**EXHIBIT 10.1**

 

***Confidential***

 

 

**iVOW, Inc.**

 

**SUBSCRIPTION AGREEMENT**

 

Dated as of May          ,2005

 

**Name of Subscriber:**

**Address of Subscriber:**

 

**Facsimile Number:**

**Telephone Number:**

**E-Mail Address:**

**Tax ID Number of Subscriber:**

 

**TO:****        ****iVOW, Inc., a Delaware Corporation** (the “Company”).

 

**SUBSCRIPTION TO PURCHASE,** units (a “Unit” or the “Units”) consisting of shares ofCommon Stock, $0.01 par value per share, and warrants (the “Common StockWarrants”) exercisable for the purchase of shares of Common Stock of the Company,on the terms and conditions set forth on Exhibit A hereto.  EachUnit consists of one share of Common Stock and a Common Stock Warrant topurchase one share of Common Stock of the Company. The Common Stock and theCommon Stock Warrants, and the shares of Common Stock issuable upon theexercise of the Common Stock Warrants, are collectively referred to herein asthe “Securities”.  The initialclosing (the “Initial Closing”) of the offering will occur aftersubscriptions for at least $2.0 million (the “Minimum Offering Amount”) havebeen received and the funds representing the Minimum Offering Amount have beenplaced into an escrow account.  TheInitial Closing shall consist of that number of Units that represent no morethan 19.9% of the outstanding voting power of the Company as defined in Rule 4350(i) ofthe Nasdaq Stock Market.  The finalclosing (the “Final Closing”) will take

 

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place for the remaining offering amount held in the escrow account within5 days of Stockholder Approval for the offering.

 

**Price Per Unit:****   **$0.30 per Unit

 

**Subscription Amount:**  $                   (the “Subscription Amount”) delivered herewith (as provided by paragraph“A” below).

 

**The undersigned Subscriber herebyirrevocably subscribes****for,** and agrees to purchase, the Securities, at theSubscription Amount (this “Subscription”), in accordance with andsubject to the terms, provisions and conditions set forth herein and theexhibits hereto.  When this SubscriptionAgreement is completed, signed and returned, with payment, by the undersignedSubscriber, and accepted by the Company, the Subscriber will become entitled toall of its benefits and subject to all of the obligations, restrictions andlimitations set forth herein and in the exhibits hereto.

 

The Subscriber understands thatthis Subscription is an irrevocable offer to purchase the Securities and may beaccepted or rejected in whole or in part for any reason whatsoever by theCompany, at any time on or prior to June 15, 2005, unless otherwiseextended by the Placement Agent (as defined herein) and the Company (but in noevent later than June 30, 2005).

 

This Subscription is subject to theCompany’s receipt, at the Initial Closing, of executed Subscription Agreementsthat have been accepted by the Company to purchase Units with aggregate grossproceeds to the Company in an amount equal to at least $2,000,000.

 

This Subscription is subject to theCompany’s execution of a definitive voting agreement with the holders of morethan 50% of the Company’s outstanding shares of Common Stock and PreferredStock, providing that such holders shall vote in favor of approval of theissuance of the shares of Common Stock and the shares of Common Stock issuableupon the exercise of the Common Stock Warrants.

 

**A.****           ****Payment****.**  In connection with this SubscriptionAgreement and subject to acceptance by the Company, the Subscriber herebydelivers the Subscription Amount.  TheSubscription Amount will be held in a separate escrow fund pending the Company’sacceptance or rejection of this Subscription. If the Company rejects this Subscription, the Subscription Amount shallbe returned in full without interest; and the Subscriber shall have no furtherrights or obligations under or in respect of this Subscription.  **See Exhibit Bfor payment instruction.**

 

**B.****           ****Representations and Warranties****.**    In connection with this Subscription, the Subscriberhereby represents and warrants to, agrees with the Company, acknowledges andconfirms as follows:

 

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(1)           The Securities being subscribed for by theSubscriber will be purchased for the account of the Subscriber for investmentonly and not with a view to, nor with any intention of, a distribution orresale thereof, in whole or in part, or the grant of any participationtherein.  The Subscriber has no agreementor other arrangement with any other person to sell, transfer, or pledge anypart of the Securities or any agreement or arrangement that would guarantee theSubscriber any profit or against any loss with respect to such Securities, andthe Subscriber has no plans to enter into any such agreement orarrangement.  The Subscriber acknowledgesand confirms that it understands that the Securities, and those securitiesissuable upon exercise or conversion of the Securities, as the case may be,have not been registered under the Securities Act of 1933, as amended (the “SecuritiesAct”), and the rules and regulations promulgated thereunder, or thesecurities laws of any state or other jurisdiction, and cannot be disposed ofunless subsequently registered under the Securities Act and any applicable lawsof states or other jurisdictions or an exemption from such registration isavailable.

