (the "Company"), and IIG EQUITY OPPORTUNITIES FUND LTD., a Bermuda company (the "Lender"). Recitals WHEREAS, pursuant to the Term Loan and Security Agreement dated as of April 3, 2003 (as amended, modified, restated and supplemented from time to time, the "Loan Agreement") among the Company, Proyecciones Y Ventas Organizadas, S.A. de C.V., a Mexico corporation ("Provo" together with the Company, each a "Borrower" and collectively, "Borrowers"), and the Lender, the Borrowers and the Lender have agreed that the Payoff Amount shall be paid in full on the Payoff Date as follows: (a) $226,453.64 in cash (the "Cash Amount") and (b) $125,000 shall be converted into 500,000 shares of Common Stock of Frontline (the "Conversion Shares") at a conversion price of $.25 per share; and WHEREAS, the Company wishes to grant registration rights to the Lender for the Conversion Shares as more fully set forth herein. NOW, THEREFORE, in consideration of the mutual promises and covenants hereinafter set forth, the parties hereby agree as follows: Section 1. Certain Definitions. Capitalized terms used in this Agreement and not defined herein shall have the meanings ascribed to them in the Loan Agreement. As used in this Agreement, the following terms shall have the following respective meanings: "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "Common Stock" shall mean the common stock of the Company, par value $.01 per share, and any other securities issued in respect of Common Stock upon any stock split, stock dividend, recapitalization, merger, consolidation, share exchange or similar event. "NASD" means the National Association of Securities Dealers, Inc. "Payoff Amount" has the meaning given to such term in the Loan Agreement. "Payoff Date" has the meaning given to such term in the Loan Agreement. "Person" means any individual, any foreign or domestic corporation, general partnership, limited partnership, limited liability company, firm, joint venture, association, NY310304.2 20440310002 02/16/2004 mn individual retirement account, joint stock company, trust, estate, unincorporated organization, governmental or regulatory body or other entity. "Registrable Securities" shall mean (a) the Conversion Shares, and (b) any shares of Common Stock of the Company issued as (or issuable upon conversion or exercise of any warrant, right or other security which is as issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, such above-described securities, provided, however, that securities shall be treated as Registrable Securities only if and only for so long as they are held by a Securities Holder or a permitted transferee pursuant to the terms hereof, and (i) they have not been disposed of pursuant to a registration statement declared effective by the Commission, (ii) they have not been sold in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act, so that all transfer restrictions and restrictive legends with respect thereto are removed upon the consummation of such sale, or (iii) the registration rights as to the Holder of such Registrable Securities have not expired. The terms "register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement. "Securities" means "securities" as defined in Section 2(1) of the Securities Act and includes capital stock or other equity interests or any options, warrants or other securities that are directly or indirectly convertible into, or exercisable or exchangeable for, capital stock or other equity interests. "Securities Act" shall mean the Securities Act of 1933, as amended, or any successor federal statute and the rules and regulations of the Commission thereunder, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Securities Holder" shall mean the Lender and any Person holding Registrable Securities to whom the rights under this Agreement have been transferred. Section 2. Registration Rights. 2.1 Automatic Registration. The Company hereby agrees with the Securities Holders that no later than thirty (30) calendar days following the date hereof, the Company shall prepare and file a registration statement under the Securities Act with the SEC covering the Registrable Securities, and the Company will use its best efforts to cause such registration to become effective as promptly as practicable and within ninety (90) days thereafter. If (i) a registration statement covering applicable Registrable Securities is not filed on or before thirty (30) calendar days following the date hereof, or (ii) a registration statement covering applicable Registrable Securities is not declared effective by the SEC on or before the date ninety (90) days thereafter (any such failure or breach being referred to as an "Event," and the date on which such Event occurs being referred to as an "Event Date"), then, in any such case, as partial relief for the damages suffered therefrom by the Securities Holders (which remedy shall not be exclusive of any other remedies available