Document:

exv10w5

 

Exhibit 10.5

SUBSCRIPTION AGREEMENT

     THIS SUBSCRIPTION AGREEMENT (this “Agreement”), dated as of November 30,
2004, by and among Goldspring, Inc., a Florida corporation (the “Company”), and
the subscribers identified on the signature pages 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 3(a)(9) as promulgated by the United States
Securities and Exchange Commission (the “Commission”) under the Securities Act
of 1933, as amended (the “1933 Act”).

     WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the
Subscribers, as provided herein, and the Subscribers, in the aggregate, shall
purchase up to Twelve Million Dollars ($12,000,000) (the “Purchase Price”) of
principal amount of promissory notes of the Company (“Note” or “Notes”) in the
form attached hereto as Exhibit A convertible into shares of the Company’s
common stock, $0.000666 par value (the “Common Stock”) at a fixed per share
conversion price equal to $0.20, or for the first twenty (20) trading days
after the Closing Date (as defined in Section 13(b) hereof) at a per share
conversion price equal to seventy percent (70%) of the average of the five (5)
lowest closing prices of the Common Stock as reported by Bloomberg LP for the
Principal Market (as defined in Section 9.1(b) hereof) for the twenty (20)
trading days preceding but not including the Closing Date. The Subscribers will
also receive share purchase warrants (the “Warrants”) in the form attached
hereto as Exhibit B, 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”;

     WHEREAS, the aggregate consideration to be paid for the Notes and the
Warrants contemplated hereby shall be held in escrow pursuant to the terms of
an Escrow Agreement to be executed by the parties substantially in the form
attached hereto as Exhibit C (the “Escrow Agreement”).

     WHEREAS, the Subscribers and the Company had previously entered into a
Subscription Agreement dated as of March 22, 2004 (“First Subscription
Agreement”) relating to the sale by the Company to the Subscribers of common
stock (“First Common Stock”) and Class A and Green Shoe Common Stock Purchase
Warrants (collectively “First Warrants”) in the amounts set forth on the
signature pages hereto, and the Company has defaulted in certain of its
obligations to the Subscribers under the terms of the First Subscription
Agreement and First Warrants; and

     WHEREAS, the Subscribers are desirous of releasing the Company from
damages that have accrued under the First Subscription Agreement and First
Warrants.

     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 who signs
this Agreement shall purchase and the Company shall sell to each such
Subscriber a Note in the principal and the amount of Warrants determined
pursuant to Section 3 below. The aggregate principal amount of the Notes to be
purchased by the Subscribers on the Closing Date shall not exceed the Purchase
Price. The principal amount of the Note to be purchased by each Subscriber
shall be equal to the purchase price paid by each Subscriber for the First
Common Stock and First Warrants (“First Purchase Price”) designated on the
signature page hereto and

(Subscription Agreement)

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an additional amount equal
to two percent (2%) of such amount for each thirty (30) days or part
thereof commencing from April 6, 2004 through April 21, 2004 and from June 20,
2004 through the Closing Date, which represent the liquidated damages described
in Section 11.4 of the First Subscription Agreement (“First Liquidated
Damages”). The aggregate principal amount of the Note to be received by each
Subscriber is set forth on the signature page hereto. This Agreement and the
Transaction Documents (as defined in Section 5(c) shall be binding upon the
Company and only those Subscribers who execute this Agreement and comply with
their obligations hereunder.

               2. Payments of Purchase Price. The Subscribers will pay the Purchase
Price for the Note and Warrants by surrender to the Company of the First Common
Stock and First Warrants, which will be deposited with the Escrow Agent
identified in the Escrow Agreement and held pursuant to the Escrow Agreement
which surrender shall be the entire payment required to be made by the
Subscribers. The Subscribers acknowledge and agree that provided a Closing
under this Agreement occurs then the Subscriber and their affiliates shall
release Company (a) from any other obligation to pay additional First
Liquidated Damages pursuant to Section 11.4 of the First Subscription Agreement
and Section 9 of each of the First Warrants; and (b) from any claims they may
have against Company in connection with the transactions contemplated by the
First Subscription Agreement, as set forth in Section 13. Each of the
Subscribers and the Company, by execution of this Agreement, hereby irrevocably
releases the other party from any claim or potential claim such party may have
presently or in the future arising from the First Subscription Agreement, First
Warrants or any state of facts extant prior to the Closing Date to the extent
described in Section 13 hereof.

               3. Warrants. On the Closing Date, the Company will issue and deliver
Class B Warrants to the Subscribers. Fifty (50) Class B Warrants will be
issued for each one hundred (100) Shares, which would be issued on the Closing
Date assuming the complete conversion of the Notes issued on the Closing Date
at an assumed Conversion Price of $.20. The per Warrant Share exercise price
to acquire a Warrant Share upon exercise of a Class B Warrant shall be $0.20.
The Class B Warrants shall be exercisable until four (4) years after the Issue
Date of the Class B Warrants.

               4. Subscriber’s Representations and Warranties. Each Subscriber hereby
represents and warrants to and agrees with the Company only as to such
Subscriber that:

                         (a) Information on Company. The Subscriber has been furnished with or
has had access at the EDGAR Website of the Commission to the Company’s Form
10-KSB for the year ended December 31, 2004 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 the Warrants, an “accredited
investor”, as such term is defined in Regulation D promulgated by the
Commission under the 1933 Act, is experienced in investments and business
matters, has made investments of a speculative nature and has purchased
securities of United States publicly-owned companies in private placements in
the past and, with its representatives, has such knowledge and experience in
financial, tax and other business matters as to enable the Subscriber to
utilize the information made available by the Company to evaluate the merits
and risks of and to make an informed investment decision with respect to the
proposed purchase, which

(Subscription Agreement)

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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 for
investment only and not with a view toward, or for resale in connection with,
the public sale or 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 applicable state securities
laws or is exempt from such registration. In any event, and subject to
compliance with applicable securities laws and Section 4(l) hereof, the
Subscriber may enter into lawful hedging transactions.

                         (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
GOLDSPRING, 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 OR THE
COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT
UNDER SAID ACT OR ANY APPLICABLE STATE SECURITIES LAW
OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
GOLDSPRING, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.”

                         (g) Note Legend. The Note shall bear the following legend:

(Subscription Agreement)

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“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 OR THE COMMON
SHARES ISSUABLE UPON CONVERSION OF THIS NOTE UNDER
SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO GOLDSPRING, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED.”

                         (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 against the Subscriber 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) Restricted Securities. Subscriber understands that the Securities
have not been registered under the 1933 Act and such Subscriber will not sell,
offer to sell, assign, pledge, hypothecate or otherwise transfer any of the
Securities unless pursuant to an effective registration statement under the
1933 Act. Notwithstanding anything to the contrary contained in this
Agreement, such Subscriber may transfer (without restriction and without the
need for an opinion of counsel) the Securities to its Affiliates (as defined
below) provided that each such Affiliate is an “accredited investor” under
Regulation D and such Affiliate agrees to be bound by the terms and conditions
of this Agreement. For the purposes of this Agreement, an “Affiliate” of any
person or entity means any other person or entity directly or indirectly
controlling, controlled by or under direct or indirect common control with such
person or entity. Affiliate includes each Subsidiary of the Company. For
purposes of this definition, “control” means the power to direct the management
and policies of such person or firm, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise.

                         (k) No Governmental Review. Each Subscriber understands that no United
States federal or state agency or any other governmental or state agency has
passed on or made recommendations or endorsement of the Securities or the
suitability of the investment in the Securities nor have such authorities
passed upon or endorsed the merits of the offering of the Securities.

                         (l) Restrictions on Short Sales. Subscriber represents, warrants and
covenants that neither Subscriber nor any person or entity, directly or
indirectly controlling, controlled by or under direct or indirect common
control with such Subscriber (“Affiliate”) which (x) has knowledge of the
transactions contemplated hereby, (y) has or shares discretion relating to such
Subscriber’s investments or trading or information concerning such Subscriber’s
investments, including in respect of the Securities,

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or (z) is subject to such
Subscriber’s review or input concerning such Affiliate’s investments or
trading, has or will, directly or indirectly, during the period beginning on
the date on which Subscriber was first contacted regarding the transactions
contemplated by this Agreement and ending on December 31, 2004, engage in (i)
any “short
sales” (as such term is defined in Rule 3b-3 promulgated under the 1934
Act) of the Shares and/or the Warrant Shares, including, without limitation,
the maintaining of any short position with respect to, establishing or
maintaining a “put equivalent position” (within the meaning of Rule 16a-1(h)
under the 1934 Act) with respect to, entering into any swap, derivative
transaction or other arrangement (whether any such transaction is to be settled
by delivery of Shares, other securities, cash or other consideration) that
transfers to another, in whole or in part, any economic consequences or
ownership, or otherwise dispose of, any of the Securities by such Subscriber or
(ii) any hedging transaction which establishes a net short position with
respect to the Securities (clauses (i) and (ii) together, a “Short Sale”);
except for (A) Short Sales by such Subscriber or an Affiliate of such
Subscriber which was, prior to the date on which such Subscriber was first
contacted regarding the transactions contemplated by this Agreement, a market
maker for the Shares, provided that such Short Sales are in the ordinary course
of business of such Subscriber or Affiliate of such Subscriber and are in
compliance with the 1933 Act, the rules and regulations of the 1933 Act and
such other securities laws as may be applicable, (B) Short Sales by such
Subscriber or an Affiliate of such Subscriber which by virtue of the procedures
of such Subscriber or an Affiliate of such Subscriber are made without
knowledge of the transactions contemplated by this Agreement or (C) Short Sales
by such Subscriber or an Affiliate of such Subscriber to the extent that such
Subscriber or Affiliate of such Subscriber is acting in the capacity of a
broker-dealer executing unsolicited third-party transactions.

                         (m) Correctness of Representations. Each Subscriber represents as to such
Subscriber that the foregoing representations and warranties are true and
correct as of the date hereof and, unless a Subscriber otherwise notifies the
Company prior to each Closing Date shall be true and correct as of each Closing
Date.

                         (n) Survival. The foregoing representations and warranties shall survive
the Closing Date for a period of two (2) years.

               5. Company Representations and Warranties. Except as set forth in the
Disclosure Schedule (attached hereto as Attachment 1) and the Reports, the
Company represents and warrants to and agrees with each Subscriber that:

                         (a) Due Incorporation. The Company and each of its Subsidiaries
identified on Schedule 5(a) hereto (individually a “Subsidiary” and
collectively “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 them makes such qualification necessary, other
than those jurisdictions in which the failure to so qualify would not have a
Material Adverse Effect. For purpose of this Agreement, a “Material Adverse
Effect” shall mean a material adverse effect on the financial condition,
results of operations, properties or business of the Company taken as a whole.

                         (b) Outstanding Stock. All issued and outstanding shares of capital stock
of the Company and each of its Subsidiaries have been duly authorized and
validly issued and are fully paid and nonassessable.

(Subscription Agreement)

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                         (c) Authority; Enforceability. This Agreement, the Note, the Warrants,
the Escrow Agreement and any other agreements delivered together with this
Agreement or in connection herewith (collectively “Transaction Documents”) have
been duly authorized, executed and delivered by the Company 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. The Company and has full corporate power and authority necessary to
enter into and deliver the Transaction Documents and to perform its obligations
thereunder.

                         (d) Additional Issuances. There are no outstanding agreements or
preemptive or similar rights affecting the Company’s common stock or equity and
no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, or agreements or understandings with
respect to the sale or issuance of any shares of common stock or equity of the
Company or other equity interest in any of the Subsidiaries of the Company
except as described on Schedule 5(d).

                         (e) Consents. No consent, approval, authorization or order of any court,
governmental agency or body or arbitrator having jurisdiction over the Company,
or any of its Affiliates, the OTC Bulletin Board (“Bulletin Board”) nor the
Company’s shareholders is required for the execution by the Company of the
Transaction Documents and compliance and performance by the Company of its
obligations under the Transaction Documents, including, without limitation, the
issuance and sale of the Securities.

                         (f) No Violation or Conflict. Assuming the representations and warranties
of the Subscribers in Section 4 are true and correct, neither the issuance and
sale of the Securities nor the performance of the Company’s obligations under
this Agreement and all other agreements entered into by the Company relating
thereto by the Company will:

                              (i) violate, conflict with, result in a breach of, or constitute a default
(or an event which with the giving of notice or the lapse of time or both would
be reasonably likely to constitute a default) under (A) the articles or
certificate of incorporation, charter or bylaws of the Company, (B) to the
Company’s knowledge, any decree, judgment, order, law, treaty, rule, regulation
or determination applicable to the Company of any court, governmental agency or
body, or arbitrator having jurisdiction over the Company or 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) result in the activation of any anti-dilution rights or a reset or
repricing of any debt or security instrument of any other creditor or equity
holder of the Company, nor result in the acceleration of the due date of any
obligation of the Company; or

(Subscription Agreement)

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                              (iv) result in the activation of any piggy-back registration rights of any
person or entity holding securities of the Company or having the right to
receive securities of the Company.

                         (g) The Securities. The Securities upon issuance:

                              (i) are, or will be, free and clear of any security interests, liens,
claims or other encumbrances, subject to restrictions upon transfer under the
1933 Act and any applicable state securities laws;

                              (ii) have been, or will be, duly and validly authorized and on the date of
issuance of the Shares and upon exercise of the Warrants, the Shares and
Warrant Shares will be duly and validly issued, fully paid and nonassessable or
if registered pursuant to the 1933 Act, and resold pursuant to an effective
registration statement will be free trading and unrestricted);

                              (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 the
Transaction Documents. Except as disclosed on the Disclosure Schedule annexed
hereto or in the Reports, there is no pending or, to the best knowledge of the
Company, basis for or threatened action, suit, proceeding or investigation
before any court, governmental agency or body, or arbitrator having
jurisdiction over the Company, or any of its Affiliates which litigation if
adversely determined would have a Material Adverse Effect on the Company.