 

(2)           The Securities arebeing offered and sold by the Company under an exemption from registrationprovided by the Securities Act and the rules and regulations promulgatedthereunder in reliance, in good faith, upon the representations and warrantiesof the Subscriber contained herein.

 

(3)           The Subscriber:

 

(A) has been furnished a copy of the Company’s confidential offering package dated May 25, 2005 (the “PPM”);

 

(B) has carefully read, has carefully considered and fully understands the provisions of:

 

(i) the PPM (including, without limitation, the terms of this offering and the Securities offered by the Company as described in the “OFFERING” section of the PPM and the materials under the “RISK FACTORS” section of the PPM);

 

(ii) all documents and information included as exhibits, or incorporated in the PPM by reference, including but not limited to the filings and information made by the Company under the Exchange Act (as defined in the PPM); and

 

(iii) this Subscription Agreement (and the exhibits and annexes hereto).

 

(C) has been given sufficient access and opportunity to:

 

(i) examine all material books and records, and material contracts and documents of the Company and such other information and documents as the Subscriber has requested; and

 

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(ii) ask questions of the Company and its management, and, if the Subscriber asked questions of the Company or its management, has received satisfactory answers.

 

(D) represents and warrants that in making the decision to invest in the Securities, the Subscriber has relied on independent investigations made by the Subscriber and the Subscriber’s own professional advisors.  The Subscriber acknowledges that no representation has been made by the Company or otherwise by or on behalf of the Company concerning the Securities (including any current value of the Securities or as to any prospective return on investment in the Securities), the Company, its business or prospects, or other matters, except as set forth in the PPM.

 

(4)           The Subscriber is able (i) to bear the economicrisk of the Subscriber’s investment in the Securities; (ii) to hold theSecurities for an indefinite period of time and understands that the Securitiescannot be resold unless subsequently registered under the Securities Act orunless an exemption from such registration is available, as established by anopinion of counsel satisfactory to the Company; and (iii) currently, andbased on existing conditions, hereafter will be able to afford a complete lossof such investment.

 

(5)           The Subscriber understands the business in which theCompany is engaged and has such knowledge and experience in financial andbusiness matters that the Subscriber is capable of evaluating the merits andrisks of the Subscriber’s investment in the Securities and of making aninformed investment decision with respect thereto.

 

(6)           The Subscriber hereby acknowledges and confirmsthat, except as set forth in the PPM, neither the Company nor any of itsofficers, directors, affiliates, agents or representatives has made anyrepresentations or warranties (oral or written) concerning (i) theSecurities; (ii) the Subscriber’s investment in the Securities; or (iii) theCompany, its business, prospects, or anticipated financial or other results, orother matters.

 

(7)           The Subscriber understands that all certificates or other documents evidencing the Securities will bear substantially the following legend:

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES OR “BLUE SKY” LAWS, AND MAY NOT BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, OR OTHERWISE DISPOSED OF UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF SUCH ACT AND BLUE SKY LAWS OR AN EXEMPTION THEREFROM IS AVAILABLE AS ESTABLISHED BY A WRITTEN OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION.

 

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(8)           The Subscriber understands that no federal or state agency has passed on or made any recommendation or endorsement of the Securities.

 

(9)           The Subscriber hereby represents and warrants that:

 

*(Please check the boxes opposite each of the items in clauses (a) and(b) below which is true of the Subscriber. If clause (a) is checked, the Subscriber need not complete theitems under clause (c).  If clause (a) isnot checked, please complete each blank in clause (c) below.  Please also initial each item checked orcompleted.)*

 

o            (a)           The Subscriber is an “accreditedinvestor” (as such term is defined in Rule 501(a) of Regulation Dpromulgated by the Securities and Exchange Commission under the Securities Act)for at least one of the reasons specified below:

 

o            TheSubscriber’s net worth (together with the net worth of the Subscriber’s spouse)exceeds $1,000,000.

 

o            TheSubscriber’s individual income in each of the two immediately previous calendaryears has been $200,000 or more and his current year’s income is reasonablyexpected to be at least equal to that amount; or, the Subscriber’s joint incomewith his spouse in each of the two immediately previous calendar years has been$300,000 or more and the current year’s joint income is reasonably expected toequal at least that amount.

 

o            TheSubscriber is a director or executive officer of the Company.