at law or in equity), the Company shall, on the Event Date and on the first day of each month following the Event Date until the triggering Event is cured, pay to each Securities Holder an aggregate amount, in cash, as liquidated damages and not as a penalty, NY310304.2 20440310002 02/16/2004 mn 2 equal to an amount equal to two percent (2%) (the "Applicable Percentage") of $185,000, which is the aggregate fair market value of the Registrable Securities on the date hereof (the "Share Market Value") (calculated as $3,700) (the "Liquidated Damages"). The Liquidated Damages shall be payable for each month, or prorated for each portion thereof, that an Event has occurred and is continuing. In addition, for each month, or portion thereof, after the first month that Liquidated Damages are required to be paid hereunder, the Applicable Percentage shall be increased by one percentage point (for example, Liquidated Damages shall equal 2% of the Share Market Value for the first month following an Event Date, 3% of the Share Market Value for the next month, and so on until the Event has been cured). The payments to which a Securities Holder shall be entitled pursuant to this Section are referred to herein as "Registration Delay Payments." Registration Delay Payments shall be calculated on a cumulative basis. If the Company fails to make Registration Delay Payments in a timely manner, such Registration Delay Payments shall bear interest at the rate of 2.0% per month (or the maximum rate permitted by law), pro-rated for partial months, until paid in full. The obligation of the Company under this Section 2.1 shall be limited to one registration statement and shall not apply to any Registrable Securities that at such time are eligible for immediate resale pursuant to Rule 144(k) under the Securities Act. 2.2 "Piggyback" Registration Rights. At any time commencing six months after the date hereof, if the Company shall determine to proceed with the actual preparation and filing of a registration statement under the Securities Act in connection with the proposed offer and sale of any of its securities by it or any of its security holders (other than a registration statement on Form S-4, S-8 or other limited purpose form), the Company will give written notice of its determination to all Securities Holders of record. Upon the written request from any such holders (the "Requesting Holders"), within 15 days after receipt of any such notice from the Company, the Company will, except as herein provided, cause all such Registrable Securities to be included in such registration statement, all to the extent requisite to permit the sale or other disposition by the prospective seller or sellers of the Registrable Securities to be so registered; provided, further, that nothing herein shall prevent the Company from, at any time, abandoning or delaying any registration. If any registration pursuant to this Section 2.2 shall be underwritten in whole or in part, the Company may require that the Registrable Securities requested for inclusion pursuant to this Section 2.2 be included in the underwriting on the same terms and conditions as the securities otherwise being sold through the underwriters. In such event, the Requesting Holders shall, if requested by the underwriters, execute an underwriting agreement containing customary representations and warranties by selling stockholders and a lock-up on shares not being sold. If in the good faith judgment of the managing underwriter of such public offering the inclusion of all of the Registrable Securities originally covered by a request for registration (the "Requested Stock") would reduce the number of shares to be offered by the Company or interfere with the successful marketing of the shares of stock or other securities offered by the Company, the number of shares of Requested Stock otherwise to be included in the underwritten public offering may be reduced pro rata (by number of shares) among the holders thereof requesting such registration or excluded in their entirety if so required by the underwriter. To the extent only a portion of the Requested Stock is included in the underwritten public offering, those shares of Requested Stock which are thus excluded from the underwritten public offering shall be withheld from the market by the holders thereof for a period, not to NY310304.2 20440310002 02/16/2004 mn 3 exceed 90 days, which the managing underwriter reasonably determines is necessary in order to effect the underwritten public offering. The obligation of the Company under this Section 2.2 shall not apply to Registrable Securities that at such time are eligible for immediate resale pursuant to Rule 144(k) under the Securities Act. 2.3 Form S-3 Registration. In case the Company shall be obligated to effect a registration pursuant to the terms hereunder, the Company shall use its best efforts to effect such registration on Form S-3, or any successor