                         (i) Reporting Company. The Company is a publicly-held company subject to
reporting obligations pursuant to Section 13 of the Securities Exchange Act of
1934, as amended (the “1934 Act”) and has a class of common shares registered
pursuant to Section 12(g) of the 1934 Act. Pursuant to the provisions of the
1934 Act, the Company has timely filed all reports and other materials required
to be filed thereunder with the Commission during the preceding twelve months.

                         (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 Effect relating to the Company’s
business, financial condition or affairs not disclosed in the Reports. The
Reports do not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances when made.

(Subscription Agreement)

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                         (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. The Company and its Subsidiaries are not in violation of
their articles of incorporation or bylaws. The Company and 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, (ii) not in default with respect to any order of any
court, arbitrator or governmental body or subject to or party to any order of
any court or governmental authority arising out of any action, suit or
proceeding under any statute or other law respecting antitrust, monopoly,
restraint of trade, unfair competition or similar matters, or (iii) to the
Company’s knowledge not in violation of any statute, rule or regulation of any
governmental authority which violation would have a Material Adverse Effect on
the Company or its Subsidiaries.

                         (n) No Integrated Offering. Neither the Company, nor any of its
Affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offer of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
the Bulletin Board. Nor will the Company or any of its Affiliates or
Subsidiaries take any action or steps that would cause the offer or issuance of
the Securities to be integrated with other offerings. The Company will not
conduct any offering other than the transactions contemplated hereby that will
be integrated with the offer or issuance of the Securities.

                         (o) No General Solicitation. Neither the Company, nor any of its
Affiliates, nor to its knowledge, any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the 1933 Act) in connection with the offer or
sale of the Securities.

                         (p) Listing. The Company’s common stock is quoted on the Bulletin Board.
The Company has not received any oral or written notice that its common stock
is not eligible nor will become ineligible for quotation on the Bulletin Board
nor that its common stock does not meet all requirements for the continuation
of such quotation and the Company satisfies all the requirements for the
continued quotation of its common stock on the Bulletin Board.

                         (q) No Undisclosed Liabilities. The Company and its Subsidiaries have no
liabilities or obligations which are material, individually or in the
aggregate, which are not disclosed in the Reports and Other Written
Information, other than those incurred in the ordinary course of the Company’s
businesses since December 31, 2003 and which, individually or in the aggregate,
would reasonably be expected to have a Material Adverse Effect, other than as
set forth in Schedule 5(q).

                         (r) No Undisclosed Events or Circumstances. Since December 31, 2003, no
event or circumstance has occurred or exists with respect to the Company or its
Subsidiaries, 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.

(Subscription Agreement)

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                         (s) Capitalization. The authorized and outstanding capital stock of the
Company as of the date of this Agreement and the Closing Date (not including
the Securities) are set forth on Schedule 5(s). Except as set forth on
Schedule 5(d), there are no options, warrants, or rights to subscribe to,
securities, rights or obligations convertible into or exchangeable for or
giving any right to subscribe for any shares of capital stock of the Company or
any of its Subsidiaries. All of the outstanding shares of Common Stock of the
Company have been duly and validly authorized and issued and are fully paid and
nonassessable.

                         (t) Dilution. The Company’s executive officers and directors understand
the nature of the Securities being sold hereby and recognize that the issuance
of the Securities will have a potential dilutive effect on the equity holdings
of other holders of the Company’s equity or rights to receive equity of the
Company. The board of directors of the Company has concluded, in its good
faith business judgment, that the issuance of the Securities is in the best
interests of the Company. The Company specifically acknowledges that its
obligation to issue the Shares upon conversion of the Notes, and the Warrant
Shares upon exercise of the Warrants is binding upon the Company and
enforceable regardless of the dilution such issuance may have on the ownership
interests of other shareholders of the Company or parties entitled to receive
equity of the Company.

                         (u) No Disagreements with Accountants. There are no disagreements of any
kind presently existing, or reasonably anticipated by the Company to arise,
between the Company and the accountants formerly or presently employed by the
Company, including but not limited to disputes or conflicts over payment owed
to such accountants.

                         (v) Correctness of Representations. The Company represents that the
foregoing representations and warranties are true and correct as of the date
hereof in all material respects, and, unless the Company otherwise notifies the
Subscribers prior to each Closing Date, shall be true and correct in all
material respects as of each Closing Date.

                         (w) DTC Status. The Company’s transfer agent is a participant in and the
Common Stock is eligible for transfer pursuant to the Depository Trust Company
Automated Securities Transfer Program.

                         (x) Investment Company. The Company is not an Affiliate of an
“investment company” within the meaning of the Investment Company Act of 1940,
as amended.

                         (y) Survival. The foregoing representations and warranties shall survive
the Closing Date for a period of two (2) 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) and 3(a)(9)
of the 1933 Act and/or Rule 506 of Regulation D promulgated thereunder. On the
Closing Date, the Company will provide an opinion reasonably acceptable to
Subscriber from the Company’s legal counsel opining on the availability of an
exemption from registration under the 1933 Act as it relates to the offer and
issuance of the Securities and other matters reasonably requested by
Subscribers. A form of the legal opinion is annexed hereto as Exhibit D. The
Company will provide, at the Company’s expense, such other legal opinions in
the future as are reasonably necessary for the issuance and resale of the
Common Stock issuable upon conversion of the Notes and exercise of the Warrants
pursuant to an effective registration statement.

               7.1. Conversion of Note.

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9

 

                         (a) Upon the conversion of a Note or part thereof, the Company shall, at
its own cost and expense, take all necessary action, including obtaining and
delivering, an opinion of counsel to 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 assuming the procedures under Section 11.7 are
complied
with by the Subscriber, 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 as Exhibit A to the Note) to
the Company via confirmed telecopier transmission or otherwise pursuant to
Section 13(a) of this Agreement. The Subscriber will not be required to
surrender the Note until the Note has been fully converted or satisfied. Each
date on which a Notice of Conversion is telecopied to the Company in accordance
with the provisions hereof shall be deemed a Conversion Date. The Company will
itself or cause the Company’s transfer agent to transmit the Company’s Common
Stock certificates representing the Shares issuable upon conversion of the Note
to the Subscriber via express courier for receipt by such Subscriber within
three (3) business days after receipt by the Company of the Notice of
Conversion (such third day being the “Delivery Date”). In the event the Shares
are electronically transferable, then delivery of the Shares must be made by
electronic transfer provided request for such electronic transfer has been made
by the Subscriber. 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.

                         (c) The Company understands that a delay in the delivery of the Shares in
the form required pursuant to Section 7.1 hereof, or the Mandatory Redemption
Amount described in Section 7.2 hereof, later than the Delivery Date or later
than the Mandatory Redemption Payment Date (as hereinafter defined) could
result in economic loss to the Subscriber. As compensation to the Subscriber
for such loss, the Company agrees to pay (as liquidated damages and not as a
penalty) to the Subscriber for late issuance of Shares in the form required
pursuant to Section 7.1 hereof upon Conversion of the Note in the amount of
$100 per business day after the Delivery Date for each $10,000 of Note
principal amount being converted of the corresponding Shares which are not
timely delivered. The Company shall pay any payments incurred under this
Section in immediately available funds upon demand. Furthermore, in addition
to any other remedies which may be available to the Subscriber, in the event
that the Company fails for any reason to effect delivery of the Shares by the
Delivery Date or make payment by the Mandatory Redemption Payment Date, the
Subscriber will be entitled to revoke all or part of the relevant Notice of
Conversion or rescind all or part of the notice of Mandatory Redemption by
delivery of a notice to such effect to the Company whereupon the Company and
the Subscriber shall each be restored to their respective positions immediately
prior to the delivery of such notice, except that the liquidated damages
described above shall be payable through the date notice of revocation or
rescission is given to the Company.

                         (d) Nothing contained herein or in any document referred to herein or
delivered in connection herewith shall be deemed to establish or require the
payment of a rate of interest or other charges in excess of the maximum
permitted by applicable law. In the event that the rate of interest or
dividends required to be paid or other charges hereunder exceed the maximum
permitted by such law,

(Subscription Agreement)

10

 

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, at the Subscriber’s election, a sum of money
determined by (i) multiplying up to the outstanding principal amount of the
Note designated by the
Subscriber by 120%, or (ii) multiplying the number of Shares otherwise
deliverable upon conversion of an amount of Note principal and/or interest
designated by the Subscriber (with the date of giving of such designation being
a “Deemed Conversion Date”) at the then Conversion Price that would be in
effect on the Deemed Conversion Date by the highest closing price of the Common
Stock on the principal market for the period commencing on the Deemed
Conversion Date until the day prior to the receipt of the Mandatory Redemption
Payment, whichever is greater, together with accrued but unpaid interest
thereon (“Mandatory Redemption Payment”). The Mandatory Redemption Payment
must be received by the Subscriber on the same date as the Company Shares
otherwise deliverable or within ten (10) business days after request, whichever
is sooner (“Mandatory Redemption Payment Date”). Upon receipt of the Mandatory
Redemption Payment, the corresponding Note principal and interest will be
deemed paid and no longer outstanding. Liquidated damages calculated pursuant
to Section 7.1(c) hereof, that have been paid or accrued for the twenty day
period prior to the actual receipt of the Mandatory Redemption Payment by the
Subscriber shall be credited against the Mandatory Redemption Payment.

               7.3. Maximum Conversion. The Subscriber shall not be entitled to convert
on a Conversion Date that amount of the Note in connection with that number of
shares of Common Stock which would be in excess of the sum of (i) the number of
shares of common stock beneficially owned by the Subscriber and its Affiliates
on a Conversion Date, and (ii) the number of shares of Common Stock issuable
upon the conversion of the Note with respect to which the determination of this
provision is being made on a Conversion Date, which would result in beneficial
ownership by the Subscriber and its Affiliates of more than 4.99% of the
outstanding shares of common stock of the Company on such Conversion Date. For
the purposes of the provision to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.
Subject to the foregoing, the Subscriber shall not be limited to aggregate
conversions of only 4.99% and aggregate conversions by the Subscriber may
exceed 4.99%. The Subscriber shall have the authority and obligation to
determine whether the restriction contained in this Section 7.3 will limit any
conversion hereunder and to the extent that the Subscriber 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 Subscriber. The Subscriber may void the conversion limitation described
in this Section 7.3 upon and effective after 61 days prior written notice to
the Company. The Subscriber may allocate which of the equity of the Company
deemed beneficially owned by the Subscriber shall be included in the 4.99%
amount described above and which shall be allocated to the excess above 4.99%.

               7.4. Injunction — Posting of Bond. In the event a Subscriber shall elect
to convert a Note or part thereof or exercise the Warrant in whole or in part,
the Company may not refuse conversion or exercise based on any claim that such
Subscriber or any one associated or affiliated with such Subscriber has been
engaged in any violation of law, or for any other reason, unless, an injunction
from a court, on notice, restraining and or enjoining conversion of all or part
of said Note or exercise of all or part of said Warrant shall have been sought
and obtained by the Company and the Company has posted a surety bond for the
benefit of such Subscriber in the amount of 130% of the amount of the Note, or
aggregate purchase

(Subscription Agreement)

11

 

price of the Warrant Shares which are sought to be subject
to the injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be
payable to such Subscriber to the extent Subscriber obtains judgment.

               7.5. Buy-In. In addition to any other rights available to the Subscriber,
if the Company fails to deliver to the Subscriber such shares issuable upon
conversion of a Note by the Delivery Date and if seven (7) business days after
the Delivery Date the Subscriber purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by such
Subscriber of the Common Stock which the Subscriber was entitled to receive
upon such conversion (a “Buy-In”), then the Company
shall pay in cash to the Subscriber (in addition to any remedies available
to or elected by the Subscriber) the amount by which (A) the Subscriber’s total
purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (B) the aggregate principal and/or interest
amount of the Note for which such conversion was not timely honored, together
with interest thereon at a rate of 15% per annum, accruing until such amount
and any accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For example, if the Subscriber
purchases shares of Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to an attempted conversion of $10,000 of note
principal and/or interest, the Company shall be required to pay the Subscriber
$1,000, plus interest. The Subscriber shall provide the Company written notice
indicating the amounts payable to the Subscriber in respect of the Buy-In.

               7.6 Adjustments. The Conversion Price, Warrant exercise price and amount
of Shares issuable upon conversion of the Notes and exercise of the Warrants
shall be adjusted as described in this Agreement, the Notes and Warrants.

               7.7. Redemption. The Note and Warrants shall not be redeemable or
callable except as described in the Note.

               8. Broker/Legal Fees.

                         (a) Broker’s Fee. The Company on the one hand, and each Subscriber (for
itself only) on the other hand, agree to indemnify the other against and hold
the other harmless from any and all liabilities to any persons claiming
brokerage commissions or finder’s fees on account of services purported to have
been rendered on behalf of the indemnifying party in connection with this
Agreement or the transactions contemplated hereby and arising out of such
party’s actions. The Company represents that there are no parties entitled to
receive fees, commissions, or similar payments in connection with the
transactions described in this Subscription Agreement (the “Offering”).

                         (b) Legal Fees. The Company, upon closing, shall pay to Grushko &
Mittman, P.C., a fee of $25,000 (“Legal Fees”) as reimbursement for services
rendered to the Subscribers in connection with the Offering and acting as
Escrow Agent for the Offering. The Company will deposit the Legal Fees with the
Escrow Agent prior to Closing. The Legal Fees will be payable by the Company
out of funds held pursuant to the Escrow Agreement.

               9.1. Covenants of the Company. The Company covenants and agrees with the
Subscribers as follows:

                         (a) Stop Orders. The Company will advise the Subscribers, promptly after
it receives notice of issuance by the Commission, any state securities
commission or any other regulatory authority of any stop order or of any order
preventing or suspending any offering of any securities of the

(Subscription Agreement)

12

 

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
of Common Stock and the Warrant Shares upon each national securities exchange,
or automated quotation system upon which they are or become eligible for
listing (subject to official notice of issuance) and shall maintain such
listing so long as any Warrants are outstanding. The Company will maintain the
listing or quotation of its Common Stock on the American Stock Exchange, Nasdaq
SmallCap Market, Nasdaq National Market System, Bulletin Board, or New York
Stock Exchange (whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock (the “Principal Market”)), and will
comply in all respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of the Principal Market, as applicable.
The Company will provide the Subscribers copies of all notices it receives
notifying the Company of the threatened and actual delisting of the Common
Stock from any Principal Market. As of the date of this Agreement and the
Closing Date, the Bulletin Board is and will be the Principal Market.