 

o            TheSubscriber, if other than an individual, either (A) is a corporation,partnership, business trust or 501(c)(3) organization which has totalassets in excess of $5,000,000 and has not been formed for the specific purposeof purchasing the Securities, or (B) is an entity (other than a trust)with only accredited investors as its partners, members or stockholders, or (C) isa trust other than a business trust which has assets in excess of $5,000,000,has not been organized for the purposes of acquiring the investment in theSecurities and has its investment hereunder directed by a person described inthe first sentence of the following clause (b). The Subscriber, if other than an individual, represents that thisSubscription has been duly authorized by all necessary corporate, partnershipor other governance action on its part.

 

o            (b)           TheSubscriber has (or, if other than an individual, is directed by a person whohas) such knowledge and experience in financial and business matters that he orshe is capable of evaluating the risks of an investment in the Securities.  The Subscriber has adequate means ofproviding for current financial needs and contingencies, has no need forliquidity in the investment

 

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in the Securities, and is able tobear the substantial economic risks of the investment in the Securities for anindefinite period.

 

(c)           The Subscriber (if an individual) hereby representsand warrants that:

* *

*(If the box opposite Paragraph(9)(a) above has not been checked,please complete the blanks below in this clause (c).)*

 

The Subscriber’s higher educationconsists of the following (include college or university, any graduate programsand any other specialized education programs relevant to the Subscriber’sbusiness experience):

 

The Subscriber’s principal businessand professional activities during the last five years are as follows:

 

(10)         The Subscriber hereby represents and warrants as tothe following personal information:

 

*(Each Subscriber should furnish all of the information called for belowin this Paragraph (10).)*

 

The Subscriber’s residence address(or, if other than an individual, principal office address) is as follows:

 

The Subscriber (if an individual)maintains a house or apartment in the following state(s) in addition to his orher residence:

 

The Subscriber (if an individual) pays state income taxes in the followingstate:

 

The Subscriber (if an individual)holds a driver’s license in the following state:

 

The Subscriber (if an individual)is registered to vote in the following state:

 

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(11)         This Subscription Agreement and any other documentsexecuted and delivered by the Subscriber in connection herewith have been dulyexecuted and delivered by the Subscriber, and are the legal, valid and bindingobligations of the Subscriber enforceable in accordance with their respectiveterms.

 

(12)         The execution and delivery of this SubscriptionAgreement and any other documents executed and delivered by the Subscriber inconnection herewith do not, and the performance and consummation of the termsand transactions set forth or contemplated herein will not, contravene orresult in a default under any provision of existing law or regulations to whichthe Subscriber is subject, or any indenture, mortgage or other agreement orinstrument to which the Subscriber is a party or by which he, she or it isbound and does not require on the part of the Subscriber any approval,authorization, license or filing from or with any foreign, federal or state ormunicipal board or agency.

 

(13)         The Subscriber acknowledges that Silicon Valley Bankis acting only as an escrow agent in connection with the offering of theSecurities described here, and has not endorsed, recommended or guaranteed thepurchase, value or repayment of such Securities.

 

**C.**            **Effectiveness of Subscription****.**

 

(1)           This Subscription shall be binding upon thesuccessors and permitted assigns of the Subscriber and, when accepted by theCompany, shall be binding upon the successors and assigns of the Company.

 

(2)           All of the agreements,representations and warranties made by the Subscriber in this SubscriptionAgreement shall survive the execution and delivery hereof.  The Subscriber shall immediately notify theCompany upon discovering that any of the representations or warranties madeherein were false when made or has, as a result of changes in circumstances,become false.  Every provision of thisSubscription Agreement is intended to be severable, and if any term orprovision hereof is held to be illegal or invalid for any reason whatsoever,such illegality or invalidity shall not affect the validity of the remainderhereof.

 

(3)           The agreements of the Subscriber and the Company setforth herein shall become effective and binding upon the undersigned, withoutright of revocation, upon the Company’s acceptance of this Subscription.

 

**D.****           ****Hedging****.****               **Subscriber will not engage in any hedging or othertransaction which is designed to or could reasonably be expected to lead to orresult in a disposition of the Securities by the Subscriber or any other personor entity.  Such prohibited hedging orother transactions include without limitation effecting any short sale orhaving in effect any short position (whether or not such sale or position isagainst the box and regardless of when such position was entered into) or anypurchase, sale or grant of any right (including without limitation any put orcall option) with respect to the Securities.

 

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**E.****            ****Stockholder Approval****.**

 

(1)           Unless previously prepared and filed, as soon aspracticable following the acceptance of this Subscription, the Company agreesthat it shall prepare and file with the SEC a preliminary proxy statement (asamended and supplemented, the “Proxy Statement”) in connection with themeeting of its stockholders (the “Stockholders Meeting”).  At the Stockholders Meeting, the Company willseek to obtain stockholder approval (“Stockholder Approval”) of theissuance of the shares of Common Stock and shares of Common Stock upon theexercise of the Common Stock Warrants. The Company shall use its reasonablebest efforts to respond to any written comments of the SEC or its staff, and,to the extent permitted by law, to cause the Proxy Statement to be mailed tothe Company’s stockholders as promptly as practicable after responding to allsuch comments to the satisfaction of the SEC staff. Subscriber shall cooperatewith the Company in the preparation of the Proxy Statement or any amendment orsupplement thereto and shall furnish the Company with all information requiredto be included therein with respect to Subscriber, the Subscription and thisoffering.