SEC short-form registration statement with respect to the Registrable Securities, if Form S-3 is available for such offering by the Securities Holders under applicable federal securities laws. 2.4 Registration Procedures. To the extent required by Section 2.1, Section 2.2 and Section 2.3 the Company will: (a) prepare and file with the SEC a registration statement with respect to such securities, and use its best efforts to cause such registration statement to become and remain effective; (b) prepare and file with the SEC such amendments to such registration statement and supplements to the prospectus contained therein as may be necessary to keep such registration statement effective; (c) furnish to the Securities Holders participating in such registration and to the underwriters of the securities being registered such reasonable number of copies of the registration statement, preliminary prospectus, final prospectus and such other documents as such underwriters may reasonably request in order to facilitate the public offering of such securities; (d) use its best efforts to register or qualify the securities covered by such registration statement under such state securities or blue sky laws of such jurisdictions as the Securities Holders may reasonably request in writing within 20 days following the original filing of such registration statement, except that the Company shall not for any purpose be required to execute a general consent to service of process or to qualify to do business as a foreign corporation in any jurisdiction wherein it is not so qualified; (e) notify the Securities Holders, promptly after it shall receive notice thereof, of the time when such registration statement has become effective or a supplement to any prospectus forming a part of such registration statement has been filed; (f) notify the Securities Holders promptly of any request by the SEC for the amending or supplementing of such registration statement or prospectus or for additional information; (g) prepare and file with the SEC, promptly upon the request of any Securities Holders, any amendments or supplements to such registration statement or prospectus which, in the opinion of counsel for such Securities Holders (and concurred in by counsel for the NY310304.2 20440310002 02/16/2004 mn 4 Company), is required under the Securities Act or the rules and regulations thereunder in connection with the distribution of Common Stock by such Securities Holders; (h) prepare and promptly file with the SEC and promptly notify such Securities Holders of the filing of such amendment or supplement to such registration statement or prospectus as may be necessary to correct any statements or omissions if, at the time when a prospectus relating to such securities is required to be delivered under the Securities Act, any event shall have occurred as the result of which any such prospectus or any other prospectus as then in effect would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading; and (i) advise the Securities Holders, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the SEC suspending the effectiveness of such registration statement or the initiation or threatening of any proceeding for that purpose and promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued. (j) The Securities Holders shall cooperate with the Company in providing the information necessary to effect the registration of their Registrable Shares, including completion of customary questionnaires. 2.5 Expenses. --------- (a) With respect to the registration required pursuant to Sections 2.1 and 2.2 hereof, all fees, costs and expenses of and incidental to such registration, inclusion and public offering (as specified in paragraph (b) below) in connection therewith shall be borne by the Company. (b) The fees, costs and expenses of registration to be borne by the Company as provided in paragraph (a) above shall include, without limitation, all registration, filing, and NASD fees, printing expenses, fees and disbursements of counsel and accountants for the Company, and all legal fees and disbursements and other expenses of complying with state securities or blue sky laws of any jurisdictions in which the securities to be offered are to be registered and qualified. The Company shall be responsible for fees and disbursements of counsel and accountants for the Securities Holders and any other expenses incurred by the Securities Holders not expressly included above up to $5,000. 