                         (c) Market Regulations. The Company shall notify the Commission, the
Principal Market and applicable state authorities, in accordance with their
requirements, of the transactions contemplated 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 the
sooner of (i) two (2) years after the Closing Date, or (ii) until all the
Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitation, the Company will (A) cause its Common
Stock to continue to be registered under Section 12(b) or 12(g) of the 1934
Act, (B) comply in all material respects with its reporting and filing
obligations under the 1934 Act, (C) comply with all reporting requirements that
are applicable to an issuer with a class of shares registered pursuant to
Section 12(b) or 12(g) of the 1934 Act, as applicable, and (D) comply with all
requirements related to any registration statement filed pursuant to this
Agreement. The Company will use its best efforts not to take any action or
file any document (whether or not permitted by the 1933 Act or the 1934 Act or
the rules thereunder) to terminate or suspend such registration or to terminate
or suspend its reporting and filing obligations under said acts until three (3)
years after the Closing Date. Until the earlier of the resale of the Common
Stock and the Warrant Shares by each Subscriber or 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 a Principal Market and will
comply in all respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of the Principal Market. The Company
agrees to timely file a Form D with respect to the Securities if required under
Regulation D and to provide a copy thereof to each Subscriber promptly after
such filing.

                         (e) Reserved.

                         (f) Reservation. Prior to the Closing Date, the Company undertakes to
reserve, pro rata, on behalf of each holder of a Note or Warrant, from its
authorized but unissued common stock, a number of common shares equal to 150%
of the amount of Common Stock necessary to allow each holder of a Note to be
able to convert all such outstanding Notes and interest and reserve the amount
of Warrant Shares issuable upon exercise of the Warrants. Failure to have
sufficient shares reserved pursuant to this Section 9.1(f) for three (3)
consecutive business days or ten (10) days in the aggregate shall be a material
default of the Company’s obligations under this Agreement.

(Subscription Agreement)

13

 

                         (g) Taxes. From the date of this Agreement and until the sooner of (i)
three (3) years after the Closing Date, or (ii) until all the Shares and
Warrant Shares have been resold or transferred by all the Subscribers pursuant
to the Registration Statement or pursuant to Rule 144, without regard to volume
limitations, the Company will promptly pay and discharge, or cause to be paid
and discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall
have set aside on its books adequate reserves with respect thereto, and
provided, further, that the Company will pay all such taxes, assessments,
charges or levies forthwith upon the commencement of proceedings to foreclose
any lien which may have attached as security therefore.

                         (h) Insurance. From the date of this Agreement and until the sooner of
(i) three (3) years after the Closing Date, or (ii) until all the Shares and
Warrant Shares have been resold or transferred by all the Subscribers pursuant
to the Registration Statement or pursuant to Rule 144, without regard to volume
limitations, the Company will keep its assets which are of an insurable
character insured by financially sound and reputable insurers against loss or
damage by fire, explosion and other risks customarily insured against by
companies in the Company’s line of business, in amounts sufficient to prevent
the Company from becoming a co-insurer and not in any event less than one
hundred percent (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 and until the
sooner of (i) three (3) years after the Closing Date, or (ii) until all the
Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company will keep true records and
books of account in which full, true and correct entries will be made of all
dealings or transactions in relation to its business and affairs in accordance
with generally accepted accounting principles applied on a consistent basis.

                         (j) Governmental Authorities. From the date of this Agreement and until
the sooner of (i) three (3) years after the Closing Date, or (ii) until all the
Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company shall duly observe and
conform in all material respects to all valid requirements of governmental
authorities relating to the conduct of its business or to its properties or
assets.

                         (k) Intellectual Property. From the date of this Agreement and until the
sooner of (i) three (3) years after the Closing Date, or (ii) until all the
Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company shall 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 and until the sooner of
(i) three (3) years after the Closing Date, or (ii) until all the Shares and
Warrant Shares have been resold or transferred by all the Subscribers pursuant
to the Registration Statement (as defined in Section 11.1(iv) hereof) or
pursuant to Rule 144, without regard to volume limitations, the Company will
keep its properties in good repair, working order and condition, reasonable
wear and tear excepted, and from time to time

(Subscription Agreement)

14

 

make all necessary 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/Public Announcement. From the date of this Agreement
and until the sooner of (i) three (3) years after the Closing Date, or (ii)
until all the Shares and Warrant Shares have been resold or transferred by all
the Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company agrees that except in
connection with a Form 8-K or the Registration Statement, it will not disclose
publicly or privately the identity of the Subscribers unless expressly agreed
to in writing by a Subscriber or only to the extent required by law and then
only upon five days prior notice to Subscriber. In any event and subject to
the foregoing, the Company undertakes to file a
Form 8-K or make a public announcement describing the Offering not later
than the first business day after the Closing Date. In the Form 8-K or public
announcement, the Company will specifically disclose the amount of common stock
outstanding immediately after the Closing. A form of the proposed Form 8-K or
public announcement to be employed in connection with the Offering is annexed
hereto as Exhibit E.

                         (n) Further Registration Statements. Except for a registration statement
filed on behalf of the Subscribers pursuant to Section 11 of this Agreement,
the Company will not file any registration statements or amend any already
filed registration statement, including but not limited to Form S-8, with the
Commission or with state regulatory authorities without the consent of the
Subscriber until the sooner of (i) the Registration Statement shall have been
current and available for use in connection with the public resale of the
Shares and Warrant Shares for 180 days, (ii) until all the Shares have been
resold or transferred by the Subscribers pursuant to the Registration Statement
or Rule 144, without regard to volume limitations, or (iii) the date the Note
has been fully paid (“Exclusion Period”). The Exclusion Period shall be tolled
during the pendency of an Event of Default.

                         (o) Blackout. The Company undertakes and covenants that until the end
of the Exclusion Period 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 or causing an
already effective registration statement to no longer be effective or current
for a period of fifteen (15) or more days.

                         (p) Non-Public Information. The Company covenants and agrees that neither
it nor any other person acting on its behalf will provide any Subscriber or its
agents or counsel with any information that the Company believes constitutes
material non-public information, unless prior thereto such Subscriber shall
have agreed in writing to receive such information. The Company understands
and confirms that each Subscriber shall be relying on the foregoing
representations in effecting transactions in securities of the Company.

                         9.2. Covenants of the Subsidiaries. The Company makes the same covenants
contained in Section 9.1(g) through 9.1(l) on behalf of each of its
Subsidiaries as if such covenants were made by the Subsidiaries.

               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

(Subscription Agreement)

15

 

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 Subscribers, relating hereto.

                         (c) In no event shall the liability of any Subscriber or permitted
successor hereunder or under any Transaction Document or other agreement
delivered in connection herewith be greater in amount than the dollar amount of
the net proceeds actually received by such Subscriber upon the sale of
Registrable Securities (as defined herein).

                         (d) The procedures set forth in Section 11.6 shall apply to the
indemnification set forth in Sections 10(a) and 10(b) above.

               11.1. Registration Rights. The Company hereby grants the following
registration rights to holders of the Securities.

                         (i) On one occasion, for a period commencing seventy-five (75) days after
the Closing Date, but not later than two (2) years after the Closing Date
(“Request Date”), upon a written request therefore 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, the
Company shall prepare and file with the Commission a registration statement
under the 1933 Act registering the Shares, Warrant Shares issuable upon
exercise of the Warrants (collectively “Registrable Securities”) which are the
subject of such request for unrestricted public resale by the holder thereof.
For purposes of Sections 11.1(i) and 11.1(ii), Registrable Securities shall not
include (A) Securities which are registered for resale in an effective
registration statement, (B) included for registration in a pending registration
statement, or (C) which have been issued without further transfer restrictions
after a sale or transfer pursuant to Rule 144 under the 1933 Act. Upon the
receipt of such request, the Company shall promptly give written notice to all
other record holders of the Registrable Securities that such registration
statement is to be filed and shall include in such registration statement
Registrable Securities for which it has received written requests within ten
(10) days after the Company gives such written notice. Such other requesting
record holders shall be deemed to have exercised their demand registration
right under this Section 11.1(i).

                         (ii) If the Company at any time proposes to register any of its securities
under the 1933 Act for sale to the public, whether for its own account or for
the account of other security holders or both, except with respect to
registration statements on Forms S-4, S-8 or another form not available for
registering the Registrable Securities for sale to the public, provided the
Registrable Securities are not otherwise registered for resale by the
Subscribers or Holder pursuant to an effective registration statement,

(Subscription Agreement)

16

 

each
such time it will give at least fifteen (15) days’ prior written notice to the
record holder of the Registrable Securities of its intention so to do. Upon the
written request of the holder, received by the Company within ten (10) days
after the giving of any such notice by the Company, to register any of the
Registrable Securities not previously registered, the Company will cause such
Registrable Securities as to which registration shall have been so requested to
be included with the securities to be covered by the registration statement
proposed to be filed by the Company, all to the extent required to permit the
sale or other disposition of the Registrable Securities so registered by the
holder of such Registrable Securities (the “Seller” or “Sellers”). In the event
that any registration pursuant to this Section 11.1(ii) shall be, in whole or
in part, an underwritten public offering of common stock of the Company, the
number of shares of Registrable Securities to be included in such an
underwriting may be reduced by the managing underwriter if and to the extent
that the Company and the underwriter shall reasonably be of the opinion that
such inclusion would adversely affect the marketing of the securities to be
sold by the Company therein; provided, however, that the Company shall notify
the Seller in writing of any such reduction. Notwithstanding the foregoing
provisions, or Section 11.4 hereof, the
Company may withdraw or delay or suffer a delay of any registration
statement referred to in this Section 11.1(ii) without thereby incurring any
liability to the Seller.

                         (iii) If, at the time any written request for registration is received by
the Company pursuant to Section 11.1(i), the Company has determined to proceed
with the actual preparation and filing of a registration statement under the
1933 Act in connection with the proposed offer and sale for cash of any of its
securities for the Company’s own account and the Company actually does file
such other registration statement, such written request shall be deemed to have
been given pursuant to Section 11.1(ii) rather than Section 11.1(i), and the
rights of the holders of Registrable Securities covered by such written request
shall be governed by Section 11.1(ii).

                         (iv) The Company shall file with the Commission a Form SB-2 registration
statement, or an amendment to a pending registration statement (the
“Registration Statement”) (or such other form that it is eligible to use) in
order to register the Registrable Securities for resale and distribution under
the 1933 Act not later than thirty (30) days after the Closing Date (the
“Filing Date”), and cause to be declared effective not later than February 14,
2005 (the “Effective Date”). The Company will register not less than a number
of shares of common stock in the Registration Statement that is equal to 150%
of the Shares issuable upon conversion of the Notes and all of the Warrant
Shares issuable pursuant to this Agreement upon exercise of the Warrants. The
Registrable Securities shall be reserved and set aside exclusively for the
benefit of each Subscriber and Warrant holder, pro rata, and not issued,
employed or reserved for anyone other than each such Subscriber and Warrant
holder. The Registration Statement will 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.
Without the written consent of the Subscriber, no securities of the Company
other than the Registrable Securities will be included in the Registration
Statement. It shall be deemed a Non-Registration Event if at any time after
the date the Registration Statement is declared effective by the Commission
(“Actual Effective Date”) the Company has registered for unrestricted resale on
behalf of the Subscriber fewer than 125% of the amount of Common Shares
issuable upon full conversion of all sums due under the Notes and 100% of the
Warrant Shares issuable upon exercise of the Warrants.

               11.2. Registration Procedures. If and whenever the Company is required by
the provisions of Section 11.1(i), 11.1(ii), or (iv) to effect the registration
of any Registrable Securities under the 1933 Act, the Company will, as
expeditiously as possible:

(Subscription Agreement)

17

 

                         (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 the Registrable Securities copies of all filings and Commission
letters of comment and notify Subscribers (by telecopier and by e-mail
addresses provided by Subscribers) and Grushko & Mittman, P.C. (by telecopier
and by email to Counslers@aol.com) on or before 6 pm EST on the same business
day that the Company receives notice that (i) the Commission has no comments or
no further comments on the Registration Statement, and (ii) the registration
statement has been declared effective, (failure to timely provide notice as
required by this Section 11.2(a) shall be a material breach of the Company’s
obligation and an Event of Default as defined in the Notes and a
Non-Registration Event as defined in Section 10.4 of this Agreement);

                         (b) prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective until such
registration statement has been effective for a period of 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 Sellers’ intended method of disposition set
forth in such registration statement for such period;

                         (c) furnish to the Sellers, at the Company’s expense, such number of
copies of the registration statement and the prospectus included therein
(including each preliminary prospectus) as such persons reasonably may request
in order to facilitate the public sale or their disposition of the securities
covered by such registration statement;

                         (d) use its best efforts to register or qualify the Registrable Securities
covered by such registration statement under the securities or “blue sky” laws
of such jurisdictions as the Sellers shall request in writing, provided,
however, that the Company shall not for any such purpose be required to qualify
generally to transact business as a foreign corporation in any jurisdiction
where it is not so qualified or to consent to general service of process in any
such jurisdiction;

                         (e) if applicable, list the Registrable Securities covered by such
registration statement with any securities exchange on which the Common Stock
of the Company is then listed;

                         (f) immediately notify the Sellers when a prospectus relating thereto is
required to be delivered under the 1933 Act, of the happening of any event of
which the Company has knowledge as a result of which the prospectus contained
in such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing; and

                         (g) provided same would not be in violation of the provision of Regulation
FD under the 1934 Act, make available for inspection by the Sellers, and any
attorney, accountant or other agent retained by the Seller or underwriter, all
publicly available, non-confidential financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company’s
officers, directors and employees to supply all publicly available,
non-confidential information reasonably requested by the seller, attorney,
accountant or agent in connection with such registration statement.