 

(2)           Without limiting the generality of the foregoing,the Subscriber shall correct promptly any information provided by it to be usedspecifically in the Proxy Statement, if required, that shall have become falseor misleading in any material respect and shall take all reasonable stepsnecessary to file with the SEC and have declared effective or cleared by theSEC any amendment or supplement to the Proxy Statement so as to correct thesame and to cause the Proxy Statement as so corrected to be disseminated to thestockholders of the Company, in each case to the extent required by applicablelaw.

 

**F.****            ****Brokers or Finders****.**           The Subscriber has not engaged any brokers, findersor agents, and the Company has not, and will not, except with respect to DawsonJames Securities (the “Placement Agent”), incur, directly or indirectly,as a result of any action taken by the Subscriber, any liability for brokerageor finders’ fees or agents’ commissions or any similar charges in conjunctionwith this Subscription Agreement.  In theevent that the preceding sentence is in any way inaccurate, the Subscriberagrees to indemnify and hold harmless the Company from any liability for anycommission or compensation in the nature of a finder’s fee (and the costs andexpenses of defending against such liability) for which the Company, or any ofits officers, directors, employees or representatives, is responsible, exceptsuch as related to the Placement Agent for which the Company is solelyresponsible in accordance with the terms and provisions of that certain SellingAgreement dated May 3, 2005 by and between the Company and the PlacementAgent.

 

**G.****           ****Legal Advice****.**  The Subscriber understands that nothing inthe Company’s filings under the Exchange Act, this Subscription Agreement orany other materials presented to the Subscriber in connection with the purchaseand sale of the Securities constitutes legal, tax or investment advice.  The Subscriber has consulted such legal, taxand investment advisors as she, he or it, in her, his or its sole

 

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discretion,has deemed necessary or appropriate in connection with this SubscriptionAgreement, and his, her or its subscription for the purchase of the Securities.

 

**H.****           ****Miscellaneous****.**     Unless otherwise indicated, the address on the frontpage of this document is the legal residence of the Subscriber and alloffers and communications in connection with the offering of the Securitiessubscribed to herein have been conducted at such address.

 

**I.****             ****Communications****.**                Any notice, demand, request or other communicationwhich may be required or contemplated herein shall be sufficiently given if (i) giveneither by facsimile transmission, by reputable overnight delivery service,delivery charges prepaid, or by registered or certified mail, postage prepaidand return receipt requested, to the address indicated herein or to such otheraddress as any party hereto may specify as provided herein, or (ii) deliveredpersonally at such address.

 

**J.****            ****Confidentiality****.**    The Subscriber agrees to maintain in strictconfidence all non-public information regarding the Company obtained from theCompany or its representatives or agents during the course of thisSubscription.  The Subscriber also agreesnot to trade in the securities of the Company (other than pursuant to thisSubscription Agreement) at any time that the Subscriber is in possession of anynon-public information regarding the Company obtained from the Company or itsagents during the course of this Subscription.

 

**K.****           ****Applicable Law****.**    This Subscription Agreement and all legal relations,claims or obligations arising out of this transaction shall be governed by andconstrued in accordance with the internal substantive laws of the Commonwealthof Delaware.

 

*[signature page follows]*

 

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**IN WITNESS WHEREOF,** the undersigned has executed this SubscriptionAgreement this         day of the month of                ,2005.

 
|   | By:                                    |   |   |
|--------|----------------------------------------|--------|--------|
|   |                                   |
|   | Name:                                  |   |   |
|   |                                   |
|   | Title:                                 |   |   |
|   |                                   |
|   | Taxpayer Identification No.       |
|   |                                   |
|   | Purchase Price:   $     |
|   |                                   |
|   | Number of Shares to be acquired:       |
|   |                                   |
|   | Underlying Shares subject to warrants: |
|   |                                   |
|   | Address for Notice:                    |
|   |                                   |
|   |                                   |
|   |                                   |
|   | Facsimile No.:                         |
|   |                                   |
|   | Telephone No.:                         |
|   |                                   |
|   | Attn:                                  |
|        |                                        |        |        |  |  |

 

Please indicate below the number and type of Company securitiesbeneficially held (as determined under Rule 13d-3 under theSecurities Exchange Act of 1934) as of the date hereof, but excluding theCompany securities identified above that you are purchasing.  This information will be included in theRegistration Statement and, by signing above, you acknowledge that the Companymay rely on this information for inclusion in the Registration Statement.

 
|                                                                              |   |
|-----------------------------------------------------------------------------------|--------|
| (Identify the number of securities and type (e.g., common stock,  warrants, etc.) |

 
|                                                                                                                               |   |
|------------------------------------------------------------------------------------------------------------------------------------|--------|
| (Identify the extent to which you may not exercise sole voting and/or  dispositive power of such securities and the reason(s) why) |

 

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**ACCEPTANCE**

 

The foregoing Subscription ishereby accepted upon the terms and conditions set forth herein.

