Exhibit 10.1
SECURED DIGITAL APPLICATIONS, INC.
and
SDA AMERICA, INC.
SECURITIES PURCHASE AGREEMENT
May 28, 2004
Table of Contents
Page
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1. Agreement to Sell and Purchase........................................1
2. Fees and Warrant......................................................2
3. Closing, Delivery and Payment.........................................2
3.1 Closing....................................................2
3.2 Delivery...................................................3
4. Representations and Warranties of the Company.........................3
4.1 Organization, Good Standing and Qualification..............3
4.2 Subsidiaries...............................................4
4.3 Capitalization; Voting Rights..............................4
4.4 Authorization; Binding Obligations.........................5
4.5 Liabilities................................................5
4.6 Agreements; Action.........................................5
4.7 Obligations to Related Parties.............................6
4.8 Changes....................................................7
4.9 Title to Properties and Assets; Liens, Etc.................8
4.10 Intellectual Property......................................8
4.11 Compliance with Other Instruments..........................9
4.12 Litigation.................................................9
4.13 Tax Returns and Payments...................................9
4.14 Employees.................................................10
4.15 Registration Rights and Voting Rights.....................10
4.16 Compliance with Laws; Permits.............................11
4.17 Environmental and Safety Laws.............................11
4.18 Valid Offering............................................11
4.19 Full Disclosure...........................................11
4.20 Insurance.................................................12
4.21 SEC Reports...............................................12
4.22 Listing...................................................12
4.23 No Integrated Offering....................................12
4.24 Stop Transfer.............................................12
4.25 Dilution..................................................13
4.26 Patriot Act...............................................13
5. Representations and Warranties of the Purchaser......................13
5.1 No Shorting...............................................13
5.2 Requisite Power and Authority.............................13
5.3 Investment Representations................................14
5.4 Purchaser Bears Economic Risk.............................14
5.5 Acquisition for Own Account...............................14
5.6 Purchaser Can Protect Its Interest........................14
5.7 Accredited Investor.......................................15
5.8 Legends...................................................15
5.9 Patriot Act...............................................16
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6. Covenants of the Company.............................................16
6.1 Stop-Orders...............................................16
6.2 Listing...................................................17
6.3 Market Regulations........................................17
6.4 Reporting Requirements....................................17
6.5 Use of Funds..............................................17
6.6 Access to Facilities......................................17
6.7 Taxes.....................................................18
6.8 Insurance.................................................18
6.9 Intellectual Property.....................................19
6.10 Properties................................................19
6.11 Confidentiality...........................................19
6.12 Required Approvals........................................20
6.13 Reissuance of Securities..................................21
6.14 Opinion...................................................21
6.15 Margin Stock..............................................21
6.16 Restricted Cash...........................................21
6.17 Foreign Security and Guarantees...........................22
6.18 Reservation of Common Stock...............................22
7. Covenants of the Purchaser...........................................22
7.1 Confidentiality...........................................22
7.2 Non-Public Information....................................22
8. Covenants of the Company and Purchaser Regarding Indemnification.....22
8.1 Company Indemnification...................................22
8.2 Purchaser's Indemnification...............................23
8.3 Procedures................................................23
9. Conversion of Convertible Series A Preferred.........................23
9.1 Mechanics of Conversion...................................23
10. Registration Rights..................................................24
10.1 Registration Rights Granted...............................24
10.2 Offering Restrictions.....................................24
11. Miscellaneous........................................................25
11.1 Governing Law.............................................25
11.2 Survival..................................................25
11.3 Successors................................................25
11.4 Entire Agreement..........................................25
11.5 Severability..............................................26
11.6 Amendment and Waiver......................................26
11.7 Delays or Omissions.......................................26
11.8 Notices...................................................26
11.9 Attorneys' Fees...........................................27
11.10 Titles and Subtitles......................................27
11.11 Facsimile Signatures; Counterparts........................27
11.12 Broker's Fees.............................................27
11.13 Construction..............................................28
II
LIST OF EXHIBITS
Form of Convertible Series A Preferred and Certificate of
Designation............................................................Exhibit A
Form of Warrant........................................................Exhibit B
Form of Opinion........................................................Exhibit C
Form of Escrow Agreement...............................................Exhibit D
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SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of May 28, 2004, by and among Secured Digital Applications,
Inc., a Delaware corporation (the "Company"), and SDA America, Inc, a Delaware
corporation and the Company's wholly owned Subsidiary (as defined below) ("SDA
America"), and Laurus Master Fund, Ltd., a Cayman Islands company (the
"Purchaser").
RECITALS
WHEREAS, the Company and SDA America have authorized the sale to the
Purchaser of SDA America's Series A Preferred Stock with a stated value of Six
Million Five Hundred Thousand Dollars ($6,500,000) (the "Series A Preferred"),
which Series A Preferred is convertible into shares of the Company's common
stock, $0.00001 par value per share (the "Common Stock") at an initial
conversion price of $0.35 per share of Common Stock ("Conversion Price");
WHEREAS, the Company wishes to issue a warrant to the Purchaser to
purchase up to 3,000,000 shares of the Company's Common Stock (subject to
adjustment as set forth therein) in connection with Purchaser's purchase of the
Series A Preferred;
WHEREAS, the Purchaser desires to purchase the Series A Preferred and
the Warrant (as defined in Section 2) on the terms and conditions set forth
herein; and
WHEREAS, each of SDA America and the Company desires to issue and sell
the Series A Preferred and Warrant, respectively, to the Purchaser on the terms
and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises, representations, warranties and covenants hereinafter set forth
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Agreement to Sell and Purchase. Pursuant to the terms and conditions
set forth in this Agreement, on the Closing Date (as defined in Section 3), the
Company agrees to cause SDA America to, and SDA America agrees to, sell to the
Purchaser, and the Purchaser hereby agrees to purchase from SDA America, Series
A Preferred with a stated value of $6,500,000 convertible in accordance with the
terms thereof into shares of the Company's Common Stock in accordance with the
terms of the Series A Preferred and this Agreement. The Series A Preferred
purchased on the Closing Date shall be known as the "Offering." The certificate
of designation of the Series A Preferred, together with a form of the Series A
Preferred shares, are annexed hereto as Exhibit A. Collectively, the Series A
Preferred and Warrant and Common Stock issuable as dividends on the Series A
Preferred, upon conversion of the Series A Preferred and upon exercise of the
Warrant are referred to as the "Securities."