               11.3. Provision of Documents. In connection with each registration
described in this Section 11, each Seller will furnish to the Company in
writing such information and representation letters

(Subscription Agreement)

18

 

with respect to itself and
the proposed distribution by it as reasonably shall be necessary in order to
assure compliance with federal and applicable state securities laws.

               11.4. Non-Registration Events. The Company and the Subscribers agree that
the Sellers will suffer damages if the Registration Statement is not filed by
the Filing Date and not declared effective by the Commission by the Effective
Date, and any registration statement required under Section 11.1(i) or 11.1(ii)
is not filed within 60 days after written request and declared effective by the
Commission within 120 days after such request, and maintained in the manner and
within the time periods contemplated by Section 11 hereof, and it would not be
feasible to ascertain the extent of such damages with precision. Accordingly,
if (A) the Registration Statement is not filed on or before the Filing Date,
(B) is not declared effective on or before the Effective Date, (C) the
Registration Statement is not declared effective within three (3) business days
after receipt by the Company or its attorneys of a written or oral
communication from the Commission that the Registration Statement will not be
reviewed or that the Commission has no further comments, (D) if the
registration statement described in Sections 11.1(i) or 11.1(ii) is not filed
within 60 days after such written request, or is not declared effective within
120 days after such written request, or (E) any registration statement
described in Sections 11.1(i), 11.1(ii) or 11.1(iv) is filed and declared
effective but shall thereafter cease to be effective (without being succeeded
within fifteen (15) business days by an effective replacement
or amended registration statement) for a period of time which shall exceed
30 days in the aggregate per year (defined as a period of 365 days commencing
on the date the Registration Statement is declared effective) or more than 20
consecutive days (each such event referred to in clauses A through E of this
Section 11.4 is referred to herein as a “Non-Registration Event”), then the
Company shall deliver to the holder of Registrable Securities, as Liquidated
Damages, an amount equal to two percent (2%) for each thirty (30) days or part
thereof, thereafter of the Purchase Price of the Notes remaining unconverted
and purchase price of Shares issued upon conversion of the Notes owned of
record by such holder which are subject to such Non-Registration Event. The
Company must pay the Liquidated Damages in cash or an amount equal to two
hundred percent of such cash Liquidated Damages if paid in additional shares of
registered unlegended free-trading shares of Common Stock. Such Common Stock
shall be valued at a per share value equal to eighty-five percent (85%) of the
average of the five (5) lowest closing bid prices of the Common Stock as
reported by Bloomberg L.P. for the twenty (20) trading days preceding the first
day of each thirty (30) day or shorter period for which Liquidated Damages are
payable. The Liquidated Damages must be paid within ten (10) days after the
end of each thirty (30) day period or shorter part thereof for which Liquidated
Damages are payable. In the event a Registration Statement is filed by the
Filing Date but is withdrawn prior to being declared effective by the
Commission, then such Registration Statement will be deemed to have not been
filed. All oral or written and accounting comments received from the
Commission relating to the Registration Statement must be responded to within
fifteen (15) business days. Failure to timely respond to such comments from
the Commission is a Non-Registration Event for which Liquidated Damages shall
accrue and be payable by the Company to the holders of Registrable Securities
at the same rate set forth above. Notwithstanding the foregoing, the Company
shall not be liable to the Subscriber under this Section 11.4 for any events or
delays occurring as a consequence of the acts or omissions of the Subscribers
contrary to the obligations undertaken by Subscribers in this Agreement.
Liquidated Damages will not accrue nor be payable pursuant to this Section 11.4
nor will a Non-Registration Event be deemed to have occurred for times during
which Registrable Securities are transferable by the holder of Registrable
Securities pursuant to Rule 144(k) under the 1933 Act.

               11.5. Expenses. All expenses incurred by the Company in complying with
Section 11, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including reasonable counsel
fees) incurred in connection with complying with state securities or “blue sky”
laws, fees of the National Association of Securities Dealers, Inc., transfer
taxes, fees of transfer agents and registrars, costs

(Subscription Agreement)

19

 

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 one counsel to
the Seller, are called “Selling Expenses.” The Company will pay all
Registration Expenses in connection with the registration statement under
Section 11. Selling Expenses in connection with each registration statement
under Section 11 shall be borne by the Seller and may be apportioned among the
Sellers in proportion to the number of shares sold by the Seller relative to
the number of shares sold under such registration statement or as all Sellers
thereunder may agree.

               11.6. Indemnification and Contribution.

                         (a) In the event of a registration of any Registrable Securities under the
1933 Act pursuant to Section 11, the Company will, to the extent permitted by
law, indemnify and hold harmless the Seller, each officer of the Seller, each
director of the Seller, each underwriter of such Registrable Securities
thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any registration
statement under which such Registrable Securities was registered under the
1933 Act pursuant to Section 11, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of or
are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances when made, and will subject to the
provisions of Section 11.6(c) reimburse the Seller, each such underwriter and
each such controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company shall
not be liable to the Seller to the extent that any such damages arise out of or
are based upon an untrue statement or omission made in any preliminary
prospectus if (i) the Seller failed to send or deliver a copy of the final
prospectus delivered by the Company to the Seller with or prior to the delivery
of written confirmation of the sale by the Seller to the person asserting the
claim from which such damages arise, (ii) the final prospectus would have
corrected such untrue statement or alleged untrue statement or such omission or
alleged omission, or (iii) to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with
information furnished by any such Seller, or any such controlling person in
writing specifically for use in such registration statement or prospectus.

                         (b) In the event of a registration of any of the Registrable Securities
under the 1933 Act pursuant to Section 11, each Seller severally but not
jointly will, to the extent permitted by law, indemnify and hold harmless the
Company, and each person, if any, who controls the Company within the meaning
of the 1933 Act, each officer of the Company who signs the registration
statement, each director of the Company, each underwriter and each person who
controls any underwriter within the meaning of the 1933 Act, against all
losses, claims, damages or liabilities, joint or several, to which the Company
or such officer, director, underwriter or controlling person may become subject
under the 1933 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement under which such Registrable Securities were
registered under the 1933 Act pursuant to Section 11, any preliminary
prospectus or final prospectus contained therein, or any amendment or
supplement thereof, or arise out of or are based upon 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,

(Subscription Agreement)

20

 

damage, liability or action,
provided, however, that the Seller will be liable hereunder in any such case if
and only to the extent that any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in conformity with
information pertaining to such Seller, as such, furnished in writing to the
Company by such Seller specifically for use in such registration statement or
prospectus, and provided, further, however, that the liability of the Seller
hereunder shall be limited to the net proceeds actually received by the Seller
from the sale of Registrable Securities covered by such registration statement.

                         (c) Promptly after receipt by an indemnified party hereunder of notice of
the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
such indemnified party other than under this Section 11.6(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 11.6(c), except and only if and to the extent the indemnifying
party is prejudiced by such omission. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
in and, to the extent it shall wish, to assume and undertake the defense
thereof with counsel satisfactory to such indemnified party, and, after notice
from the indemnifying party to such indemnified
party of its election so to assume and undertake the defense thereof, the
indemnifying party shall not be liable to such indemnified party under this
Section 11.6(c) for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected, provided,
however, that, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to it
which are different from or additional to those available to the indemnifying
party or if the interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party, the indemnified parties,
as a group, shall have the right to select one separate counsel and to assume
such legal defenses and otherwise to participate in the defense of such action,
with the reasonable expenses and fees of such separate counsel and other
expenses related to such participation to be reimbursed by the indemnifying
party as incurred.

                         (d) In order to provide for just and equitable contribution in the event
of joint liability under the 1933 Act in any case in which either (i) a Seller,
or any controlling person of a Seller, makes a claim for indemnification
pursuant to this Section 11.6 but it is judicially determined (by the entry of
a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 11.6 provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of the Seller or
controlling person of the Seller in circumstances for which indemnification is
not provided under this Section 11.6; then, and in each such case, the Company
and the Seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (y) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities sold by it pursuant
to such registration statement; and (z) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) will be entitled to contribution from any person or entity who was not
guilty of such fraudulent misrepresentation.

               11.7. Delivery of Unlegended Shares.

(Subscription Agreement)

21

 

                         (a) Within three (3) business days (such third (3rd) business day being
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 the 1933 Act,
(ii) a representation that the prospectus delivery requirements, or the
requirements of Rule 144, as applicable and if required, have been satisfied,
and (iii) the original share certificates representing the shares of Common
Stock that have been sold, and (iv) in the case of sales under Rule 144,
customary representation letters of the Subscriber and/or Subscriber’s broker
regarding compliance with the requirements of Rule 144, the Company at its
expense, (y) shall deliver, and shall cause legal counsel selected by the
Company to deliver to its transfer agent (with copies to Subscriber) an
appropriate instruction and opinion of such counsel, directing the delivery of
shares of Common Stock without any legends including the legend set forth in
Section 4(e) above, reissuable pursuant to any effective and current
Registration Statement described in Section 11 of this Agreement or pursuant to
Rule 144 under the 1933 Act (the “Unlegended Shares”); and (z) cause the
transmission of the certificates representing the Unlegended Shares together
with a legended certificate representing the balance of the submitted Shares
certificate, if any, to the Subscriber at the address specified in the notice
of sale, via express courier, by electronic transfer or otherwise on or before
the Unlegended Shares Delivery Date. Transfer fees shall be the responsibility
of the Seller.

                         (b) In lieu of delivering physical certificates representing the
Unlegended Shares, if the Company’s transfer agent is participating in the
Depository Trust Company (“DTC”) Fast
Automated Securities Transfer program, upon request of a Subscriber, so
long as the certificates therefor do not bear a legend and the Subscriber is
not obligated to return such certificate for the placement of a legend thereon,
the Company shall cause its transfer agent to electronically transmit the
Unlegended Shares by crediting the account of Subscriber’s prime Broker with
DTC through its Deposit Withdrawal Agent Commission system. Such delivery must
be made on or before the Unlegended Shares Delivery Date.

                         (c) The Company understands that a delay in the delivery of the Unlegended
Shares pursuant to Section 11 hereof later than two business days after the
Unlegended Shares Delivery Date could result in economic loss to a Subscriber.
As compensation to a Subscriber for such loss, the Company agrees to pay late
payment fees (as liquidated damages and not as a penalty) to the Subscriber for
late delivery of Unlegended Shares in the amount of $100 per business day after
the Delivery Date for each $10,000 of purchase price of the Unlegended Shares
subject to the delivery default. If during any 360 day period, the Company
fails to deliver Unlegended Shares as required by this Section 11.7 for an
aggregate of thirty (30) days, then each Subscriber or assignee holding
Securities subject to such default may, at its option, require the Company to
redeem all or any portion of the Shares and Warrant Shares subject to such
default at a price per share equal to 120% of the Purchase Price of such Common
Stock and Warrant Shares (“Unlegended Redemption Amount”). The amount of the
aforedescribed liquidated damages that have accrued or paid for the twenty day
period prior to the receipt by the Subscriber of the Unlegended Redemption
Amount shall be credited against the Unlegended Redemption Amount. The Company
shall pay any payments incurred under this Section in immediately available
funds upon demand.

                         (d) In addition to any other rights available to a Subscriber, if the
Company fails to deliver to a Subscriber Unlegended Shares as required pursuant
to this Agreement, within seven (7) business days after the Unlegended Shares
Delivery Date and the Subscriber purchases (in an open market transaction or
otherwise) shares of common stock to deliver in satisfaction of a sale by such
Subscriber of the shares of Common Stock which the Subscriber was entitled to
receive from the Company (a “Buy-In”), then the Company shall pay in cash to
the Subscriber (in addition to any remedies available to or elected by the
Subscriber) the amount by which (A) the Subscriber’s total purchase price
(including brokerage commissions, if any) for the shares of common stock so
purchased exceeds (B) the aggregate purchase price of the shares of Common
Stock delivered to the Company for reissuance as Unlegended Shares,

(Subscription Agreement)

22

 

together
with interest thereon at a rate of 15% per annum, accruing until such amount
and any accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For example, if a Subscriber
purchases shares of Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to $10,000 of purchase price of shares of Common
Stock delivered to the Company for reissuance as Unlegended Shares, the Company
shall be required to pay the Subscriber $1,000, plus interest. The Subscriber
shall provide the Company written notice indicating the amounts payable to the
Subscriber in respect of the Buy-In.

                         (e) In the event a Subscriber shall request delivery of Unlegended Shares
as described in Section 11.7 and the Company is required to deliver such
Unlegended Shares pursuant to Section 11.7, the Company may not refuse to
deliver Unlegended Shares based on any claim that such Subscriber or any one
associated or affiliated with such Subscriber has been engaged in any violation
of law, or for any other reason, unless, an injunction or temporary restraining
order from a court, on notice, restraining and or enjoining delivery of such
Unlegended Shares or exercise of all or part of said Warrant shall have been
sought and obtained and the Company has posted a surety bond for the benefit of
such Subscriber in the amount of 120% of the amount of the aggregate purchase
price of the Common Stock and Warrant Shares which are subject to the
injunction or temporary restraining order, which bond shall remain in effect
until the completion of arbitration/litigation of the dispute and the proceeds
of which shall be payable to such Subscriber to the extent Subscriber obtains
judgment in Subscriber’s favor.

               12. (a) Right of First Refusal. Until one year after the Actual Effective
Date, the Subscribers shall be given not less than ten (10) business days prior
written notice of any proposed sale by the Company of its common stock or other
securities or debt obligations, except (i) securities issued or issuable to
officers, directors, or full-time employees of the Company pursuant to stock
grants, stock purchases, and/or stock option plans or any other stock incentive
program, agreement, or arrangement approved by all of the disinterested members
of the Company’s board of directors, (ii) securities issued as full or partial
consideration in connection with a strategic merger, consolidation, or purchase
of substantially all of the securities or assets of another corporation or
entity, (iii) securities issued in connection with bank financing or equipment
leasing transactions, (iv) shares of Common Stock issued upon conversions of
the Notes or exercise of the Warrants or pursuant to the provisions of this
Section 12, and (v) as has been described in the Reports or Other Written
Information filed with the Commission or delivered to the Subscribers prior to
the Closing Date (collectively the foregoing are “Excepted Issuances”). The
Subscribers who exercise their rights pursuant to this Section 12(a) shall have
the right during the ten (10) business days following receipt of the notice to
purchase such amount of 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 ten (10) business days following the notice of
modification, whichever is longer, to exercise such right.