2.6 Indemnification. ---------------- (a) The Company will indemnify and hold harmless each Securities Holder of Registrable Securities which are included in a registration statement pursuant to the provisions of Section 2.1 or Section 2.2 hereof, its directors and officers, and any underwriter (as defined in the Securities Act) for such Securities Holders and each person, if any, who controls such Securities Holders or such underwriter within the meaning of the Securities Act, from and against, and will reimburse such Securities Holders and each such underwriter and controlling person with respect to, any and all loss, damage, liability, cost and expense to which such Securities Holders or any such underwriter or controlling person may become subject under the NY310304.2 20440310002 02/16/2004 mn 5 Securities Act or otherwise, insofar as such losses, damages, liabilities, costs or expenses are caused by any untrue statement or alleged untrue statement of any material fact contained in such registration statement, any prospectus contained therein or any amendment or supplement thereto, 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, in light of the circumstances in which they were made, not misleading; provided, however, that the Company will not be liable in any such case to the extent that any such loss, damage, liability, cost or expenses 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 or on behalf of such Securities Holders, such underwriter or such controlling person in writing specifically for use in the preparation thereof. (b) Each Securities Holders of Registrable Securities included in a registration pursuant to the provisions of Section 2.1 or Section 2.2 hereof will indemnify and hold harmless the Company, its directors and officers, any controlling person and any underwriter from and against, and will reimburse the Company, its directors and officers, any controlling person and any underwriter with respect to, any and all loss, damage, liability, cost or expense to which the Company or any controlling person and/or any underwriter may become subject under the Securities Act or otherwise, insofar as such losses, damages, liabilities, costs or expenses are caused by any untrue statement or alleged untrue statement of any material fact contained in such registration statement, any prospectus contained therein or any amendment or supplement thereto, 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, in light of the circumstances in which they were made, not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was so made in conformity with written information furnished by or on behalf of such Securities Holders specifically for use in the preparation thereof; provided however, that the total amounts payable in indemnity by the Securities Holders under this Section 2.6 shall not exceed the net proceeds received by the Securities Holders in the registered offering out of which such all loss, damage, liability, cost and expense arises. (c) Promptly after receipt by an indemnified party pursuant to the provisions of paragraph (a) or (b) of this Section 2.6 of notice of the commencement of any action involving the subject matter of the foregoing indemnity provisions such indemnified party will, if a claim thereof is to be made against the indemnifying party pursuant to the provisions of said paragraph (a) or (b), promptly notify the indemnifying party of the commencement thereof; but the omission to so notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party hereunder, except to the extent that the indemnifying party is actually prejudiced thereby. In case such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party shall have the right to participate in, and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party, provided, however, if counsel for the indemnifying party concludes that a single counsel cannot under applicable legal and ethical considerations, represent both the indemnifying party and the indemnified party, the indemnified party or parties have the right to select separate counsel to participate in the defense of such action on behalf of such indemnified party or parties. After notice from the indemnifying party to such indemnified party of its NY310304.2 20440310002 02/16/2004 mn 6 election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party pursuant to the provisions of said paragraph (a) or (b) for any legal or other expense subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation, unless (i) the indemnified party shall have employed counsel in accordance with the provisions of the preceding sentence, (ii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after the notice of the commencement of the action or (iii) the indemnifying party has, in its sole discretion, authorized the employment of counsel for the indemnified party at the expense of the indemnifying party. Section 3. Miscellaneous. -------------- 3.1 GOVERNING LAW. -------------- (a) ALL QUESTIONS CONCERNING THE CONSTRUCTION, INTERPRETATION AND VALIDITY OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER IN THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK. (b) THE PARTIES TO THIS AGREEMENT AGREE THAT JURISDICTION AND VENUE IN ANY ACTION BROUGHT BY ANY PARTY HERETO PURSUANT TO THIS AGREEMENT MAY BE BROUGHT IN ANY FEDERAL OR STATE COURT LOCATED IN THE STATE OF NEW