2. Fees and Warrant. On the Closing Date:
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(a) The Company will issue and deliver to the Purchaser a Warrant to
purchase up to 3,000,000 shares of Common Stock in connection with the Offering
(the "Warrant") pursuant to Section 1 hereof. The Warrant must be delivered on
the Closing Date. A form of Warrant is annexed hereto as Exhibit B. All the
representations, covenants, warranties, undertakings, and indemnification, and
other rights made or granted to or for the benefit of the Purchaser by the
Company are hereby also made and granted in respect of the Warrant and shares of
the Company's Common Stock issuable upon exercise of the Warrant (the "Warrant
Shares").
(b) Subject to the terms of Section 2(d) below, the Company shall pay to
Laurus Capital Management, LLC, the manager of the Purchaser, a closing payment
in an amount equal to three and one-half percent (3.50%) of the stated value of
the Series A Preferred issued to the Purchaser on the date hereof. The foregoing
fee is referred to herein as the "Closing Payment."
(c) The Company shall reimburse the Purchaser for its reasonable expenses
for services rendered to the Purchaser in connection with the negotiation and
preparation of this Agreement, the Related Agreements (as hereinafter defined),
that certain Securities Purchase Agreement, dated as of the date hereof, among
the Company and the Purchaser relating to the issuance of the Note and the
Warrants referred to therein (as amended, restated, modified or supplemented
from time to time, the "Term Note Securities Purchase Agreement"), and the
Related Agreements referred to in the Term Note Securities Purchase Agreement
(as amended, restated, modified or supplemented from time to time, the "Term
Note Securities Purchase Agreement"), and expenses incurred in connection with
the Purchaser's due diligence review of the Company and its Subsidiaries (as
defined in Section 6.8) and all related matters. Amounts required to be paid
under this Section 2(c), together with the amounts required to be paid under
Section 2(c) of the Term Note Securities Purchase Agreement, will be paid on the
Closing Date and shall be $39,500 for such expenses (net of the deposit
previously paid by the Company).
(d) The Closing Payment and the amounts referred to in the preceding clause
(c) of this Section 2 (net of deposits previously paid by the Company) shall be
paid at closing out of funds held pursuant to a Funds Escrow Agreement of even
date herewith among the Company, Purchaser, and an Escrow Agent (the "Funds
Escrow Agreement") and a disbursement letter (the "Disbursement Letter").
3. Closing, Delivery and Payment.
3.1 Closing. Subject to the terms and conditions herein, the
closing of the transactions contemplated hereby (the "Closing"), shall take
place on the date hereof, at such time or place as the Company and Purchaser may
mutually agree (such date is hereinafter referred to as the "Closing Date").
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3.2 Delivery. Pursuant to the Funds Escrow Agreement in the form
attached hereto as Exhibit C, at the Closing on the Closing Date, the Company
will deliver to the Purchaser, among other things, Series A Preferred shares in
the form attached as Exhibit A with an aggregate stated value ("Stated Value")
of $6,500,000 and a Warrant in the form attached as Exhibit B in the Purchaser's
name representing 3,000,000 Warrant Shares and the Purchaser will deliver to the
Company, among other things, the amounts set forth in the Disbursement Letter by
certified funds or wire transfer (it being understood that the entire amount of
the proceeds of the Series A Preferred will be deposited in the Restricted
Account (as defined in the Restricted Account Agreement referred to below)).
4. Representations and Warranties of the Company. The Company
hereby represents and warrants to the Purchaser as follows (which
representations and warranties are supplemented by the Company's filings under
the Securities Exchange Act of 1934 (collectively, the "Exchange Act Filings"),
copies of which have been provided to the Purchaser):
4.1 Organization, Good Standing and Qualification. Each of the
Company and each of its Subsidiaries is a corporation, partnership or limited
liability company, as the case may be, duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization. Each of the
Company and each of its Subsidiaries has the corporate power and authority to
own and operate its properties and assets, to execute and deliver (i) this
Agreement, (ii) the Series A Preferred and the Warrant to be issued in
connection with this Agreement, (iii) the Master Security Agreement dated as of
the date hereof between the Company, certain Subsidiaries of the Company and the
Purchaser (as amended, modified or supplemented from time to time, the "Master
Security Agreement"), (iv) the Registration Rights Agreement relating to the
Securities dated as of the date hereof between the Company and the Purchaser,
(v) the Guaranty dated as of the date hereof made by the Company (as amended,
modified or supplemented from time to time, the "Guaranty"), (vi) the Stock
Pledge Agreement dated as of the date hereof by and between the Company and the
Purchaser (as amended, modified or supplemented from time to time, the "Stock
Pledge Agreement"), (vii) the Escrow Agreement dated as of the date hereof among
the Company, the Purchaser and the escrow agent referred to therein, (viii) the
certificate of designation related to the Series A Preferred (as amended,
modified or supplemented from time to time, the "Certificate of Designation")
(ix) the certificate of incorporation and by-laws of SDA America (as amended,
modified or supplemented from time to time, the "SDA America Charter
Documents"), (x) the Laurus Restricted Account Agreement dated as of the date
hereof among SDA America, the Purchaser and North Fork Bank (including the side
letter related thereto, the "Restricted Account Agreement") and (xi) all other
agreements related to this Agreement and the Series A Preferred and referred to
herein (the preceding clauses (ii) through (xi), collectively, the "Related
Agreements"), to issue and sell the Series A Preferred and the shares of Common
Stock issuable as dividends and upon conversion of the Series A Preferred (the
"Series A Preferred Shares"), to issue and sell the Warrant and the Warrant
Shares, and to carry out the provisions of this Agreement and the Related
Agreements and to carry on its business as presently conducted. Each of the
Company and each of its Subsidiaries is duly qualified and is authorized to do
business and is in good standing as a foreign corporation, partnership or
limited liability company, as the case may be, in all jurisdictions in which the
nature of its activities and of its properties (both owned and leased) makes
such qualification necessary, except for those jurisdictions in which failure to
do so has not, or could not reasonably be expected to have, individually or in
the aggregate, a material adverse effect on the business, assets, liabilities,
condition (financial or otherwise), properties, operations or prospects of the
Company and it Subsidiaries, taken individually and as a whole (a "Material
Adverse Effect").
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4.2 Subsidiaries. Each direct and indirect Subsidiary of the
Company, the direct owner of such Subsidiary and its percentage ownership
thereof, is set forth on Schedule 4.2. For the purpose of this Agreement, a
"Subsidiary" of any person or entity means (i) a corporation or other entity
whose shares of stock or other ownership interests having ordinary voting power
(other than stock or other ownership interests having such power only by reason
of the happening of a contingency) to elect a majority of the directors of such
corporation, or other persons or entities performing similar functions for such
person or entity, are owned, directly or indirectly, by such person or entity or
(ii) a corporation or other entity in which such person or entity owns, directly
or indirectly, more than 50% of the equity interests at such time.