 

 
|   | **iVOW, INC.** |
|--------|----------------|
|   | ** **     |
|   |           |
|   | By:            |   |   |
|   | Name:          |   |   |
|   | Title:         |   |   |
|   |           |
| Date:  |           | , 2005 |   |   |
|        |                |  |  |  |  |  |  |  |  |

 

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EXHIBIT A

 

*This Exhibit A is qualifiedin its entirety by Annex A hereto. Capitalized terms used in this Exhibit A and not otherwise definedshall have the meanings set forth in the Subscription Agreement.*

 
| *Securities  Offered:* |   | Each Unit consists of one share of Common Stock of the Company and a  Warrant to purchase one share of Common Stock of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| *Offering Amount:*     |   | Minimum of $2.0 million/maximum of $2.5 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| *Closings:*            |   | The Initial Closing of the offering will occur after Subscription  Agreements for the Minimum Offering Amount have been received and the funds  have been placed into an Escrow Account. The Initial Closing shall consist of  that number of Units that represent no more than 19.9% of the outstanding  voting power of the Company as defined in Rule 4350(i) of the  Nasdaq Stock Market. The Final Closing will take place for the remaining  Offering Amount held in the Escrow Account within 5 days of Stockholder  Approval for the Offering.                   |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| *Per Unit Price:*      |   | $0.30 per Unit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| *Warrants:*            |   | The Warrants have an exercise price of $0.30 per share and shall be  exercisable for Common Stock of the Company and have a five-year term,  subject to the forced exercise provision below. The Warrants will contain  provisions providing for same-day exercise and sale.                                                                                                                                                                                                                                                                                                       |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| *Forced Exercise:*     |   | The Company can require holders of Warrants to exercise their Warrants  within 30 days of receiving notice from the Company (or forfeit such  Warrants) when the price of the Company’s common stock closes at six  (6) times the Per Unit Price per share or greater for 20 consecutive  trading days subsequent to the effectiveness of the registration statement  pertaining to the resale of the Common Stock underlying the Warrants;  provided that the registration statement described below shall be effective at  all times during such 30-day notice period. |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| *Registration Rights:* |   | The Company has agreed with the Placement Agent to file a registration  statement within 45 days of Final Closing covering the resale of the Common  Stock and the Common Stock underlying the Warrants offered herein. The  Company has also agreed to use its best efforts to cause such registration  statement to become effective as promptly as practicable and to remain  effective until the first anniversary of the Closing (except as otherwise set  forth above). Without limiting the foregoing, the Company will promptly  respond                                   |

 

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| * *                 |   | to  all SEC comments, inquiries and requests, and shall request acceleration of  effectiveness at the earliest possible date. In the event a registration  statement is not filed with the SEC within 45 days or is not declared  effective within 150 days from the date of the Final Closing, then in such  event a fee of 1% per month (or portion thereof) shall be assessed against the  Company as a default payment and in favor of the holders of the Common Stock  and Warrants for each such 30 day period until such time as the registration  statement is declared effective.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|--------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| *Transfer Restrictions:* |   | The Shares will initially be unregistered and may not be transferred  absent registration under the Securities Act of 1933 (the “Securities Act”)  or the availability of an exemption therefrom.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| *Use of Proceeds:*       |   | The Company intends that the net proceeds of the Offering and, if any,  the additional proceeds to be received upon exercise of Warrants, will be  used for development and expansion of the Company’s Obesity Surgery  Management Services business, including working capital, funding of  anticipated operating losses, infrastructure development, expenses associated  with marketing efforts and payment of corporate overhead. In addition, we  intend to use a portion of the proceeds from this offering (along with  certain other of our assets) to redeem some of our outstanding shares of  Series A Preferred Stock (the “Series A Shares”) and to obtain the  rights to (i) redeem a portion of Series A Shares concurrent with  this Unit financing and (ii) cause the conversion of the Series A  Shares to common stock concurrent with this Unit financing.  Specifically,  we currently intend to us use approximately $126,406 to redeem 75,844 shares  of our 826,447 outstanding Series A Shares. We also intend to convert  224,156 outstanding Series A Shares into 1,245,313 Units under this Unit  financing at the time of the Final Closing. In exchange, we anticipate  gaining the following rights: (i) the holders of Series A Shares  will consent (which consent we are required to obtain) to the completion of  the Offering described in this Memorandum and (ii) at the time of the  Final Closing, the remaining 526,447 outstanding Series A Shares will  convert into common stock on a 1 for 1 basis. As a result these actions, we  will not have any outstanding Series A Shares immediately after the  Final Closing. We may also use a portion of the net proceeds, currently  intended for general corporate purposes, to invest in acquisitions, joint  ventures or other collaborative arrangements, or to invest in or acquire  products or services. |
|                     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| *Stockholder Approval:*  |   | The Company shall prepare and file a proxy statement (the “Proxy  Statement”) with the SEC in connection with a meeting of its stockholders to  be held no later than July 20, 2005 (the “Stockholders Meeting”). At the  Stockholders Meeting, the Company will seek stockholder approval of (i) the  issuance of the shares of Common Stock and the Common Stock issuable upon the                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