                         (b) Offering Restrictions. Until the sooner of (i) the end of the
Exclusion Period, or (ii) until all the Shares and Warrant Shares have been
resold or transferred by all the Subscribers pursuant to the Registration
Statement or pursuant to Rule 144, without regard to volume limitations, except
for the Excepted Issuances, without the consent of holders of not less than
eighty percent (80%) of outstanding Note principal, the Company will not issue
any equity, convertible debt or other securities convertible into common stock
or equity of the Company without the prior written consent of the Subscriber,
which consent may be withheld for any reason.

                         (c) Favored Nations Provision. Other than the Excepted Issuances, if at
any time Notes are outstanding the Company shall offer, issue or agree to issue
any common stock or securities

(Subscription Agreement)

23

 

convertible into or exercisable for shares of
common stock (or modify any of the foregoing which may be outstanding) to any
person or entity at a price per share or conversion or exercise price per share
which shall be less than the Conversion Price in respect of the Shares, or if
less than the Warrant exercise price in respect of the Warrant Shares, without
the consent of each Subscriber holding Notes and/or Shares, then the Company
shall issue, for each such occasion, additional shares of Common Stock to each
Subscriber so that the average per share purchase price of the shares of Common
Stock issued to the Subscriber (of only the Common Stock or Warrant Shares
still owned by the Subscriber) is equal to such other lower price per share and
the Conversion Price and Warrant Exercise Price shall automatically be reduced
to such other lower price per share. The average Purchase Price of the Shares
and average exercise price in relation to the Warrant Shares shall be
calculated separately for the Shares and Warrant Shares. The foregoing
calculation and issuance shall be made separately for Shares received upon
conversion and separately for Warrant Shares. The delivery to the Subscriber
of the additional shares of Common Stock shall be not later than the closing
date of the transaction giving rise to the requirement to issue additional
shares of Common Stock. The Subscriber is granted the registration rights
described in Section 11 hereof in relation to such additional shares of Common
Stock except that the Filing Date and Effective Date vis-à-vis such additional
common shares shall be, respectively, the sixtieth (60th) and one hundred and
twentieth (120th) date after the closing date giving rise to the requirement to
issue the additional shares of Common Stock. For purposes of the issuance and
adjustment described in this paragraph, the issuance of any security of the
Company carrying the right to convert such security into shares of Common Stock
or of any warrant, right or option to purchase Common Stock shall result in the
issuance of the additional shares of Common Stock upon the issuance of
such convertible security, warrant, right or option and again at any time
upon any subsequent issuances of shares of Common Stock upon exercise of such
conversion or purchase rights if such issuance is at a price lower than the
Conversion Price in effect upon such issuance. The rights of the Subscriber
set forth in this Section 12 are in addition to any other rights the Subscriber
has pursuant to this Agreement, the Note, any Transaction Document, and any
other agreement referred to or entered into in connection herewith. The
provision of this Section 12(c) shall not apply to any offering which shall
result in the Optional Redemption (as defined in Section 2.3 of the Note) of
the whole (but not part) of the amount which may be redeemed by the Company
pursuant to Section 2.3 of the Note.

                         (d) Maximum Exercise of Rights. In the event the exercise of the rights
described in Sections 12(a) and 12(c) would result in the issuance of an amount
of common stock of the Company that would exceed the maximum amount that may be
issued to a Subscriber calculated in the manner described in Section 7.3 of
this Agreement, then the issuance of such additional shares of common stock of
the Company to such Subscriber will be deferred in whole or in part until such
time as such Subscriber is able to beneficially own such common stock without
exceeding the maximum amount set forth calculated in the manner described in
Section 7.3 of this Agreement. The determination of when such common stock may
be issued shall be made by each Subscriber as to only such Subscriber.

               13. Mutual General Release.

                         (a) Subject to the terms and conditions of this Agreement, each Subscriber
agrees to and does hereby release and forever discharge Company and its agents,
officers, directors, shareholders, employees, affiliates, insurers, assigns,
and other successors in interest of and from any and all claims, demands,
rights, liabilities, and causes of action, whether presently known or unknown,
suspected or unsuspected, which such Subscriber may now have, has ever had, or
may hereafter have against Company arising from or related to (i) the
transactions described in the First Subscription Agreement, (ii) the issuance
of the First Common Stock and First Warrants, (iii) the litigation (and its
underlying allegations and circumstances) pending in Manicopa County Superior
Court titled, Goldspring, Inc. v. Parent, et al. No. CV2004-021755, and (iv)
any omissions, acts, or facts which have occurred up until the Closing,
including, but not limited to, any claims in connection with such Subscriber’s
original

(Subscription Agreement)

24

 

purchase of the First Common Stock and First Warrants, or any rights
to indemnification or reimbursement from Company, whether pursuant to its
organizational documents, contracts, or otherwise and whether or not relating
to the foregoing, pending on, or asserted after the Closing Date.

                         (b) Subject to the terms and conditions of this Agreement, Company agrees
to and does hereby release and forever discharge each Subscriber, and such
Subscriber’s personal representatives, estates, spouses, agents, assigns,
heirs, administrators, officers, directors, shareholders, employees,
affiliates, insurers and other successors in interest (collectively “Subscriber
Releasees”) of and from any and all claims, demands, rights, liabilities, and
causes of action relating to any matters of any kind, whether presently known
or unknown, suspected or unsuspected, which Company may now have, has ever had,
or may hereafter have against such Subscriber Releasees arising from the
transactions described in the First Subscription Agreement, the issuance of the
First Common Stock and First Warrants or arising out of any omissions, acts, or
facts which have occurred up until the Closing, including, but not limited to,
any claims in connection with such Subscriber’s original purchase of the First
Common Stock and First Warrants, or any rights to indemnification or
reimbursement from Subscriber Releasees, whether pursuant to its organizational
documents, contracts, or otherwise and whether or not relating to claims
pending on the Closing Date.

                         (c) Each party irrevocably covenants to refrain from, directly or
indirectly asserting any claim or demand, or commencing, instituting, or
causing to be commenced, any proceeding of
any kind against any party hereto, based upon any matter purported to be
released pursuant to this Section 13.

                         (d) The foregoing notwithstanding, the Company and Subscriber shall
indemnify and hold harmless the other from and against all loss, liability,
claim, damage (including incidental and consequential damages), or expense
(including costs of investigation and defense and reasonably attorney’s fees)
involving third party claims, arising directly or indirectly from or in
connection with the assertion by or on behalf of any third party of any claim
or other matter purported to be released pursuant to this Section 13.

                         (e) Each Subscriber and Company understand that future claims, demands,
rights, liabilities, and causes of action released under Sections 13(a) and (b)
above, which presently are unknown, unforeseen, or not yet in existence may
occur and consciously intend to release all such claims.

                         (f) Each Subscriber and Company represent and warrant that they have made
no assignment, transfer, conveyance, pledge, or other disposition of any of the
claims, demands, causes of action, obligations, damages, or liabilities
released under Sections 13(a) and (b) above, and that they are fully entitled
to give their full and complete release of all such claims and demands.

                         (g) Each Subscriber and Company agree and understand that once this
Agreement becomes effective it may not be revoked, and no party may proceed
against any other party hereto on account of any of the claims released herein.
Each Subscriber and Company further agree and understand that any party
defending an action or claim commenced, maintained, or prosecuted in violation
of this Agreement will be entitled to recover from the party or parties
bringing the action or claim any damages or costs, including reasonable
attorney fees and costs, incurred in defending the action or claim.

               14. 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,

(Subscription Agreement)

25

 

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:
Goldspring, Inc., 8585 E. Hartford Drive, Suite 400, Scottsdale, AZ 85255,
Attn: Robert T. Faber, President & CEO, telecopier: (480) 505-4044, with a copy
by telecopier only to: Greenberg Traurig LLP, 2375 E. Camelback Road, Suite
700, Phoenix, AZ 85016, Attn: Robert S. Kant, Esq., telecopier: (602) 445-8100,
and (ii) if to the Subscribers, to: the one or more addresses and telecopier
numbers indicated on the signature pages hereto, with an additional copy by
telecopier only to: Grushko & Mittman, P.C., 551 Fifth Avenue, Suite 1601, New
York, New York 10176, telecopier number: (212) 697-3575.

                         (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 (“Closing Date”).
Provided the Escrow Agent has received all Company Documents and
Subscriber Documents (as defined in the Escrow Agreement) on or before December
6, 2004, then the Closing Date for all purposes will be deemed to be November
30, 2004.

                         (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 the Company shall be assigned without prior notice to and the written
consent of the Subscribers.

                         (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

(Subscription Agreement)

26

 

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 one or more
preliminary and final injunctions to prevent or cure breaches of the provisions
of this Agreement and to enforce specifically the terms and provisions hereof,
this being in addition to any other remedy to which any of them may be entitled
by law or equity. Subject to Section 14(e) hereof, each of the Company,
Subscriber and any signator hereto in his personal capacity hereby waives, and
agrees not to assert in any such suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction in New York of such court, that
the suit, action or proceeding is brought in an inconvenient forum or that the
venue of the suit, action or proceeding is improper. Nothing in this Section
shall affect or limit any right to serve process in any other manner permitted
by law.

                         (g) Independent Nature of Subscribers. The Company acknowledges that the
obligations of each Subscriber under the Transaction Documents are several and
not joint with the obligations of any other Subscriber, and no Subscriber shall
be responsible in any way for the performance of the obligations of any other
Subscriber under the Transaction Documents. The Company acknowledges that the
decision of each Subscriber to purchase Securities has been made by such
Subscriber independently of any other Subscriber and independently of any
information, materials, statements or opinions as to the business, affairs,
operations, assets, properties, liabilities, results of operations, condition
(financial or otherwise) or prospects of the Company which may have been made
or given by any other Subscriber or by any agent or
employee of any other Subscriber, and no Subscriber or any of its agents
or employees shall have any liability to any Subscriber (or any other person)
relating to or arising from any such information, materials, statements or
opinions. The Company acknowledges that nothing contained in any Transaction
Document, and no action taken by any Subscriber pursuant hereto or thereto
(including, but not limited to, the (i) inclusion of a Subscriber in the
Registration Statement and (ii) review by, and consent to, such Registration
Statement by a Subscriber) shall be deemed to constitute the Subscribers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Subscribers are in any way acting in concert or
as a group with respect to such obligations or the transactions contemplated by
the Transaction Documents. The Company acknowledges that each Subscriber shall
be entitled to independently protect and enforce its rights, including without
limitation, the rights arising out of the Transaction Documents, and it shall
not be necessary for any other Subscriber to be joined as an additional party
in any proceeding for such purpose. The Company acknowledges that it has
elected to provide all Subscribers with the same terms and Transaction
Documents for the convenience of the Company and not because Company was
required or requested to do so by the Subscribers. The Company acknowledges
that such procedure with respect to the Transaction Documents in no way creates
a presumption that the Subscribers are in any way acting in concert or as a
group with respect to the Transaction Documents or the transactions
contemplated thereby.

[THIS SPACE INTENTIONALLY LEFT BLANK]

(Subscription Agreement)

27

 

SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

     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.

	 	 	 	 	 
	 	 	GOLDSPRING, INC.
a Florida corporation
	 	 	
By:
	 	/s/ Robert T. Faber

Name: Robert T. Faber

Title: President & CEO
	 	 	Dated: November 30, 2004

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	FIRST WARRANTS
	 	 
	 	 	FIRST	 	FIRST	 	CLASS A	 	GREEN SHOE	 	PRINCIPAL
	SUBSCRIBER
	 	PURCHASE PRICE
	 	COMMON STOCK
	 	WARRANTS
	 	WARRANTS
	 	AMOUNT OF NOTE

	GAMMA OPPORTUNITY CAPITAL PARTNERS, LP
	 	$	750,000	 	 	 	1,630,435	 	 	 	815,218	 	 	 	815,218	 	 	$	832,550	 
	605 Crescent Executive Court, Suite 416
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Lake Mary, Florida 32746
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Fax:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	/s/ Jonathan
P. Knight
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By: Jonathan
P. Knight
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	LONGVIEW FUND LP
	 	$	750,000	 	 	 	1,630,435	 	 	 	815,218	 	 	 	815,218	 	 	$	832,550	 
	600 Montgomery Street, 44th Floor
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	San Francisco, CA 94111
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Fax: (415) 981-5302
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	/s/ Michael Rudolph
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By: S. Michael Rudolph, CFO
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	LONGVIEW EQUITY FUND, LP
	 	$	1,125,000	 	 	 	2,445,652	 	 	 	1,222,826	 	 	 	1,222,826	 	 	$	1,248,825	 
	600 Montgomery Street, 44th Floor
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	San Francisco, CA 94111
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Fax: (415) 981-5302
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	/s/ Wayne H. Coleson
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By: Wayne H. Coleson, CEO
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

 

 

SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

     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.

	 	 	 	 	 
	 	 	GOLDSPRING, INC.
a Florida corporation
	 	 	
By:
	 	/s/ Robert T. Faber

Name: Robert T. Faber

Title: President & CEO
	 	 	Dated: November 30, 2004

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	FIRST WARRANTS
	 	 
	 	 	FIRST	 	FIRST	 	CLASS A	 	GREEN SHOE	 	PRINCIPAL
	SUBSCRIBER
	 	PURCHASE PRICE
	 	COMMON STOCK
	 	WARRANTS
	 	WARRANTS
	 	AMOUNT OF NOTE

	LONGVIEW INTERNATIONAL EQUITY FUND, LP
	 	$	375,000	 	 	 	815,217	 	 	 	407,609	 	 	 	407,609	 	 	$	416,275	 
	600 Montgomery Street, 44th Floor
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	San Francisco, CA 94111
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Fax: (415) 981-5302
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	/s/ Wayne H. Coleson
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By: Wayne H. Coleson, CEO
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	ALPHA CAPITAL AKTIENGESELLSCHAFT
	 	$	500,000	 	 	 	1,086,957	 	 	 	543,479	 	 	 	543,479	 	 	$	555,033	 
	Pradafant 7
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	9490 Furstentums
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Vaduz, Lichtenstein
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Fax: 011-42-32323196
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	/s/ Konrad Ackerman
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By: Konrad Ackerman
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

43

 

SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

     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.