4.3 Capitalization; Voting Rights.
(a) The authorized capital stock of the Company, as of the date
hereof consists of 101,000,000 shares, of which 100,000,000 are shares of Common
Stock, par value $0.00001 per share, 98,983,899 shares of which are issued,
97,928,899 of which are outstanding, and 1,000,000 are shares of preferred
stock, par value $0.10 per share of which 100,000 shares of preferred stock are
issued and outstanding. The authorized capital stock of each Subsidiary of the
Company is set forth on Schedule 4.3.
(b) Except as disclosed on Schedule 4.3, other than: (i) the
shares reserved for issuance under the Company's stock option plans; and (ii)
shares which may be granted pursuant to this Agreement and the Related
Agreements, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal), proxy or
stockholder agreements, or arrangements or agreements of any kind for the
purchase or acquisition from the Company of any of its securities. Except as
disclosed on Schedule 4.3, neither the offer, issuance or sale of any of the
Series A Preferred or the Warrant, or the issuance of any of the Series A
Preferred Shares or Warrant Shares, nor the consummation of any transaction
contemplated hereby will result in a change in the price or number of any
securities of the Company outstanding, under anti-dilution or other similar
provisions contained in or affecting any such securities.
(c) All issued and outstanding shares of the Company's Common
Stock: (i) have been duly authorized and validly issued and are fully paid and
nonassessable, except as set forth with regard to a certain dispute with a
former consultant as more fully described on Schedule 4.3; and (ii) were issued
in compliance with all applicable state and federal laws concerning the issuance
of securities.
(d) The rights, preferences, privileges and restrictions of the
shares of the Common Stock are as stated in the Company's Certificate of
Incorporation (the "Charter"). Subject to shareholder approval to increase the
Company's authorized common stock, which will occur no later than August 28,
2004, the Series A Preferred Shares and Warrant Shares have been duly and
validly reserved for issuance. When issued in compliance with the provisions of
this Agreement and the Company's Charter, the Securities will be validly issued,
fully paid and nonassessable, and will be free of any liens or encumbrances;
provided, however, that the Securities may be subject to restrictions on
transfer under state and/or federal securities laws as set forth herein or as
otherwise required by such laws at the time a transfer is proposed.
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4.4 Authorization; Binding Obligations. All corporate,
partnership or limited liability company, as the case may be, action on the part
of the Company and each of its Subsidiaries (including the respective officers
and directors) necessary for the authorization of this Agreement and the Related
Agreements, the performance of all obligations of the Company and its
Subsidiaries hereunder and under the other Related Agreements at the Closing
and, the authorization, sale, issuance and delivery of the Series A Preferred
and Warrant has been taken or will be taken prior to the Closing. This Agreement
and the Related Agreements, when executed and delivered and to the extent it is
a party thereto, will be valid and binding obligations of each of the Company
and each of its Subsidiaries, enforceable against each such person in accordance
with their terms, except:
(a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights; and
(b) general principles of equity that restrict the availability
of equitable or legal remedies.
The sale of the Series A Preferred and the subsequent conversion of the Series A
Preferred into Series A Preferred Shares are not and will not be subject to any
preemptive rights or rights of first refusal that have not been properly waived
or complied with. The issuance of the Warrant and the subsequent exercise of the
Warrant for Warrant Shares are not and will not be subject to any preemptive
rights or rights of first refusal that have not been properly waived or complied
with.
4.5 Liabilities. Neither the Company nor any of its Subsidiaries
has any contingent liabilities, except current liabilities incurred in the
ordinary course of business and liabilities disclosed in any Exchange Act
Filings.
4.6 Agreements; Action. Except as set forth on Schedule 4.6 or as
disclosed in any Exchange Act Filings:
(a) there are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees
to which the Company or any of its Subsidiaries is a party or by which
it is bound which may involve: (i) obligations (contingent or
otherwise) of, or payments to, the Company in excess of $50,000 (other
than obligations of, or payments to, the Company arising from purchase
or sale agreements entered into in the ordinary course of business);
or (ii) the transfer or license of any patent, copyright, trade secret
or other proprietary right to or from the Company (other than licenses
arising from the purchase of "off the shelf" or other standard
products); or (iii) provisions restricting the development,
manufacture or distribution of the Company's products or services; or
(iv) indemnification by the Company with respect to infringements of
proprietary rights.
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(b) Since December 31, 2003, neither the Company nor any of its
Subsidiaries has: (i) declared or paid any dividends, or authorized or made
any distribution upon or with respect to any class or series of its capital
stock; (ii) incurred any indebtedness for money borrowed or any other
liabilities (other than ordinary course obligations) individually in excess
of $50,000 or, in the case of indebtedness and/or liabilities individually
less than $50,000, in excess of $100,000 in the aggregate; (iii) made any
loans or advances to any person not in excess, individually or in the
aggregate, of $100,000, other than ordinary course advances for travel
expenses; or (iv) sold, exchanged or otherwise disposed of any of its
assets or rights, other than the sale of its inventory in the ordinary
course of business.
(c) For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same person or entity
(including persons or entities the Company has reason to believe are
affiliated therewith) shall be aggregated for the purpose of meeting the
individual minimum dollar amounts of such subsections.
4.7 Obligations to Related Parties. Except as set forth on
Schedule 4.7, there are no obligations of the Company or any of its
Subsidiaries to officers, directors, stockholders or employees of the
Company or any of its Subsidiaries other than:
(a) for payment of salary for services rendered and for bonus
payments;
(b) reimbursement for reasonable expenses incurred on behalf of
the Company and its Subsidiaries;
(c) for other standard employee benefits made generally
available to all employees (including stock option
agreements outstanding under any stock option plan approved
by the Board of Directors of the Company); and
(d) obligations listed in the Company's financial statements or
disclosed in any of its Exchange Act Filings.