YORK. BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE PARTIES HERETO IRREVOCABLY SUBMIT TO THE JURISDICTION OF SUCH COURTS FOR THEMSELVES AND IN RESPECT OF THEIR PROPERTY WITH RESPECT TO SUCH ACTION. THE PARTIES HERETO IRREVOCABLY AGREE THAT VENUE WOULD BE PROPER IN SUCH COURT, AND HEREBY WAIVE ANY OBJECTION THAT SUCH COURT IS AN IMPROPER OR INCONVENIENT FORUM FOR THE RESOLUTION OF SUCH ACTION. (c) THE COMPANY HEREBY AGREES THAT SERVICE UPON THEM BY REGISTERED OR CERTIFIED MAIL (RETURN RECEIPT REQUESTED) SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE LENDERS TO BRING PROCEEDINGS AGAINST THE COMPANY IN THE COURTS OF ANY OTHER JURISDICTION. (d) BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM NY310304.2 20440310002 02/16/2004 mn 7 AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT, THE NOTE DOCUMENTS OR ANY DOCUMENTS RELATED THERETO. 3.2 Successor and Assigns. ---------------------- Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto, except that the Company shall not assign its rights or obligations hereunder without the consent of the Securities Holders of a majority in interest of the aggregate of the then outstanding Registrable Securities, except in the event of a merger or a sale of all or substantially all of the Company's assts. 3.3 Effectiveness. -------------- This Agreement shall be effective upon the date first set forth above. 3.4 Adjustments for Stock Splits, Etc. ---------------------------------- Wherever in this Agreement there is a reference to a specific number of Conversion Shares or Registrable Securities of the Company of any class or series, then, upon the occurrence of any subdivision, combination or stock dividend of such class or series of stock, the specific number of shares so referenced in this Agreement shall automatically be proportionally adjusted to reflect the effect on the outstanding shares of such class or series of stock by such subdivision, combination or stock dividend. 3.5 Remedies. In the event of a breach by the Company or by a Securities Holder, of any of their obligations under this Agreement, the Securities Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and the Securities Holder agree that monetary damages, including the Liquidated Damages provided in Section 2.1 herein, would not provide adequate and full compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. 3.6 Entire Agreement; Amendment. ---------------------------- (a) This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subject hereof. (b) Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought; provided, however, that any provisions hereof may be amended, waived, NY310304.2 20440310002 02/16/2004 mn 8 discharged or terminated upon the written consent of the Company and the Securities Holders of a majority in interest of the aggregate of the then outstanding Registrable Securities; and provided, further, notwithstanding anything to the contrary in this Agreement that any such amendment, waiver, discharge or termination that would adversely affect the material rights hereunder of any Securities Holder, in its capacity as such, without similarly affecting the rights hereunder of all of the Securities Holders may not be made without the prior written consent of such adversely affected Securities Holder. 3.7 Notices, Etc. ------------- All notices, demands and requests of any kind to be delivered to any party hereto in connection with this Agreement shall be (a) delivered personally, (b) sent by nationally-recognized overnight courier, (c) sent by first class, registered or certified mail, return receipt requested or (d) sent by facsimile, in each case to such party at its address as follows: (i) if to the Company, to: Frontline Communications Corporation One Blue Hill Plaza P.O. Box 1548 Pearl River, New York 10965 Attention: Stephen Cole-Hatchard Telephone No.: 845-623-8553 Telecopier No.: 845-623-8669 if to the Lender, to: IIG Equity Opportunities Fund Ltd. 1500 Broadway, 17th Floor New York, New York 10036 Attention: George Sandhu Telephone: 212-806-5100 Telecopier: 212-806-5199 Any notice, demand or request so delivered shall constitute valid notice under this Agreement and shall be deemed to have been received (A) on the day of actual delivery in the case of personal delivery, (B) on the next Business Day after the date when sent in the case of delivery by nationally-recognized overnight courier, (C) on the fifth Business Day after the date of deposit in the U.S. mail in the case of mailing or (D) upon receipt in the case of a facsimile transmission. Any party hereto may from time to time by notice in writing served upon the other as aforesaid designate a different mailing address or a different person to which all such notices, demands or requests thereafter are to be addressed. 