	 	 	 	 	 
	 	 	GOLDSPRING, INC.
a Florida corporation
	 	 	
By:
	 	/s/ Robert T. Faber 

Name: Robert T. Faber

Title: President & CEO
	 	 	Dated: November
 30, 2004

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	FIRST WARRANTS
	 	 
	 	 	FIRST	 	FIRST	 	CLASS A	 	GREEN SHOE	 	PRINCIPAL
	SUBSCRIBER
	 	PURCHASE PRICE
	 	COMMON STOCK
	 	WARRANTS
	 	WARRANTS
	 	AMOUNT OF NOTE

	CAPITAL VENTURES INTERNATIONAL
	 	$	1,000,000	 	 	 	2,173,913	 	 	 	1,086,957	 	 	 	1,086,957	 	 	$	1,110,066	 
	401 City Lane Avenue, Suite 220
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Bala Cynwyd, PA 19004
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Fax:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	/s/ Martin
Kobinger

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	PORTSIDE GROWTH AND OPPORTUNITY FUND
	 	$	250,000	 	 	 	543,478	 	 	 	271,739	 	 	 	271,739	 	 	$	277,516	 
	C/o Ramius Capital Group, LLC
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	666 Third Avenue, 26th Floor
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	New York, NY 10017
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Fax: (212) 845-7999
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
/s/ Jeffrey Smith

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:   Jeffrey
Smith, Authorized Signatory

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	ENABLE GROWTH PARTNERS L.P.
	 	$	200,000	 	 	 	434,783	 	 	 	217,392	 	 	 	217,392	 	 	$	222,013	 
	One Ferry Building, Suite 255
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	San Francisco, CA 94111
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Fax: (415) 677-1580
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	/s/ Mitch Levine

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:   Mitch Levine
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

44

 

SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

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.

	 	 	 	 	 
	 	GOLDSPRING, INC.

a Florida corporation

 	 
	 	By:  	/s/
Robert T. Faber	 
	 	 	Name:  	Robert T. Faber 	 
	 	 	Title:  	President & CEO 	 

	 	 	 	 	 
	 

	 	Dated: November 30, 2004
	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	FIRST WARRANTS
	 	 
	 	 	FIRST	 	 	 	 	 	 	 	 	 	GREEN	 	PRINCIPAL
	 	 	PURCHASE	 	FIRST COMMON	 	CLASS A	 	SHOE	 	AMOUNT
	 SUBSCRIBER
	 	PRICE
	 	STOCK
	 	WARRANTS
	 	WARRANTS
	 	OF NOTE

	WHALEHAVEN FUNDS LIMITED

	 	$	150,000	 	 	 	326,087	 	 	 	163,044	 	 	 	163,044	 	 	$	166,510	 
	3rd Floor, 14 Par-Laville Road

Hamilton, Bermuda HM08

Fax: (441) 292-1373

 

By: /s/ Evan Schemenauer
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:
Evan Schemenauer - Director
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	STONESTREET LIMITED PARTNERSHIP

	 	$	350,000	 	 	 	760,870	 	 	 	380,435	 	 	 	380,435	 	 	$	388,523	 
	C/o Canaccord Capital Corporation

320 Bay Street, Suite 1300

Toronto, Ontario M5H 4A6, Canada

Fax: (416) 956-8989

 

/s/ Michael Finkelstein
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:
Michael Finkelstein - President
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

43

 

SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

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.

	 	 	 	 	 
	 	GOLDSPRING, INC.

a Florida corporation

 	 
	 	By:  	
/s/ Robert T. Faber	 
	 	 	Name:  	Robert T. Faber 	 
	 	 	Title:  	President & CEO 	 

	 	 	 	 	 
	 

	 	Dated: November 30, 2004
	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	FIRST WARRANTS
	 	 
	 	 	FIRST	 	 	 	 	 	 	 	 	 	GREEN	 	PRINCIPAL
	 	 	PURCHASE	 	FIRST COMMON	 	CLASS A	 	SHOE	 	AMOUNT
	 SUBSCRIBER
	 	PRICE
	 	STOCK
	 	WARRANTS
	 	WARRANTS
	 	OF NOTE

	SMITHFIELD FIDUCIARY LLC

	 	$	250,000	 	 	 	543,478	 	 	 	271,739	 	 	 	271,739	 	 	$	277,516	 
	C/o Highbridge Capital

9 West 57th Street, 27th Floor

New York, NY 10019

By:  Adam Chill

Fax:

 

/s/  Adam J. Chill
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By: Adam
J. Chill
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	TCMP3 PARTNERS LLP

	 	$	100,000	 	 	 	217,391	 	 	 	108,696	 	 	 	108,696	 	 	$	111,006	 
	C/o Titan Capital Management

7 Century Drive, Suite 201

Parsippany, NJ 07054

Fax: (973) 540-0702

 

/s/  Steven E. Slawson
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:  Steven E. Slawson
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

43

 

SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

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.

	 	 	 	 	 
	 	GOLDSPRING, INC.

a Florida corporation

 	 
	 	By:  	/s/ Robert T. Faber 	 
	 	 	Name:  	Robert T. Faber 	 
	 	 	Title:  	President & CEO 	 

	 	 	 	 	 
	 

	 	Dated: November 30, 2004
	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	FIRST WARRANTS
	 	 
	 	 	FIRST	 	 	 	 	 	 	 	 	 	GREEN	 	PRINCIPAL
	 	 	PURCHASE	 	FIRST COMMON	 	CLASS A	 	SHOE	 	AMOUNT
	 SUBSCRIBER
	 	PRICE
	 	STOCK
	 	WARRANTS
	 	WARRANTS
	 	OF NOTE

	BRISTOL INVESTMENT FUND, LTD.

	 	$	300,000	 	 	 	652,174	 	 	 	326,087	 	 	 	326,087	 	 	$	333,020	 
	Caledonia House, Jennett Street

George Town, Grand Cayman

Cayman Islands

Fax: (323) 468-8307
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	/s/ Paul Kessler
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:
Paul Kessler, Director
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	VERTICAL VENTURES, LLC

	 	$	250,000	 	 	 	543,478	 	 	 	271,739	 	 	 	271,739	 	 	$	277,516	 
	641 Lexington Avenue, 26th Floor

New York, NY 10022

Fax: (212) 207-3452
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	/s/ Joshua Silverman
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By: Joshua Silverman
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	MERRIMAN CURHAN FORD CORPORATION

601 Montgomery Street, Suite 1800

San Francisco, CA 94111

Fax: (415) 248-5692

	 	$	125,500	 	 	 	272,826	 	 	 	136,413	 	 	 	136,413	 	 	$	139,313	 
	/s/ D. Jonathan Merriman
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By: D. Jonathan Merriman
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

43

 

SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

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.

	 	 	 	 	 
	 	GOLDSPRING, INC.

a Florida corporation

 	 
	 	By:  	/s/ Robert T. Faber
 	 
	 	 	Name:  	Robert T. Faber 	 
	 	 	Title:  	President & CEO 	 

	 	 	 	 	 
	 

	 	Dated: November 30, 2004
	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	FIRST WARRANTS
	 	 
	 	 	FIRST	 	 	 	 	 	 	 	 	 	GREEN	 	PRINCIPAL
	 	 	PURCHASE	 	FIRST COMMON	 	CLASS A	 	SHOE	 	AMOUNT
	 SUBSCRIBER
	 	PRICE
	 	STOCK
	 	WARRANTS
	 	WARRANTS
	 	OF NOTE

	A. TOD HINDIN

	 	$	50,000	 	 	 	108,696	 	 	 	54,348	 	 	 	54,348	 	 	$	55,503	 
	601 Montgomery Street, Suite 1800

San Francisco, CA 94111

Fax: (415) 248-5692
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	/s/
A. Tod Hindin

(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:  
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	KENNETH R. WERNER REV TST DTD 7/20/96

	 	$	50,000	 	 	 	108,696	 	 	 	54,348	 	 	 	54,348	 	 	$	55,503	 
	601 Montgomery Street, Suite 1800

San Francisco, CA 94111

Fax: (415) 248-5692
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	/s/
Kenneth R. Werner

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:   
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	THOMAS P. O’SHEA, JR.

	 	$	30,000	 	 	 	65,217	 	 	 	32,609	 	 	 	32,609	 	 	$	33,302	 
	601 Montgomery Street, Suite 1800

San Francisco, CA 94111

Fax: (415) 248-5692
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	/s/
Tom O’Shea

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By: Tom O’Shea
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

43

 

SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

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.

	 	 	 	 	 
	 	GOLDSPRING, INC.

a Florida corporation

 	 
	 	By:  	/s/ Robert
T. Faber
 	 
	 	 	Name:  	Robert T. Faber 	 
	 	 	Title:  	President & CEO 	 

	 	 	 	 	 
	 

	 	Dated: November 30, 2004
	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	FIRST WARRANTS
	 	 
	 	 	FIRST	 	 	 	 	 	 	 	 	 	GREEN	 	PRINCIPAL
	 	 	PURCHASE	 	FIRST COMMON	 	CLASS A	 	SHOE	 	AMOUNT
	 SUBSCRIBER
	 	PRICE
	 	STOCK
	 	WARRANTS
	 	WARRANTS
	 	OF NOTE

	D. JONATHAN MERRIMAN

601 Montgomery Street, Suite 1800

San Francisco, CA 94111
Fax: (415) 248-5692

	 	$	30,000	 	 	 	65,217	 	 	 	32,609	 	 	 	32,609	 	 	$	33,302	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	/s/
D. Jonathan Merriman

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:   
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	BROCK GANELES

601 Montgomery Street, Suite 1800

San Francisco, CA 94111

Fax: (415) 248-5692

	 	$	25,000	 	 	 	54,348	 	 	 	27,174	 	 	 	27,174	 	 	$	27,751	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	/s/
Brock Ganeles

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:   
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	ELISE STERN

601 Montgomery Street, Suite 1800

San Francisco, CA 94111

Fax: (415) 248-5692

	 	$	25,000	 	 	 	54,348	 	 	 	27,174	 	 	 	27,174	 	 	$	27,751	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	/s/
Elise Stern

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:   
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

43

 

SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

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.

	 	 	 	 	 
	 	GOLDSPRING, INC.

a Florida corporation

 	 
	 	By:  	/s/
Robert T. Faber
 	 
	 	 	Name:  	Robert T. Faber 	 
	 	 	Title:  	President & CEO 	 

	 	 	 	 	 
	 

	 	Dated: November 30, 2004
	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	FIRST WARRANTS
	 	 
	 	 	FIRST	 	 	 	 	 	 	 	 	 	GREEN	 	PRINCIPAL
	 	 	PURCHASE	 	FIRST COMMON	 	CLASS A	 	SHOE	 	AMOUNT
	 SUBSCRIBER
	 	PRICE
	 	STOCK
	 	WARRANTS
	 	WARRANTS
	 	OF NOTE

	CRAIG E. SULTAN

601 Montgomery Street, Suite 1800

San Francisco, CA 94111

Fax: (415) 248-5692

	 	$	25,000	 	 	 	54,348	 	 	 	27,174	 	 	 	27,174	 	 	$	27,751	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	/s/
Craig E. Sultan

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:
Craig E. Sultan
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	CARL FRANKSON

601 Montgomery Street, Suite 1800

San Francisco, CA 94111

Fax: (415) 248-5692

	 	$	25,000	 	 	 	54,348	 	 	 	27,174	 	 	 	27,174	 	 	$	27,751	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	/s/
Carl Frankson

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	JON M. PLEXICO

601 Montgomery Street, Suite 1800

San Francisco, CA 94111

Fax: (415) 248-5692

	 	$	20,000	 	 	 	43,478	 	 	 	21,739	 	 	 	21,739	 	 	$	22,201	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	/s/
Jon M. Plexico

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

43

 

SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

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.

	 	 	 	 	 
	 	GOLDSPRING, INC.

a Florida corporation

 	 
	 	By:  	
/s/ Robtert T Faber	 
	 	 	Name:  	Robert T. Faber 	 
	 	 	Title:  	President & CEO 	 

	 	 	 	 	 
	 

	 	Dated: November 30, 2004
	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	FIRST WARRANTS
	 	 
	 	 	FIRST	 	 	 	 	 	 	 	 	 	GREEN	 	PRINCIPAL
	 	 	PURCHASE	 	FIRST COMMON	 	CLASS A	 	SHOE	 	AMOUNT
	 SUBSCRIBER
	 	PRICE
	 	STOCK
	 	WARRANTS
	 	WARRANTS
	 	OF NOTE

	PETE MARCIL

601 Montgomery Street, Suite 1800

San Francisco, CA 94111

Fax: (415) 248-5692

	 	$	20,000	 	 	 	43,478	 	 	 	21,739	 	 	 	21,739	 	 	$	22,201	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	/s/
Peter C. Marcil

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	DAVID BAIN

601 Montgomery Street, Suite 1800

San Francisco, CA 94111

Fax: (415) 248-5692

	 	$	20,000	 	 	 	43,478	 	 	 	21,739	 	 	 	21,739	 	 	$	22,201	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	/s/
David Bain

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By: David Bain
	 		 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	STEVEN R. SARRACINO

601 Montgomery Street, Suite 1800

San Francisco, CA 94111

Fax: (415) 248-5692

	 	$	19,500	 	 	 	42,391	 	 	 	21,196	 	 	 	21,196	 	 	$	21,646	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	/s/
Steven R. Sarracino

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

43

 

SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

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.