Except as described above or set forth on Schedule 4.7, none of the officers,
directors or, to the best of the Company's knowledge, key employees or
stockholders of the Company or any members of their immediate families, are
indebted to the Company, individually or in the aggregate, in excess of $50,000
or have any direct or indirect ownership interest in any firm or corporation
with which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation which competes with the Company, other
than passive investments in publicly traded companies (representing less than
one percent (1%) of such company) which may compete with the Company. Except as
described above, no officer, director or stockholder, or any member of their
immediate families, is, directly or indirectly, interested in any material
contract with the Company and no agreements, understandings or proposed
transactions are contemplated between the Company and any such person. Except as
set forth on Schedule 4.7, the Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
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4.8 Changes. Since December 31, 2003, except as disclosed in any
Exchange Act Filing or in any Schedule to this Agreement or to any of the
Related Agreements, there has not been:
(a) any change in the business, assets, liabilities, condition
(financial or otherwise), properties, operations or prospects of the
Company or any of its Subsidiaries, which individually or in the
aggregate has had, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect;
(b) any resignation or termination of any officer, key employee
or group of employees of the Company or any of its Subsidiaries;
(c) any material change, except in the ordinary course of
business, in the contingent obligations of the Company or any of its
Subsidiaries by way of guaranty, endorsement, indemnity, warranty or
otherwise;
(d) any damage, destruction or loss, whether or not covered by
insurance, has had, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect;
(e) any waiver by the Company or any of its Subsidiaries of a
valuable right or of a material debt owed to it;
(f) any direct or indirect loans made by the Company or any of
its Subsidiaries to any stockholder, employee, officer or director of
the Company or any of its Subsidiaries, other than advances made in
the ordinary course of business;
(g) any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder of the
Company or any of its Subsidiaries;
(h) any declaration or payment of any dividend or other
distribution of the assets of the Company or any of its Subsidiaries;
(i) any labor organization activity related to the Company or
any of its Subsidiaries;
(j) any debt, obligation or liability incurred, assumed or
guaranteed by the Company or any of its Subsidiaries, except those for
immaterial amounts and for current liabilities incurred in the
ordinary course of business;
(k) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets owned by the
Company or any of its Subsidiaries;
(l) any change in any material agreement to which the Company or
any of its Subsidiaries is a party or by which either the Company or
any of its Subsidiaries is bound which either individually or in the
aggregate has had, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect;
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(m) any other event or condition of any character that, either
individually or in the aggregate, has had, or could reasonably be
expected to have, individually or in the aggregate, a Material Adverse
Effect; or
(n) any arrangement or commitment by the Company or any of its
Subsidiaries to do any of the acts described in subsection (a) through
(m) above.
4.9 Title to Properties and Assets; Liens, Etc. Except as set forth on
Schedule 4.9, each of the Company and each of its Subsidiaries has good and
marketable title to its properties and assets, and good title to its leasehold
estates, in each case subject to no mortgage, pledge, lien, lease, encumbrance
or charge, other than:
(a) those resulting from taxes which have not yet become
delinquent;
(b) minor liens and encumbrances which do not materially detract
from the value of the property subject thereto or materially impair
the operations of the Company or any of its Subsidiaries; and
(c) those that have otherwise arisen in the ordinary course of
business.
All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company and its Subsidiaries are in good operating
condition and repair and are reasonably fit and usable for the purposes for
which they are being used. Except as set forth on Schedule 4.9, the Company and
its Subsidiaries are in compliance with all material terms of each lease to
which it is a party or is otherwise bound.
4.10 Intellectual Property.
(a) Each of the Company and each of its Subsidiaries owns or
possesses sufficient legal rights to all patents, trademarks, service
marks, trade names, copyrights, trade secrets, licenses, information
and other proprietary rights and processes necessary for its business
as now conducted and to the Company's knowledge, as presently proposed
to be conducted (the "Intellectual Property"), without any known
infringement of the rights of others. There are no outstanding
options, licenses or agreements of any kind relating to the foregoing
proprietary rights, nor is the Company or any of its Subsidiaries
bound by or a party to any options, licenses or agreements of any kind
with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information and other proprietary
rights and processes of any other person or entity other than such
licenses or agreements arising from the purchase of "off the shelf" or
standard products.
(b) Neither the Company nor any of its Subsidiaries has received
any communications alleging that the Company or any of its
Subsidiaries has violated any of the patents, trademarks, service
marks, trade names, copyrights or trade secrets or other proprietary
rights of any other person or entity, nor is the Company or any of its
Subsidiaries aware of any basis therefor.
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(c) The Company does not believe it is or will be necessary to
utilize any inventions, trade secrets or proprietary information of any of its
employees made prior to their employment by the Company or any of its
Subsidiaries, except for inventions, trade secrets or proprietary information
that have been rightfully assigned to the Company or any of its Subsidiaries.
4.11 Compliance with Other Instruments. Subject to shareholder
approval in order to increase the Company's authorized common stock, which will
occur no later than 90 days after the Closing Date, neither the Company nor any
of its Subsidiaries is in violation or default of (x) any term of its Charter or
Bylaws, or (y) of any provision of any indebtedness, mortgage, indenture,
contract, agreement or instrument to which it is party or by which it is bound
or of any judgment, decree, order or writ, which violation or default, in the
case of this clause (y), has had, or could reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect. The
execution, delivery and performance of and compliance with this Agreement and
the Related Agreements to which it is a party, and the issuance and sale of the
Series A Preferred by the Company and the other Securities by the Company each
pursuant hereto and thereto, will not, with or without the passage of time or
giving of notice, result in any such material violation, or be in conflict with
or constitute a default under any such term or provision, or result in the
creation of any mortgage, pledge, lien, encumbrance or charge upon any of the
properties or assets of the Company or any of its Subsidiaries or the
suspension, revocation, impairment, forfeiture or nonrenewal of any permit,
license, authorization or approval applicable to the Company, its business or
operations or any of its assets or properties.
4.12 Litigation. Except as set forth on Schedule 4.12 hereto,
there is no action, suit, proceeding or investigation pending or, to the
Company's knowledge, currently threatened against the Company or any of its
Subsidiaries that prevents the Company or any of its Subsidiaries from entering
into this Agreement or the other Related Agreements, or from consummating the
transactions contemplated hereby or thereby, or which has had, or could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect or any change in the current equity ownership of the
Company or any of its Subsidiaries, nor is the Company aware that there is any
basis to assert any of the foregoing. Neither the Company nor any of its
Subsidiaries is a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company or any of its Subsidiaries currently pending or which the Company or any
of its Subsidiaries intends to initiate.
4.13 Tax Returns and Payments. Each of the Company and each of
its Subsidiaries has timely filed all tax returns (federal, state and local)
required to be filed by it. All taxes shown to be due and payable on such
returns, any assessments imposed, and all other taxes due and payable by the
Company or any of its Subsidiaries on or before the Closing, have been paid or
will be paid prior to the time they become delinquent. Except as set forth on
Schedule 4.13, neither the Company nor any of its Subsidiaries has been advised:
(a) that any of its returns, federal, state or other, have been
or are being audited as of the date hereof; or
9
(b) of any deficiency in assessment or proposed judgment to its
federal, state or other taxes.
The Company has no knowledge of any liability of any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for.