 

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| * *                    |   | exercise of the Warrants, including the Placement Agent Warrants, and  (ii) an increase in the authorized number of shares of Common Stock from  35,000,000 to 70,000,000. IT SHALL BE A CONDITION TO THE INITIAL CLOSING THAT  THE COMPANY SHALL HAVE ENTERED INTO A VOTING AGREEMENT WITH THE HOLDERS OF  MORE THAN 50% OF THE COMPANY’S OUTSTANDING SHARES OF COMMON STOCK AND  PREFERRED STOCK PROVIDING THAT SUCH HOLDERS SHALL VOTE IN FAVOR OF SUCH  PROPOSALS At the Stockholders Meeting the Company also intends to seek  approval for (i) an amendment to the Restated Certificate to effect, at  the discretion of the Board of Directors of the Company, a reverse stock  split of the issued and outstanding shares of Common Stock in a ratio for  such stock split that is not less than 2:1 nor greater than 10:1 and  (ii) an increase in the number of shares authorized for issuance  pursuant to its Stock Option Plan. |
|-----------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                        |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| *Risk Factors:*             |   | The Securities offered hereby involve a high degree of risk. See Risk  Factors in the PPM.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                        |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| *Placement Agent:*          |   | Dawson James                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                        |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| *Confidential Information:* |   | The recipient of this Memorandum and the materials attached hereto agrees  with the Company to maintain in confidence this disclosed information,  together with any other non-public information regarding the Company obtained  from the Company or their agents during the course of the proposed Offering.  The recipient also agrees not to trade in the securities of the Company  (other than pursuant to this Offering) at any time that the recipient is in  possession of any non-public information regarding the Company obtained from  the Company or its agents during the course of this Offering. The Company has  caused these materials to be delivered to you in reliance upon such agreement  and upon Rule 100(b)(2)(ii) of Regulation FD as promulgated by the  Securities and Exchange Commission.                                                                                                                              |

 

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EXHIBIT B

 

Payment Instructions

 

**Remittance Via Check:**

 

Payable To:

 

Mailed To:

 

**Remittance Via Wire Transfer:**

 

Account Name:

 

Bank:

Account #:

ABA #:

 

Address:

 

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Annex A

 

Registration Rights

 

1.             Registration of Shares.  The Companywill (i) use best efforts to prepare and file, within 45 days after theFinal Closing, a Registration Statement (the “Registration Statement”)with the SEC to register resales under the Securities Act of the Common Stockand the Common Stock issuable upon the exercise of the Common Stock Warrants bythe Subscriber, (ii) use its reasonable best efforts to cause theRegistration Statement to become effective as soon as practicable after suchfiling, (iii) use its reasonable best efforts to cause such RegistrationStatement to remain effective until the first anniversary of the Final Closing(except as otherwise set forth above); providedthat the Companymay suspend sales at any time under the Registration Statement immediately uponnotice to the Subscriber, for a period or periods of time not to exceed 90 daysin the aggregate during any 12-month period, if there then existsmaterial, non-public information relating to the Company, which in thereasonable opinion of the Company, would not be appropriate for disclosureduring that time, and (iv) prepare and file with the SEC such amendmentsand supplements to the Registration Statement and the prospectus used inconnection therewith as may be necessary to keep such Registration Statementeffective for the period specified in this sentence above.  Without limiting the foregoing, the Companywill promptly respond to all SEC comments, inquiries and requests, and shallrequest acceleration of effectiveness at the earliest possible date.  In the event a registration statement is notfiled with the SEC within 45 days or is not declared effective within 150 daysfrom the date of the Final Closing, then in such event a fee of 1% per month(or portion thereof) shall be assessed against the Company as a Default Paymentand in favor of the holders of the Common Stock and Warrants for each such 30day period until such time as the registration statement is declaredeffective.  The Subscriber shall provideall information and materials, including, without limitation, all informationrequested in a questionnaire to be provided to the Subscriber by the Company,and take all such action as may be required in order to permit the Company tocomply with all applicable requirements of the Securities Act and the ExchangeAct and to obtain any desired acceleration of the effective date of theRegistration Statement, such provision of information and materials to be acondition precedent to the obligations of the Company hereunder to register theCommon Stock issued or issuable upon the exercise of the Common StockWarrants.  The offerings made pursuant tothe Registration Statement shall not be underwritten.