	 	 	 	 	 
	 	GOLDSPRING, INC.

a Florida corporation

 	 
	 	By:  	
/s/ Robert T. Faber	 
	 	 	Name:  	Robert T. Faber 	 
	 	 	Title:  	President & CEO 	 

	 	 	 	 	 
	 

	 	Dated: November 30, 2004
	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	FIRST WARRANTS
	 	 
	 	 	FIRST	 	 	 	 	 	 	 	 	 	GREEN	 	PRINCIPAL
	 	 	PURCHASE	 	FIRST COMMON	 	CLASS A	 	SHOE	 	AMOUNT
	 SUBSCRIBER
	 	PRICE
	 	STOCK
	 	WARRANTS
	 	WARRANTS
	 	OF NOTE

	GREGORY S. CURHAN

601 Montgomery Street, Suite 1800

San Francisco, CA 94111

Fax: (415) 248-5692

	 	$	10,000	 	 	 	21,739	 	 	 	10,870	 	 	 	10,870	 	 	$	11,100	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	/s/
Gregory S. Curhan

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	JOHN HIESTAND

601 Montgomery Street, Suite 1800

San Francisco, CA 94111

Fax: (415) 248-5692

	 	$	10,000	 	 	 	21,739	 	 	 	10,870	 	 	 	10,870	 	 	$	11,100	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	/s/
John Hiestand

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	ROBERT E. FORD

601 Montgomery Street, Suite 1800

San Francisco, CA 94111

Fax: (415) 248-5692

	 	$	10,000	 	 	 	21,739	 	 	 	10,870	 	 	 	10,870	 	 	$	11,100	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	/s/
Robert E. Ford

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By: Robert E. Ford
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

43

 

SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

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.

	 	 	 	 	 
	 	GOLDSPRING, INC.

a Florida corporation

 	 
	 	By:  	
/s/ Robert T. Faber	 
	 	 	Name:  	Robert T. Faber 	 
	 	 	Title:  	President & CEO 	 

	 	 	 	 	 
	 

	 	Dated: November 30, 2004
	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	FIRST WARRANTS
	 	 
	 	 	FIRST	 	 	 	 	 	 	 	 	 	GREEN	 	PRINCIPAL
	 	 	PURCHASE	 	FIRST COMMON	 	CLASS A	 	SHOE	 	AMOUNT
	 SUBSCRIBER
	 	PRICE
	 	STOCK
	 	WARRANTS
	 	WARRANTS
	 	OF NOTE

	ERIC WOLD

601 Montgomery Street, Suite 1800

San Francisco, CA 94111

Fax: (415) 248-5692

	 	$	10,000	 	 	 	21,739	 	 	 	10,870	 	 	 	10,870	 	 	$	11,100	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	/s/
Eric Wold

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	CHRISTOPHER AGUILAR

601 Montgomery Street, Suite 1800

San Francisco, CA 94111

Fax: (415) 248-5692

	 	$	10,000	 	 	 	21,739	 	 	 	10,870	 	 	 	10,870	 	 	$	11,100	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	/s/
Christopher Aguilar

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By: Christopher
Aguilar
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	PETER A. BLACKWOOD

601 Montgomery Street, Suite 1800

San Francisco, CA 94111

Fax: (415) 248-5692

	 	$	10,000	 	 	 	21,739	 	 	 	10,870	 	 	 	10,870	 	 	$	11,100	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	/s/
Peter A. Blackwood

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

43

 

SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

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.

	 	 	 	 	 
	 	GOLDSPRING, INC.

a Florida corporation

 	 
	 	By: 	/s/ Robert T. Faber
 	 
	 	 	Name:  	Robert T. Faber 	 
	 	 	Title:  	President & CEO 	 

	 	 	 	 	 
	 

	 	Dated: November 30, 2004
	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	FIRST WARRANTS
	 	 
	 	 	FIRST	 	 	 	 	 	 	 	 	 	GREEN	 	PRINCIPAL
	 	 	PURCHASE	 	FIRST COMMON	 	CLASS A	 	SHOE	 	AMOUNT
	 SUBSCRIBER
	 	PRICE
	 	STOCK
	 	WARRANTS
	 	WARRANTS
	 	OF NOTE

	GENESIS MICROCAP INC.

483 Green Lanes

London N13 4BS, England

By: Lawrence S. Gibbons

Fax: 011-087-0127-5687

	 	$	100,000	 	 	 	217,391	 	 	 	108,696	 	 	 	108,696	 	 	$	111,006	 
	/s/
Larry Gibbons
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By: Lawrence S. Gibbons
			 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	JOHN V. WINFIELD

820 Moraga Drive

Los Angeles, CA 90049

Fax: (310) 889-2525

	 	$	750,000	 	 	 	1,630,435	 	 	 	815,218	 	 	 	815,218	 	 	$	832,550	 
	/s/ John V. Winfield
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	JOHN V. WINFIELD IRA-1

820 Moraga Drive

Los Angeles, CA 90049

Fax: (310) 889-2525

	 	$	500,000	 	 	 	1,086,957	 	 	 	543,479	 	 	 	543,479	 	 	$	555,033	 
	/s/ John V. Winfield
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

43

 

SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

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.

	 	 	 	 	 
	 	GOLDSPRING, INC.

a Florida corporation

 	 
	 	By:  	/s/ Robert T. Faber
 	 
	 	 	Name:  	Robert T. Faber 	 
	 	 	Title:  	President & CEO 	 

	 	 	 	 	 
	 

	 	Dated: November 30, 2004
	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	FIRST WARRANTS
	 	 
	 	 	FIRST	 	 	 	 	 	 	 	 	 	GREEN	 	PRINCIPAL
	 	 	PURCHASE	 	FIRST COMMON	 	CLASS A	 	SHOE	 	AMOUNT
	 SUBSCRIBER
	 	PRICE
	 	STOCK
	 	WARRANTS
	 	WARRANTS
	 	OF NOTE

	JOHN V. WINFIELD IRA-2

820 Moraga Drive

Los Angeles, CA 90049

Fax: (310) 889-2525

	 	$	250,000	 	 	 	543,478	 	 	 	271,739	 	 	 	271,739	 	 	$	277,516	 
	/s/ John V. Winfield
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	SANTA FE FINANCIAL CORP.

820 Moraga Drive

Los Angeles, CA 90049

Fax: (310) 889-2525

	 	$	250,000	 	 	 	543,478	 	 	 	271,739	 	 	 	271,739	 	 	$	277,516	 
	/s/ John V. Winfield
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	PORTSMOUTH SQUARE, INC.

820 Moraga Drive

Los Angeles, CA 90049

Fax: (310) 889-2525

	 	$	250,000	 	 	 	543,478	 	 	 	271,739	 	 	 	271,739	 	 	$	277,516	 
	/s/ John V. Winfield
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

43

 

SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

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.

	 	 	 	 	 
	 	GOLDSPRING, INC.

a Florida corporation

 	 
	 	By:  	/s/ Robert T. Faber
 	 
	 	 	Name:  	Robert T. Faber 	 
	 	 	Title:  	President & CEO 	 

	 	 	 	 	 
	 

	 	Dated: November 30, 2004
	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	FIRST WARRANTS
	 	 
	 	 	FIRST	 	 	 	 	 	 	 	 	 	GREEN	 	PRINCIPAL
	 	 	PURCHASE	 	FIRST COMMON	 	CLASS A	 	SHOE	 	AMOUNT
	 SUBSCRIBER
	 	PRICE
	 	STOCK
	 	WARRANTS
	 	WARRANTS
	 	OF NOTE

	INTERGROUP CORP.

820 Moraga Drive

Los Angeles, CA 90049

Fax: (310) 889-2525

	 	$	1,000,000	 	 	 	2,173,913	 	 	 	1,086,957	 	 	 	1,086,957	 	 	$	1,110,066	 
	/s/
John V. Winfield
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	ERIK FRANKLIN

534 Openaki Road

Denville, NJ 07834

Fax:

	 	$	25,000	 	 	 	54,348	 	 	 	27,174	 	 	 	27,174	 	 	$	27,751	 
	/s/ Erik Franklin
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By: Erik Franklin
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

43

 

LIST OF EXHIBITS AND SCHEDULES

	 	 	 	 	 
	

	 	Attachment 1
	 	Disclosure Schedule
	 
	 	 	 	 
	

	 	Exhibit A
	 	Form of Note
	 
	 	 	 	 
	

	 	Exhibit B
	 	Form of Warrant
	 
	 	 	 	 
	

	 	Exhibit C
	 	Escrow Agreement
	 
	 	 	 	 
	

	 	Exhibit D
	 	Form of Legal Opinion
	 
	 	 	 	 
	

	 	Exhibit E
	 	Form of Public Announcement or Form 8-K
	 
	 	 	 	 
	

	 	Schedule 5(a)
	 	Subsidiaries and Subsidiary Guarantors
	 
	 	 	 	 
	

	 	Schedule 5(d)
	 	Additional Issuances
	 
	 	 	 	 
	

	 	Schedule 5(q)
	 	Undisclosed Liabilities
	 
	 	 	 	 
	

	 	Schedule 5(s)
	 	Capitalization

43exv10w6

 

Exhibit 10.6

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 OR THE COMMON SHARES ISSUABLE UPON
CONVERSION OF THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO GOLDSPRING, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.

CONVERTIBLE NOTE

     
FOR VALUE RECEIVED, GOLDSPRING, INC., a Florida corporation (hereinafter
called “Borrower”), hereby promises to pay to
                 
       , (the “Holder”) or its registered assigns or successors in interest or order,
without demand, the sum of               Dollars
($     ) (“Principal Amount”), with simple and unpaid interest thereon,
on November 30, 2006 (the “Maturity Date”), if not sooner paid.

     This Note has been entered into pursuant to the terms of a subscription
agreement between the Borrower and the Holder, dated of even date herewith (the
“Subscription Agreement”), and shall be subject to 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

INTEREST AND AMORTIZATION

          1.1. Interest Rate. Subject to Section 5.7 hereof, interest payable on
this Note shall accrue at a rate per annum (the “Interest Rate”) of eight
percent (8%). Interest on the Principal Amount shall be simple interest,
payable monthly, in arrears, commencing on [First day of the first calendar
month after 120 days after closing] and on the first day of each consecutive
calendar month thereafter (each, a “Repayment Date”) and on the Maturity Date,
whether by acceleration or otherwise.

          1.2. Minimum Monthly Principal Payments. Amortizing payments of the
outstanding Principal Amount of this Note shall commence on the first (1st)
Repayment Date and shall recur on each succeeding Repayment Date thereafter
until the Principal Amount has been repaid in full, whether by the payment of
cash or by the conversion of such principal into Common Stock pursuant to the
terms hereof. Subject to Section 2.1 and Article 3 below, on each Repayment
Date, the Borrower shall make payments to the Holder in the amount of
one-twentieth (1/20th) of the initial Principal Amount (the “Monthly Principal
Amount”), together with any accrued and unpaid interest then due on such
portion of the Principal Amount plus any and all other amounts which are then
owing under this Note that have not been paid (the Monthly Principal Amount,
together with such accrued and unpaid interest and such other amounts,
collectively, the “Monthly Amount”). Amounts of Conversions of Principal
Amount made by the Holder or Borrower pursuant to Section 2.1 or Article III,
and Redemption Amounts actually paid to Borrower shall be applied to Monthly
Amounts commencing with the Monthly Amounts first payable and then Monthly
Amounts thereafter in chronological order. Any Principal Amount that remains
outstanding on the Maturity Date shall be due and payable on the Maturity Date.

(Convertible Note)

1

 

          1.3. Default Interest Rate. Following the occurrence and during the
continuance of an Event of Default, subject to Section 5.7, the annual interest
rate on this Note shall automatically be increased to fifteen percent (15%),
and all outstanding obligations under this Note, including unpaid interest,
shall continue to accrue interest from the date of such Event of Default at
such interest rate applicable to such obligations until such Event of Default
is cured or waived.

ARTICLE II

CONVERSION AND REPAYMENT

     2.1. (a) Holder’s Conversion Election. 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 (3) 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 through the
Conversion Date directly to the Holder on or before the Delivery Date. 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) Conversion Price. Subject to adjustment as provided in Section
3.4(b), the Conversion Price per share shall be (i) $0.20 (“Maximum Base
Price”) or at the Holder’s election (ii) for the initial twenty (20) trading
days after the issue date of this Note, at seventy (70%) of the average of the
five (5) lowest closing bid prices for the Common Stock for the twenty (20)
trading days prior to but not including the issue date of this Note for the
Common Stock on the OTC Pink Sheets, NASD OTC Bulletin Board, NASDAQ SmallCap
Market, NASDAQ National Market System, American Stock Exchange, or New York
Stock Exchange, as applicable, or if not then trading on any of the foregoing,
such other principal market or exchange where the Common Stock is listed or
traded (whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock, the “Principal Market”). Closing bid
price shall mean the closing bid price as reported by Bloomberg L.P. The
Conversion set forth in Section 2.1(b)(ii) may be elected by the Holder
provided the entire principal and outstanding interest on this Note is
converted at such Conversion Price.

          (c) Borrower’s Repayment Election. The Monthly Amount due on a Repayment
Date shall be paid by the Borrower at the Borrower’s election (i) in cash at
the rate of 102% of such Monthly Amount otherwise due on such Repayment Date
within three (3) business days of the applicable Repayment Date, or (ii)
subject to Section 3.2, with registered, freely transferable Common Stock at an
applied conversion rate equal to eighty-five percent (85%) of the average of
the five (5) lowest closing bid prices of the Common Stock as reported by
Bloomberg L.P. for the twenty (20) trading days preceding such Repayment Date.
Any portion of the Monthly Amount that may not be paid pursuant to Section
2.1(c)(ii) by virtue of Sections 2.2, 3.2 or otherwise shall be paid pursuant
to Section 2.1(c)(i).

(Convertible Note)

2

 

          (d) Application of Conversion Amounts. Any amounts converted by the
Holder pursuant to Section 2.1 or paid by the Borrower shall be deemed to
constitute payments of and applied, (i) first, against outstanding fees, (ii)
second, against accrued interest on the Principal Amount, and (iii) third,
against the Principal Amount.