4.14 Employees. Except as set forth on Schedule 4.14, neither the
Company nor any of its Subsidiaries has any collective bargaining agreements
with any of its employees. There is no labor union organizing activity pending
or, to the Company's knowledge, threatened with respect to the Company or any of
its Subsidiaries. Except as disclosed in the Exchange Act Filings or on Schedule
4.14, neither the Company nor any of its Subsidiaries is a party to or bound by
any currently effective employment contract, deferred compensation arrangement,
bonus plan, incentive plan, profit sharing plan, retirement agreement or other
employee compensation plan or agreement. To the Company's knowledge, no employee
of the Company or any of its Subsidiaries, nor any consultant with whom the
Company or any of its Subsidiaries has contracted, is in violation of any term
of any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or to
contract with, the Company or any of its Subsidiaries because of the nature of
the business to be conducted by the Company or any of its Subsidiaries; and to
the Company's knowledge the continued employment by the Company or any of its
Subsidiaries of its present employees, and the performance of the Company's and
its Subsidiaries' contracts with its independent contractors, will not result in
any such violation. Neither the Company nor any of its Subsidiaries is aware
that any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with their duties to the Company or any of its Subsidiaries. Neither
the Company nor any of its Subsidiaries has received any notice alleging that
any such violation has occurred. Except for employees who have a current
effective employment agreement with the Company or any of its Subsidiaries, no
employee of the Company or any of its Subsidiaries has been granted the right to
continued employment by the Company or any of its Subsidiaries or to any
material compensation following termination of employment with the Company or
any of its Subsidiaries. Except as set forth on Schedule 4.14, the Company is
not aware that any officer, key employee or group of employees intends to
terminate his, her or their employment with the Company or any of its
Subsidiaries, nor does the Company or any of its Subsidiaries have a present
intention to terminate the employment of any officer, key employee or group of
employees.
4.15 Registration Rights and Voting Rights. Except as set forth
on Schedule 4.15 and except as disclosed in Exchange Act Filings, neither the
Company nor any of its Subsidiaries is presently under any obligation, and
neither the Company nor any of its Subsidiaries has granted any rights, to
register any of the Company's or its Subsidiaries' presently outstanding
securities or any of its securities that may hereafter be issued. Except as set
forth on Schedule 4.15 and except as disclosed in Exchange Act Filings, to the
Company's knowledge, no stockholder of the Company or any of its Subsidiaries
has entered into any agreement with respect to the voting of equity securities
of the Company or any of its Subsidiaries.
10
4.16 Compliance with Laws; Permits. Neither the Company nor any
of its Subsidiaries is in violation of any applicable statute, rule, regulation,
order or restriction of any domestic or foreign government or any
instrumentality or agency thereof in respect of the conduct of its business or
the ownership of its properties which has had, or could reasonably be expected
to have, either individually or in the aggregate, a Material Adverse Effect. No
governmental orders, permissions, consents, approvals or authorizations are
required to be obtained and no registrations or declarations are required to be
filed in connection with the execution and delivery of this Agreement or any
other Related Agreement and the issuance of any of the Securities, except such
as has been duly and validly obtained or filed, or with respect to any filings
that must be made after the Closing, as will be filed in a timely manner. Each
of the Company and its Subsidiaries has all material franchises, permits,
licenses and any similar authority necessary for the conduct of its business as
now being conducted by it, the lack of which could, either individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect.
4.17 Environmental and Safety Laws. Neither the Company nor any
of its Subsidiaries is in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to its
knowledge, no material expenditures are or will be required in order to comply
with any such existing statute, law or regulation. Except as set forth on
Schedule 4.17, no Hazardous Materials (as defined below) are used or have been
used, stored, or disposed of by the Company or any of its Subsidiaries or, to
the Company's knowledge, by any other person or entity on any property owned,
leased or used by the Company or any of its Subsidiaries. For the purposes of
the preceding sentence, "Hazardous Materials" shall mean:
(a) materials which are listed or otherwise defined as
"hazardous" or "toxic" under any applicable local, state, federal
and/or foreign laws and regulations that govern the existence and/or
remedy of contamination on property, the protection of the environment
from contamination, the control of hazardous wastes, or other
activities involving hazardous substances, including building
materials; or
(b) any petroleum products or nuclear materials.
4.18 Valid Offering. Assuming the accuracy of the representations
and warranties of the Purchaser contained in this Agreement, the offer, sale and
issuance of the Securities will be exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"), and will have
been registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws.
4.19 Full Disclosure. Each of the Company and each of its
Subsidiaries has provided the Purchaser with all information requested by the
Purchaser in connection with its decision to purchase the Series A Preferred and
Warrant, including all information the Company and its Subsidiaries believe is
reasonably necessary to make such investment decision. Neither this Agreement,
the Related Agreements, the exhibits and schedules hereto and thereto nor any
other document delivered by the Company or any of its Subsidiaries to Purchaser
or
11
its attorneys or agents in connection herewith or therewith or with the
transactions contemplated hereby or thereby, contain any untrue statement of a
material fact nor omit to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances in which
they are made, not misleading. Any financial projections and other estimates
provided to the Purchaser by the Company or any of its Subsidiaries were based
on the Company's and its Subsidiaries' experience in the industry and on
assumptions of fact and opinion as to future events which the Company or any of
its Subsidiaries, at the date of the issuance of such projections or estimates,
believed to be reasonable.
4.20 Insurance. Each of the Company and each of its Subsidiaries
has general commercial, product liability, fire and casualty insurance policies
with coverages which the Company believes are customary for companies similarly
situated to the Company and its Subsidiaries in the same or similar business.
4.21 SEC Reports. Except as set forth on Schedule 4.21, the
Company has filed all proxy statements, reports and other documents required to
be filed by it under the Securities Xxxxxxxx Xxx 0000, as amended (the "Exchange
Act"). The Company has furnished the Purchaser with copies of: (i) its Annual
Reports on Form 10-KSB for its fiscal year ended December 31, 2003, (ii) its
Quarterly Reports on Form 10-QSB for its fiscal quarter ended March 31, 2004,
and (iii) the Form 8-K filings which it has made during the fiscal year 2004 to
date (collectively, the "SEC Reports"). Except as set forth on Schedule 4.21,
each SEC Report was, at the time of its filing, in substantial compliance with
the requirements of its respective form and none of the SEC Reports, nor the
financial statements (and the notes thereto) included in the SEC Reports, as of
their respective filing dates, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
4.22 Listing. On the date hereof, the Company's Common Stock is
listed for trading on the National Association of Securities Dealers Over the
Counter Bulletin Board ("NASD OTCBB") and satisfies all requirements for the
continuation of such trading. The Company has not received any notice that its
Common Stock will not be eligible to be traded on the NASD OTCBB or that its
Common Stock does not meet all requirements for such trading.