 

2.             Registration Procedures.  Withrespect to the registration of Common Stock under this Annex A, the Companywill: (i) furnish to the Subscriber such number of copies of theRegistration Statement, each amendment and supplement thereto, the prospectusincluded in such Registration Statement (including each preliminary prospectus)and such other documents as the Subscriber may reasonably request in order tofacilitate the disposition of the Common Stock and the Common Stock acquired bythe Subscriber upon the exercise of Common Stock Warrants and owned by theSubscriber; (ii) use its best efforts to register or qualify the Common

 

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Stockincluded in such registration under such other securities or blue sky laws ofsuch jurisdictions as the Subscriber reasonably requests and do any and allother acts and things which may be reasonably necessary or advisable to enablethe Subscriber to consummate the disposition in such jurisdictions of theshares of Common Stock to be sold by the Subscriber (providedthatthe Company will not be required to qualify generally to do business in anyjurisdiction where it would not otherwise be required to qualify but for thissubparagraph, subject itself to taxation in any such jurisdiction, or consentto general service of process in any such jurisdiction); (iii) notify theSubscriber at any time when a prospectus relating thereto is required to bedelivered under the Securities Act, upon discovery that, or upon the discoveryof the happening of any event as a result of which, the prospectus included insuch registration statement contains an untrue statement of a material fact oromits any fact necessary to make the statements therein not misleading in thelight of the circumstances under which they were made, and the Company willpromptly prepare and file with the SEC and, at the request of any theSubscriber, furnish to the Subscriber a reasonable number of copies of, asupplement or amendment to such prospectus so that, as thereafter delivered tothe Subscriber, such prospectus will not contain an untrue statement of amaterial fact or omit to state any fact necessary to make the statementstherein not misleading in light of the circumstances under which they weremade; and (iv) promptly reissue, or promptly authorize and instruct itstransfer agent to reissue, unlegended certificates at the request of theSubscriber upon such Subscriber’s delivery of original certificatesrepresenting the shares of Common Stock tendered for sale pursuant to theeffective Registration Statement, and to promptly respond to broker’s inquiriesmade of the Company in connection with such sales, in each case with a view toreasonably assisting the Subscriber to complete such sale during such period ofeffectiveness.

 

3.             Registration Expenses. All of the out-of-pocket expenses incurred by theCompany in complying with its obligations under this Annex A inconnection with the registration of the Common Stock and the Common Stockissuable upon the exercise of the Common Stock Warrants, including, withoutlimitation, all SEC, Nasdaq SmallCap Market and blue sky registration andfiling fees, printing expenses, transfer agents’ and registrars’ fees, and thefees and disbursements of the Company’s outside counsel and independentaccountants shall be paid by the Company. The Company shall not be responsible to pay any legal fees for anySubscriber or any selling expenses of any Subscriber (including, withoutlimitation, any broker’s fees or commissions, including underwritercommissions).

 

4.             Indemnification.

 

(a)           The Company agrees to indemnify and hold harmless, tothe extent permitted by law, the Subscriber, its officers, directors, employeesand agents and each Person who controls such Subscriber (within the meaning ofthe Securities Act), if applicable, against any losses, claims, damages orliabilities, joint or several, to which such the Subscriber or any suchdirector, officer, employee, agent or controlling Person may become subjectunder the Securities Act or otherwise, insofar as such losses, claims, damagesor liabilities (or actions or proceedings, whether

 