     2.2. No Effective Registration. Notwithstanding anything to the contrary
herein, no amount payable hereunder may be converted into Common Stock by the
Borrower without the Holder’s consent unless (a) either (i) an effective
current Registration Statement covering the shares of Common Stock to be issued
in satisfaction of such obligations exists, or (ii) an exemption from
registration of the Common Stock is available pursuant to Rule 144(k) of the
Securities Act, and (b) no Event of Default hereunder exists and is continuing,
unless such Event of Default has been cured within any applicable cure period
or is otherwise waived in writing by the Holder in whole or in part at the
Holder’s option.

     2.3. Optional Redemption of Principal Amount. Provided an Event of
Default has not occurred, whether or not such Event of Default has been cured,
the Borrower will have the option of prepaying the outstanding Principal Amount
(“Optional Redemption”), in whole or in part, by paying to the Holder a sum of
money equal to one hundred fifteen percent (115%) of the Principal Amount to be
redeemed, together with accrued but unpaid interest thereon and any and all
other sums due, accrued or payable to the Holder arising under this Note, the
Subscription Agreement or any Transaction Document through the Redemption
Payment Date as defined below (the “Redemption Amount”). Borrower’s election
to exercise its right to prepay must be by notice in writing (“Notice of
Redemption”). The Notice of Redemption shall specify the date for such
Optional Redemption (the “Redemption Payment Date”), which date shall be not
less than thirty (30) business days after the date of the Notice of Redemption
(the “Redemption Period”). A Notice of Redemption shall not be effective with
respect to any portion of the Principal Amount for which the Holder has a
pending election to convert pursuant to Section 3.1, or for conversions
initiated or made by the Holder pursuant to Section 3.1 during the Redemption
Period. On the Redemption Payment Date, the Redemption Amount, less any
portion of the Redemption Amount against which the Holder has exercised its
rights pursuant to Section 3.1, shall be paid in good funds to the Holder. In
the event the Borrower fails to pay the Redemption Amount on the Redemption
Payment Date as set forth herein, then (i) such Notice of Redemption will be
null and void, (ii) Borrower will have no right to deliver another Notice of
Redemption, and (iii) Borrower’s failure may be deemed by Holder to be a
non-curable Event of Default.

ARTICLE III

CONVERSION RIGHTS

     3.1. Holder’s Conversion Rights. Subject to Section 2.2, the Holder
shall have the right, but not the obligation, to convert all or any portion of
the then aggregate outstanding Principal Amount of this Note, together with
interest and fees due hereon, into shares of Common Stock, subject to the terms
and conditions set forth in this Article III. The Holder may exercise such
right by delivery to the Borrower of a written Notice of Conversion pursuant to
Section 3.3.

     3.2. Conversion Limitation. Notwithstanding anything contained herein to
the contrary, the Holder shall not be entitled to convert pursuant to the terms
of this Note nor may this Note be converted in whole or in part into an amount
of Common Stock that would be convertible into that number of Common Stock
which would exceed the difference between the number of shares of Common Stock
beneficially owned by such Holder and 4.99% of the outstanding shares of Common
Stock. For the purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Exchange
Act and Regulation 13d-3 thereunder. The foregoing limitation shall be
calculated

(Convertible Note)

3

 

as of each Conversion Date. Aggregate Conversions over time shall not be
limited to 4.99%. The Holder shall have the authority and obligation to
determine whether the restriction contained in this Section 10 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 Share limitation described
in this Section 3.2 upon 61 days prior notice to the Borrower. The Holder may
allocate which of the equity of the Borrower deemed beneficially owned by the
Holder shall be included in the 4.99% amount described above and which shall be
allocated to the excess above 4.99%.

     3.3. Mechanics of Holder’s Conversion.

          (a) In the event that the Holder elects to convert any amounts outstanding
under this Note into Common Stock, the Holder shall give notice of such
election by delivering an executed and completed notice of conversion (a
“Notice of Conversion”) to the Borrower, which Notice of Conversion shall
provide a breakdown in reasonable detail of the Principal Amount, accrued
interest and fees being converted. The original Note is not required to be
surrendered to the Borrower until all sums due under the Note have been paid.
On each Conversion Date (as hereinafter defined) and in accordance with its
Notice of Conversion, the Holder shall make the appropriate reduction to the
Principal Amount, accrued interest and fees as entered in its records and shall
provide written notice thereof to the Borrower within three (3) business days
after the Conversion Date. Each date on which a Notice of Conversion is
delivered or telecopied to the Borrower in accordance with the provisions
hereof shall be deemed a “Conversion Date”. A form of Notice of Conversion to
be employed by the Holder is annexed hereto as Exhibit A.

          (b) Pursuant to the terms of a Notice of Conversion, the Borrower will
issue instructions to the transfer agent accompanied by an opinion of counsel,
if so required by the Borrower’s transfer agent, within one (1) business day
after the date of the delivery to Borrower of the Notice of Conversion and
shall cause the transfer agent to transmit the certificates representing the
Conversion Shares to the Holder by crediting the account of the Holder’s
designated broker with the Depository Trust Corporation (“DTC”) through its
Deposit Withdrawal Agent Commission (“DWAC”) system within three (3) business
days after receipt by the Borrower of the Notice of Conversion (the “Delivery
Date”). In the case of the exercise of the conversion rights set forth herein
the conversion privilege shall be deemed to have been exercised and the
Conversion Shares issuable upon such conversion shall be deemed to have been
issued upon the date of receipt by the Borrower of the Notice of Conversion.
The Holder shall be treated for all purposes as the record holder of such
shares of Common Stock, unless the Holder provides the Borrower written
instructions to the contrary.

     3.4. Conversion Mechanics.

          (a) The number of shares of Common Stock to be issued upon each conversion
of this Note pursuant to this Article III shall be determined by dividing that
portion of the Principal Amount and interest and fees to be converted, if any,
by the then applicable Conversion Price.

          (b) The Conversion Price and number and kind of shares or other securities
to be issued upon conversion shall be subject to adjustment from time to time
upon the happening of certain events while this conversion right remains
outstanding, as follows:

               A. Merger, Sale of Assets, etc. If the Borrower at any time shall
consolidate with or merge into or sell or convey all or substantially all its
assets to any other corporation, this Note, as to the unpaid principal portion
thereof and accrued interest thereon, shall thereafter be deemed to evidence
the right to purchase such number and kind of shares or other securities and
property as would have been

(Convertible Note)

4

 

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. So long as this Note is outstanding, if the Borrower
shall issue any Common Stock except for the Excepted Issuances (as defined in
the Subscription Agreement), prior to the complete conversion of this Note for
a consideration less than the Conversion Price that would be in effect at the
time of such issue, then, and thereafter successively upon each such issuance,
the Conversion Price shall be reduced to such other lower issue price. For
purposes of this adjustment, the issuance of any security or debt instrument of
the Borrower, except for the Excepted Issuances, carrying the right to convert
such security or debt instrument into Common Stock or of any warrant, right or
option to purchase Common Stock or the modification of any of the foregoing
which may be outstanding shall result in an adjustment to the Conversion Price
upon the modification or issuance of the above-described security, debt
instrument, warrant, right, or option and again upon the issuance of shares of
Common Stock upon exercise of such conversion or purchase rights if such
issuance is at a price lower than the then applicable Conversion Price. The
reduction of the Conversion Price described in this paragraph is in addition to
the other rights of the Holder described in the Subscription Agreement.

          (c) Whenever the Conversion Price is adjusted pursuant to Section 3.4
above, the Borrower shall promptly mail to the Holder a notice setting forth
the Conversion Price after such adjustment and setting forth a statement of the
facts requiring such adjustment.

     3.5. Reservation. During the period the conversion right exists,
Borrower will reserve from its authorized and unissued Common Stock not less
than one hundred fifty (150%) of the number of shares of Common Stock
sufficient to provide for the issuance of Common Stock upon the full conversion
of this Note. Borrower represents that upon issuance, such shares will be duly
and validly issued, fully paid and non-assessable. Borrower agrees that its
issuance of this Note shall constitute full authority to its officers, agents,
and transfer agents who are charged with the duty of executing and issuing
stock certificates to execute and issue the necessary certificates for shares
of Common Stock upon the conversion of this Note.

     3.6 Issuance of Replacement Note. Upon any partial conversion of this
Note, provided an original Note is surrendered to the Company, a replacement
Note containing the same date and provisions

(Convertible Note)

5

 

of this Note shall, at the written request of the Holder, be issued by the
Borrower to the Holder for the remaining outstanding Principal Amount of this
Note and accrued interest which shall not have been converted or paid.

ARTICLE IV

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:

     4.1 Failure to Pay Principal or Interest. The Borrower fails to pay any
installment of Principal Amount, interest or other sum due under this Note or
any Transaction Document when due and such failure continues for a period of
five (5) business days after the due date.

     4.2 Breach of Covenant. The Borrower breaches any material covenant or
other term or condition of the Subscription Agreement, this Note or Transaction
Document in any material respect and such breach, if subject to cure, continues
for a period of ten (10) business days after written notice to the Borrower
from the Holder.

     4.3 Breach of Representations and Warranties. Any material representation
or warranty of the Borrower made herein, in the Subscription Agreement,
Transaction Document or in any agreement, statement or certificate given in
writing pursuant hereto or in connection herewith or therewith shall be false
or misleading in any material respect as of the date made and a Closing Date.

     4.4 Receiver or Trustee. The Borrower or any Subsidiary of Borrower shall
make an assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for them or for a substantial part of
their property or business; or such a receiver or trustee shall otherwise be
appointed.

     4.5 Judgments. Any money judgment, writ or similar final process shall be
entered or filed against Borrower or any subsidiary of Borrower or any of their
property or other assets for more than $50,000, and shall remain unvacated,
unbonded or unstayed for a period of forty-five (45) days.

     4.6 Non-Payment. A default by the Borrower under any one or more
obligations in an aggregate monetary amount in excess of $50,000 for more than
twenty days after the due date.

     4.7 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any law,
or the issuance of any notice in relation to such event, for the relief of
debtors shall be instituted by or against the Borrower or any Subsidiary of
Borrower and if instituted against them are not dismissed within 45 days of
initiation.

     4.8 Ineligibility of Quotation. The Common Stock of Borrower becomes
ineligible for quotation on the OTC Bulletin Board (“Bulletin Board”) or such
other principal exchange on which the Common Stock is quoted or listed for
trading; failure to comply with the requirements for continued quotation on the
Bulletin Board for a period of seven consecutive trading days; or notification
from the Bulletin Board or any Principal Market that the Borrower is not in
compliance with the conditions for continued quotation or listing on the
Bulletin Board or other Principal Market.

(Convertible Note)

6

 

     4.9 Stop Trade. An SEC or judicial stop trade order or Principal Market
trading suspension that lasts for five or more consecutive trading days.

     4.10 Failure to Deliver Common Stock or Replacement Note. Borrower’s
failure to timely deliver Common Stock to the Holder pursuant to and in the
form required by this Note of the Subscription Agreement, or, if requested by
Borrower pursuant to Section 3.6, a replacement Note.

     4.11 Non-Registration Event. The occurrence of a Non-Registration Event
as described in the Subscription Agreement that is not cured within five (5)
business days after notice from Holder.

     4.12 Reverse Splits. The Borrower effectuates a reverse split of its
Common Stock without the prior written consent of Holders representing not less
than 75% of the aggregate Principal Amounts outstanding under all Notes issued
pursuant to the Subscription Agreement.

     4.13 Cross Default. A default by the Borrower of a material term,
covenant, warranty or undertaking of any Transaction Document or other
agreement to which the Borrower and Holder are parties, or the occurrence of a
material event of default under any such other agreement which is not cured
after any required notice and/or cure period.

ARTICLE V

MISCELLANEOUS

     5.1 Failure or Indulgence Not Waiver. No failure or delay on the part of
Holder hereof in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.

     5.2 Notices. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile,
addressed as set forth below or to such other address as such party shall have
specified most recently by written notice. Any notice 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:
Goldspring, Inc., 8585 E. Hartford Drive, Suite 400, Scottsdale, AZ 85255,
Attn: Robert T. Faber, President & CEO, telecopier: (480) 505-4044, with a copy
by telecopier only to: Greenberg Traurig LLP, 2375 E. Camelback Road, Suite
700, Phoenix, AZ 85016, Attn: Robert S. Kant, Esq., telecopier: (602) 445-8100,
and (ii) if to the Subscribers, to: the one or more addresses and telecopier
numbers indicated on the signature pages hereto, with an additional copy by
telecopier only to: Grushko &

(Convertible Note)

7

 

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, 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. Both parties and the individual signing this Note on behalf
of the Borrower agree to submit to the jurisdiction of such courts. The
prevailing party shall be entitled to recover from the other party its
reasonable attorney’s fees and costs. In the event that any provision of this
Note is invalid or unenforceable under any applicable statute or rule of law,
then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any such provision which may prove invalid or unenforceable under
any law shall not affect the validity or unenforceability of any other
provision of this Note. Nothing contained herein shall be deemed or operate to
preclude the Holder from bringing suit or taking other legal action against the
Borrower in any other jurisdiction to collect on the Borrower’s obligations to
Holder, to realize on any collateral or any other security for such
obligations, or to enforce a judgment or other court in favor of the Holder.

     5.7 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate
of interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.

     5.8. Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Note and, therefore, stipulates that
the rule of construction that ambiguities are to be resolved against the
drafting party shall not be applied in the interpretation of this Note to favor
any party
against the other.

     5.9 Redemption. This Note may not be redeemed or called without the
consent of the Holder except pursuant to the terms of this Note.

     5.10 Shareholder Status. The Holder shall not have rights as a
shareholder of the Borrower with respect to unconverted portions of this Note.
However, the Holder will have the 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 as of the 30th day of November, 2004.

(Convertible Note)

8

 

	 	 	 	 	 
	 	GOLDSPRING, INC.

 	 
	 	By:  	/s/ Robert T. Faber	 
	 	 	Name:  	Robert T. Faber	 
	 	 	Title:  	President & CEO 	 
	 

WITNESS:

(Convertible Note)

9

 

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 Goldspring, Inc. on
November 30, 2004 into Shares of Common Stock of Goldspring, 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: 	

(Convertible Note)

10

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