4.23 No Integrated Offering. Neither the Company, nor any of its
Subsidiaries or affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales of any security or solicited any
offers to buy any security under circumstances that would cause the offering of
the Securities pursuant to this Agreement or any of the Related Agreements to be
integrated with prior offerings by the Company for purposes of the Securities
Act which would prevent the Company from selling the Securities pursuant to Rule
506 under the Securities Act, or any applicable exchange-related stockholder
approval provisions, nor will the Company or any of its affiliates or
Subsidiaries take any action or steps that would cause the offering of the
Securities to be integrated with other offerings.
4.24 Stop Transfer. The Securities are restricted securities as
of the date of this Agreement. Neither the Company nor any of its Subsidiaries
will issue any stop transfer order or other order impeding the sale and delivery
of any of the Securities at such time as the Securities are registered for
public sale or an exemption from registration is available, except as required
by state and federal securities laws.
12
4.25 Dilution. The Company specifically acknowledges that
its obligation to issue the shares of Common Stock upon conversion of the Series
A Preferred and exercise of the Warrant 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.
4.26 Patriot Act. The Company certifies that, to the best of
Company's knowledge, neither the Company nor any of its Subsidiaries has been
designated, and is not owned or controlled, by a "suspected terrorist" as
defined in Executive Order 13224. The Company hereby acknowledges that the
Purchaser seeks to comply with all applicable laws concerning money laundering
and related activities. In furtherance of those efforts, the Company hereby
represents, warrants and agrees that: (i) none of the cash or property that the
Company or any of its Subsidiaries will pay or will contribute to the Purchaser
has been or shall be derived from, or related to, any activity that is deemed
criminal under United States law; and (ii) no contribution or payment by the
Company or any of its Subsidiaries to the Purchaser, to the extent that they are
within the Company's and/or its Subsidiaries' control shall cause the Purchaser
to be in violation of the United States Bank Secrecy Act, the United States
International Money Laundering Control Act of 1986 or the United States
International Money Laundering Abatement and Anti-Terrorist Financing Act of
2001. The Company shall promptly notify the Purchaser if any of these
representations ceases to be true and accurate regarding the Company or any of
its Subsidiaries. The Company agrees to provide the Purchaser any additional
information regarding the Company or any of its Subsidiaries that the Purchaser
deems necessary or convenient to ensure compliance with all applicable laws
concerning money laundering and similar activities. The Company understands and
agrees that if at any time it is discovered that any of the foregoing
representations are incorrect, or if otherwise required by applicable law or
regulation related to money laundering similar activities, the Purchaser may
undertake appropriate actions to ensure compliance with applicable law or
regulation, including but not limited to segregation and/or redemption of the
Purchaser's investment in the Company. The Company further understands that the
Purchaser may release confidential information about the Company and its
Subsidiaries and, if applicable, any underlying beneficial owners, to proper
authorities if the Purchaser, in its sole discretion, determines that it is in
the best interests of the Purchaser in light of relevant rules and regulations
under the laws set forth in subsection (ii) above.
5. Representations and Warranties of the Purchaser. The
Purchaser hereby represents and warrants to the Company as follows (such
representations and warranties do not lessen or obviate the representations and
warranties of the Company set forth in this Agreement):
5.1 No Shorting. The Purchaser or any of its affiliates and
investment partners has not, will not and will not cause any person or entity,
directly or indirectly, to engage in "short sales" of the Company's Common Stock
as long as the Series A Preferred shall be outstanding.
5.2 Requisite Power and Authority. The Purchaser has all
necessary power and authority under all applicable provisions of law to execute
and deliver this Agreement and the Related Agreements and to carry out their
provisions. All corporate action on Purchaser's part required for the lawful
execution and delivery of this Agreement and the Related Agreements have been or
will be effectively taken prior to the Closing. Upon their execution and
delivery, this Agreement and the Related Agreements will be valid and binding
obligations of Purchaser, enforceable in accordance with their terms, except:
13
(a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights; and
(b) as limited by general principles of equity that
restrict the availability of equitable and legal remedies.
5.3 Investment Representations. Purchaser understands that
the Securities are being offered and sold pursuant to an exemption from
registration contained in the Securities Act based in part upon Purchaser's
representations contained in the Agreement, including, without limitation, that
the Purchaser is an "accredited investor" within the meaning of Regulation D
under the Securities Act of 1933, as amended (the "Securities Act"). The
Purchaser confirms that it has received or has had full access to all the
information it considers necessary or appropriate to make an informed investment
decision with respect to the Series A Preferred and the Warrant to be purchased
by it under this Agreement and the Series A Preferred Shares and the Warrant
Shares acquired by it upon the conversion of the Series A Preferred and the
exercise of the Warrant, respectively. The Purchaser further confirms that it
has had an opportunity to ask questions and receive answers from the Company
regarding the Company's and its Subsidiaries' business, management and financial
affairs and the terms and conditions of the Offering, the Series A Preferred,
the Warrant and the Securities and to obtain additional information (to the
extent the Company possessed such information or could acquire it without
unreasonable effort or expense) necessary to verify any information furnished to
the Purchaser or to which the Purchaser had access.
5.4 Purchaser Bears Economic Risk. The Purchaser has
substantial experience in evaluating and investing in private placement
transactions of securities in companies similar to the Company so that it is
capable of evaluating the merits and risks of its investment in the Company and
has the capacity to protect its own interests. The Purchaser must bear the
economic risk of this investment until the Securities are sold pursuant to: (i)
an effective registration statement under the Securities Act; or (ii) an
exemption from registration is available with respect to such sale.
5.5 Acquisition for Own Account. The Purchaser is acquiring
the Series A Preferred and Warrant and the Series A Preferred Shares and the
Warrant Shares for the Purchaser's own account for investment only, and not as a
nominee or agent and not with a view towards or for resale in connection with
their distribution.
5.6 Purchaser Can Protect Its Interest. The Purchaser
represents that by reason of its, or of its management's, business and financial
experience, the Purchaser has the capacity to evaluate the merits and risks of
its investment in the Series A Preferred, the Warrant and the Securities and to
protect its own interests in connection with the transactions contemplated in
this Agreement and the Related Agreements. Further, Purchaser is aware of no
publication of any advertisement in connection with the transactions
contemplated in the Agreement or the Related Agreements.