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commencedor threatened, in respect thereof) arise out of or are based upon (i) anyuntrue or alleged untrue statement of a material fact contained (A) in theRegistration Statement or prospectus or preliminary prospectus or any amendmentthereof or supplement thereto used in connection with this Annex A or (B) inany application or other document or communication (in this Annex Acollectively called an “application”) executed by or on behalf of the Companyor based upon written information furnished by or on behalf of the Companyfiled in any jurisdiction in order to qualify any securities covered by suchRegistration Statement under the “blue sky” or securities laws thereof, (ii) anyomission or alleged omission of a material fact required to be stated thereinor necessary to make the statements therein not misleading or (iii) anyviolation by the Company of the Securities Act or any state securities law, orany rule or regulation promulgated under the Securities Act or any statesecurities law, or any other law applicable to the Company relating to any suchregistration or qualification, and the Company will reimburse the Subscriberand each such director, officer and controlling Person for any legal or anyother expenses incurred by them in connection with investigating or defendingany such loss, claim liability, action or proceeding; providedthatthe Company shall not be liable in any such case to the extent that any suchloss, claim, damage, liability (or action or proceeding with respect thereof)or expense arises out of or is based upon an untrue statement, any suchprospectus or preliminary prospectus or any amendment or supplement thereto, orin any application, in reliance upon and in conformity with written informationprepared and furnished to the Company by the Subscriber or any other subscriberexpressly for use therein or by the Subscriber’s failure to deliver a copy ofthe prospectus or any amendments or supplements thereto after the Company hasfurnished the Subscriber with a sufficient number of copies of the same.

 

(b)           In connection with the Registration Statement, theSubscriber will furnish to the Company in writing such information anddocuments concerning the Subscriber as the Company reasonably requests for usein connection with the Registration Statement or prospectus and, to the extentpermitted by law, will indemnify and hold harmless the Company and itsdirectors and officers and each other Person who controls or is controlled bythe Company and the directors and officers of each such Person controlling orcontrolled by the Company and the directors and officers of each suchcontrolling or controlled Person (within the meaning of the Securities Act)against any losses, claims, damages, liabilities, joint or several, to whichthe Company or any such director or officer or controlling or controlled Personmay become subject under the Securities Act or otherwise, insofar as suchlosses, claims, damages or liabilities (or actions or proceedings, whethercommenced or threatened, in respect thereof) arise out of or are based upon (i) anyuntrue or alleged untrue statement of a material fact contained in theRegistration Statement, prospectus or preliminary prospectus or any amendmentthereof or supplement thereto or in, any application or (ii) any omissionor alleged omission of a material fact required to be stated therein ornecessary to make the statements therein not misleading, but only to the extentthat such untrue statement or omission or alleged omission is made in suchRegistration Statement, any such prospectus or preliminary prospectus or anyamendment or supplement thereto, or in any application, in reliance upon and inconformity with written information concerning

 

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theSubscriber prepared and furnished to the Company by or on behalf of theSubscriber in writing expressly for use therein, and the Subscriber willreimburse the Company and each such director, officer and controlling orcontrolled Person for any legal or any other expenses incurred by them inconnection with investigating or defending any such loss, claim, liability,action or proceeding.

 

(c)           Any person entitled to indemnification hereunderwill (i) give prompt written notice to the Company of any claim withrespect to which it seeks indemnification and (ii) unless in suchindemnified party’s reasonable judgment a conflict of interest between suchindemnified parties and the Company may exist with respect to such claim,permit the Company to assume the defense of such claim with counsel reasonablysatisfactory to the indemnified party; provided, however, thatthe failure of any indemnified party to give notice as provided herein shallnot relieve the indemnifying party of its obligations hereunder unless thefailure to give such notice is materially prejudicial to an indemnifying party’sability to defend such action.  If suchdefense is assumed, the indemnified party will not be subject to any liabilityfor any settlement made by the Company without its consent (but such consentwill not be unreasonably withheld). Anything to the contrary appearing in this Annex Anotwithstanding, the Company will not be obligated to pay the fees and expensesof more than one counsel for all parties indemnified hereunder with respect tosuch claim, unless in the reasonable judgment of any indemnified party aconflict of interest may exist between such indemnified party and any other ofsuch indemnified parties with respect to such claim.  If the Company assumes the defense, theindemnified party may engage its own counsel at its own sole cost andexpense.  All fees and expenses ofcounsel to any indemnified party required to be paid by the Company shall bepaid by the Company as incurred by such indemnified party.

 

(d)           The indemnification provided for herein will remainin full force and effect regardless of any investigation made by or on behalfof the indemnified party or any officer, director, employee, agent orcontrolling or controlled Person of such indemnified party and will survive thetransfer of securities issued hereunder by the Subscriber.  If the indemnification provided for herein isunavailable to an indemnified party or insufficient in respect of any losses,claims, damages or liabilities referred to therein, then the Company, in lieuof indemnifying such indemnified party thereunder, shall contribute to theamount paid or payable by such indemnified party as a result of such losses,claims, damages or liabilities in such proportion as is appropriate to reflectthe relative fault of the Company, on the one hand, and the indemnified partyor parties, on the other hand, in connection with the statements or omissionsthat resulted in such losses, claims, damages or liabilities, as well as anyother relevant equitable considerations.

 

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