3.8 Delays or Omissions. -------------------- Except as expressly provided herein, no delay or omission to exercise any right, power or remedy accruing to any party upon any breach or default of another party under this Agreement shall impair any such right, power or remedy of such party that is not in breach or default nor shall it be construed to be a waiver of any such breach or NY310304.2 20440310002 02/16/2004 mn 9 default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative. 3.9 Severability. ------------- In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party. 3.10 Titles and Subtitles. --------------------- The titles and subtitles used in this Agreement are used for convenience only and are not considered in construing or interpreting this Agreement. 3.11 Gender. ------- As used herein, masculine pronouns shall include the feminine and neuter, and neuter pronouns shall include the masculine and the feminine. 3.12 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] NY310304.2 20440310002 02/16/2004 mn 10 IN WITNESS WHEREOF, the undersigned or each of their respective duly authorized officers or representatives have executed this agreement effective upon the date first set forth above. PROVO INTERNATIONAL, INC. By: /s/ Stephen J. Cole-Hatchard ------------------------------ Stephen J. Cole-Hatchard Chief Executive Officer IIG EQUITY OPPORTUNITIES FUND LTD. By: /s/ George Sandhu Name: George Sandhu Title: NY310304.2 20440310002 02/16/2004 mn 11 REGISTRATION RIGHTS AGREEMENT BETWEEN PROVO INTERNATIONAL, INC. F/K/A FRONTLINE COMMUNICATIONS CORPORATION AND IIG EQUITY OPPORTUNITIES FUND LTD. JANUARY ___, 2004 NY310304.2 20440310002 02/16/2004 mn TABLE OF CONTENTS -----------------
PAGE ---- Section 1. Certain Definitions............................................1 Section 2. Registration Rights............................................2 2.1 Automatic Registration.........................................2 2.2 "Piggyback" Registration Rights................................3 2.3 Form S-3 Registration..........................................4 2.4 Registration Procedures........................................4 2.5 Expenses.......................................................5 2.6 Indemnification................................................5 Section 3. Miscellaneous..................................................7 3.1 GOVERNING LAW..................................................7 3.2 Successor and Assigns..........................................8 3.3 Effectiveness..................................................8 3.4 Adjustments for Stock Splits, Etc..............................8 3.5 Remedies.......................................................8 3.6 Entire Agreement; Amendment....................................8 3.7 Notices, Etc...................................................9 3.8 Delays or Omissions............................................9 3.9 Severability..................................................10 3.10 Titles and Subtitles..........................................10 3.11 Gender........................................................10 3.12 Counterparts..................................................10
NY310304.2 20440310002 02/16/2004 mn i EX-21.1 21 v01635_ex21-1.txt Exhibit 21.1 Subsidiaries of Frontline Communications Corporation - ---------------------------------------------------- Name Jurisdiction ---- ------------ WOW Factor, Inc. New Jersey CLEC Communications Corporation. Delaware FNT Communications Corporation New York Proyecciones y Ventas Organizadas S.A. de C.V Mexico EX-23.1 22 v01635_ex23-1.txt EXHIBIT 23.1 INDEPENDENT AUDITOR'S CONSENT To the Board of Directors Provo International, Inc. (formerly Frontline Communications Corporation) We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement of Frontline Communications Corporation on this Form S-3 of our report dated February 20, 2003, except for Note 10, as to which the date is April 3, 2003, on the consolidated financial statements of Frontline Communications Corporation as of December 31, 2002 and for each of the two years in the period then ended appearing in the annual report on Form 10-KSB of Frontline Communications Corporation for the year ended December 31, 2002. We also consent to the reference of our firm under the caption "Experts" contained in such Registration Statement. GOLDSTEIN GOLUB KESSLER LLP New York, New York February 17, 2004 EX-23.2 23 ex-23_2.txt Exhibit 23.2 The Board of Directors Provo International, Inc. We hereby consent to the incorporation by reference in the Prospectus constituting a part of this Registration Statement of our report dated May 30, 2003, except for note 11, which is dated June 2, 2003, relating to the financial statements of Proyecciones y Ventas Organizadas, S. A. de C. V. appearing in the Current Report on Form 8-K/A filed by Frontline Communications Corporation on June 18, 2003. We also consent to the reference to us under the caption "Experts" in the Prospectus. /s/ Hernandez Marron y Cia., S.C. Mexico City, Mexico February 17, 2004 -----END PRIVACY-ENHANCED MESSAGE-----