14
5.7 Accredited Investor. Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
5.8 Legends.
(a) The Series A Preferred shall bear substantially the
following legend:
"THIS SERIES A PREFERRED AND THE COMMON STOCK ISSUABLE UPON
CONVERSION OF THIS SERIES A PREFERRED HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE, STATE SECURITIES LAWS. THIS SERIES A
PREFERRED AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS SERIES A PREFERRED MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS SERIES A PREFERRED OR SUCH
SHARES UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS
OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO SECURED
DIGITAL APPLICATIONS, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED."
(b) The Series A Preferred Shares and the Warrant Shares,
if not issued by DWAC system (as hereinafter defined), shall bear a legend which
shall be in substantially the following form until such shares are covered by an
effective registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE STATE SECURITIES LAWS. THESE SHARES MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
SECURITIES ACT AND APPLICABLE STATE LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO SECURED DIGITAL
APPLICATIONS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) The Warrant shall bear substantially the following
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, OR ANY APPLICABLE STATE
SECURITIES LAWS. 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 UNDERLYING
SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO SECURED DIGITAL APPLICATIONS, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
15
5.9 Patriot Act. Purchaser certifies that, to the best of
Purchaser's knowledge, the Purchaser has not been designated, and is not owned
or controlled, by a "suspected terrorist" as defined in Executive Order 13224.
The Purchaser hereby acknowledges that the Purchaser seeks to comply with all
applicable laws concerning money laundering and related activities. In
furtherance of those efforts, the Purchaser hereby represents, warrants and
agrees that: (i) none of the cash or property that the Purchaser will pay or
will contribute to the Company has been or shall be derived from, or related to,
any activity that is deemed criminal under United States law; and (ii) no
contribution or payment by the Purchaser to the Company to the extent that they
are within the Purchaser's control shall cause the Purchaser or the Company to
be in violation of the United States Bank Secrecy Act, the United States
International Money Laundering Control Act of 1986 or the United States
International Money Laundering Abatement and Anti-Terrorist Financing Act of
2001. The Purchaser shall promptly notify the Company if any of these
representations ceases to be true and accurate. The Purchaser agrees to provide
the Company any additional information regarding the Purchaser that is
reasonably necessary to ensure compliance with all applicable laws concerning
money laundering and similar activities. The Purchaser understands and agrees
that if at any time it is discovered that any of the foregoing representations
are incorrect, or if otherwise required by applicable law or regulation related
to money laundering similar activities, the Company may undertake appropriate
actions to ensure compliance with applicable law or regulation, including but
not limited to segregation and/or redemption of the Purchaser's investment in
the Company. The Purchaser further understands that the Company may, pursuant to
a court order, release confidential information about the Purchaser and, if
applicable, any underlying beneficial owners, to proper authorities if the
Company, in its sole discretion, determines that it is required under relevant
rules and regulations under the laws set forth in clause (ii) of this Section
5.9 provided that the Company shall first provide the Purchaser with notice of
such court order and an opportunity to seek a protective order.
6. Covenants of the Company. The Company covenants and agrees with the
Purchaser as follows:
6.1 Stop-Orders. The Company will advise the Purchaser, promptly
after it receives notice of issuance by the Securities and Exchange Commission
(the "SEC"), any state securities commission or any other regulatory authority
of any stop order or of any order preventing or suspending any offering of any
securities of the Company, or of the suspension of the qualification of the
Common Stock of the Company for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.
16
6.2 Listing. The Company's shares of Common Stock issuable upon
conversion of the Series A Preferred and upon the exercise of the Warrant are
listed on the NASD OTCBB (subject to the last sentence of this Section 6.2, the
"Principal Market") as of the date hereof and, subject to the last sentence of
this Section, the Company shall maintain such on a Principal Market so long as
any other shares of Common Stock shall be so listed. The Company will maintain
the listing of its Common Stock on a Principal Market, and will comply in all
material respects with the Company's reporting, filing and other obligations
under the bylaws or rules of the National Association of Securities Dealers
("NASD") and such exchanges, as applicable. Notwithstanding the foregoing, the
Company shall cause it shares of Common Stock to be listed on the NASDAQ
SmallCap Market, NASDAQ National Market System, the American Stock Exchange or
the New York Stock Exchange on or prior to November 15, 2004 and, following such
listing, such market or exchange on which the Company's Common Stock is then
listed shall be the "Principal Market" for the purposes of this Agreement and
the Related Agreements.
6.3 Market Regulations. The Company shall notify the SEC, NASD 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
Purchaser and promptly provide copies thereof to the Purchaser.
6.4 Reporting Requirements. The Company will timely file with the SEC
all reports required to be filed pursuant to the Exchange Act and refrain from
terminating its status as an issuer required by the Exchange Act to file reports
thereunder even if the Exchange Act or the rules or regulations thereunder would
permit such termination.
6.5 Use of Funds. The Company agrees that it and its Subsidiaries
will use the proceeds of the sale of the Series A Preferred and the Warrant for
general working capital purposes only (it being understood that the entire
amount of the proceeds of the Series A Preferred will be deposited in the
Restricted Account on the Closing Date and shall be subject to the terms and
conditions of the Restricted Account Agreement).
6.6 Access to Facilities. Each of the Company and each of its
Subsidiaries will permit any representatives designated by the Purchaser (or any
successor of the Purchaser), upon reasonable notice and during normal business
hours, at such person's expense and accompanied by a representative of the
Company, to:
(a) visit and inspect any of the properties of the Company or any of
its Subsidiaries;
(b) examine the corporate and financial records of the Company or any
of its Subsidiaries (unless such examination is not permitted by federal,
state or local law or by contract) and make copies thereof or extracts
therefrom; and
17
(c) discuss the affairs, finances and accounts of the Company or any
of its Subsidiaries with the directors, officers and independent
accountants of the Company or any of its Subsidiaries.
Notwithstanding the foregoing, neither the Company nor any of its Subsidiaries
will provide any material, non-public information to the Purchaser unless the
Purchaser signs a confidentiality agreement and otherwise complies with
Regulation FD, under the federal securities laws.
6.7 Taxes. Each of the Company and each of its Subsidiaries 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 and its
Subsidiaries; 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 and/or such Subsidiary shall
have set aside on its books adequate reserves with respect thereto, and
provided, further, that the Company and its Subsidiaries 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 therefor.
6.8 Insurance. Each of the Company and its Subsidiaries 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 similar business similarly situated
as the Company and its Subsidiaries; and the Company and its Subsidiaries 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 which the Company reasonably believes is customary for companies in
similar business similarly situated as the Company and its Subsidiaries and to
the extent available on commercially reasonable terms. The Company, and each of
its Subsidiaries will jointly and severally bear the full risk of loss from any
loss of any nature whatsoever with respect to the assets pledged to the
Purchaser as security for its obligations hereunder and under the Related
Agreements. At the Company's and each of its Subsidiaries' joint and several
cost and expense in amounts and with carriers reasonably acceptable to
Purchaser, the Company and each of its Subsidiaries shall (i) keep all its
insurable properties and properties in which it has an interest insured against
the hazards of fire, flood, sprinkler leakage, those hazards covered by extended
coverage insurance and such other hazards, and for such amounts, as is customary
in the case of companies engaged in businesses similar to the Company's or the
respective Subsidiary's including business interruption insurance; (ii) maintain
a bond in such amounts as is customary in the case of companies engaged in
businesses similar to the Company's or the respective Subsidiary's insuring
against larceny, embezzlement or other criminal misappropriation of insured's
officers and employees who may either singly or jointly with others at any time
have access to the assets or funds of the Company or any of its Subsidiaries
either directly or through governmental authority to draw upon such funds or to
direct generally the disposition of such assets; (iii) maintain public and
product liability insurance against claims for personal injury, death or
property damage suffered by others; (iv) maintain all such worker's compensation
or similar insurance as may be required under the laws of any state or
jurisdiction in which the Company or the respective Subsidiary is engaged in
business; and (v) furnish Purchaser with (x) copies of all policies and evidence
of the maintenance of such policies at least thirty (30) days before any
expiration date, (y) excepting the Company's workers' compensation policy, to
18
the extent that the Company or such Subsidiary maintains any business operations
(other than immaterial operations), endorsements to such policies naming
Purchaser as "co-insured" or "additional insured" and appropriate loss payable
endorsements in form and substance satisfactory to Purchaser, naming Purchaser
as loss payee (provided that, with respect to the Company's Foreign Subsidiaries
(as defined below), such Foreign Subsidiaries shall only be required to
designate the Purchaser as "co-insured" or "additional insured" and make
appropriate loss payee endorsements naming the Purchaser as loss payee on and
after 30 days following the Closing Date, and solely to the extent that such
designations and/or endorsements are permitted under the applicable law of such
Foreign Subsidiaries' jurisdiction of organization), and (z) evidence that as to
Purchaser the insurance coverage shall not be impaired or invalidated by any act
or neglect of the Company or any Subsidiary and the insurer will provide
Purchaser with at least thirty (30) days notice prior to cancellation. The
Company and each Subsidiary shall instruct the insurance carriers that in the
event of any loss thereunder, the carriers shall make payment for such loss to
the Company and/or the Subsidiary and Purchaser jointly. In the event that as of
the date of receipt of each loss recovery upon any such insurance, the Purchaser
has not declared an event of default with respect to this Agreement or any of
the Related Agreements, then the Company and/or such Subsidiary shall be
permitted to direct the application of such loss recovery proceeds toward
investment in property, plant and equipment that would comprise "Collateral"
secured by Purchaser's security interest pursuant to its security agreement,
with any surplus funds to be applied toward payment of the obligations of the
Company to Purchaser. In the event that Purchaser has properly declared an event
of default with respect to this Agreement or any of the Related Agreements, then
all loss recoveries received by Purchaser upon any such insurance thereafter may
be applied to the obligations of the Company hereunder and under the Related
Agreements, in such order as the Purchaser may determine. Any surplus (following
satisfaction of all Company obligations to Purchaser) shall be paid by Purchaser
to the Company or applied as may be otherwise required by law. Any deficiency
thereon shall be paid by the Company or the Subsidiary, as applicable, to
Purchaser, on demand.
6.9 Intellectual Property. Each of the Company and each of its
Subsidiaries shall maintain in full force and effect its 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.
6.10 Properties. Each of the Company and each of its Subsidiaries will
keep its properties in good repair, working order and condition, reasonable wear
and tear excepted, and from time to time make all needful and proper repairs,
renewals, replacements, additions and improvements thereto; and each of the
Company and each of its Subsidiaries 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, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
6.11 Confidentiality. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Purchaser,
unless expressly agreed to by the Purchaser or unless and until such disclosure
is required by law or applicable regulation, and then only to the extent of such
requirement. Notwithstanding the foregoing, the Company may disclose Purchaser's
identity and the terms of this Agreement to its current and prospective debt and
equity financing sources.
19
6.12 Required Approvals. For so long as the Purchaser holds twenty-five percent
(25%) of the stated value of the Series A Preferred, the Company, without the
prior written consent of the Purchaser, shall not:
(a) (i) directly or indirectly declare or pay any dividends, other
than (x) dividends paid to the Company or any of its wholly-owned
Subsidiaries; (y) dividends paid to the Purchaser with respect to the
Series A Preferred, (ii) issue any preferred stock that is manditorily
redeemable prior to May 28, 2008 or (iii) redeem any of its preferred stock
or other equity interests; and (z) dividends payable in Common Stock of the
Company with respect to preferred stock of the Company that is outstanding
on the date hereof;
(b) liquidate, dissolve or effect a material reorganization (it being
understood that in no event shall the Company dissolve, liquidate or merge
with any other person or entity (unless the Company is the surviving
entity);
(c) become subject to (including, without limitation, by way of
amendment to or modification of) any agreement or instrument which by its
terms would (under any circumstances) restrict the Company's or any of its
Subsidiaries right to perform the provisions of this Agreement, any Related
Agreement or any of the agreements contemplated hereby or thereby;
(d) materially alter or change the scope of the business of the
Company and its Subsidiaries taken as a whole;
(e) (i) create, incur, assume or suffer to exist any indebtedness
(exclusive of trade debt and debt incurred to finance the purchase of
equipment (not in excess of ten percent (10%) per annum of the fair market
value of the Company's assets) whether secured or unsecured other than (w)
capitalized lease obligations of the Company and its Subsidiaries in an
aggregate amount less than or equal to $600,000 at any time outstanding,
(x) the Company's and its Subsidiaries' indebtedness to Laurus, (y)
indebtedness set forth on Schedule 6.12(e) attached hereto and made a part
hereof and any refinancings or replacements thereof on terms no less
favorable to the Purchaser than the indebtedness being refinanced or
replaced, and (z) any debt incurred in connection with the purchase of
assets in the ordinary course of business, or any refinancings or
replacements thereof on terms no less favorable to the Purchaser than the
indebtedness being refinanced or replaced; (ii) cancel any debt owing to it
in excess of $50,000 in the aggregate during any 12 month period; (iii)
assume, guarantee, endorse or otherwise become directly or contingently
liable in connection with any obligations of any other Person, except the
endorsement of negotiable instruments by the Company for deposit or
collection or similar transactions in the ordinary course of business or
guarantees of indebtedness otherwise permitted to be outstanding pursuant
to this clause (e); and
20
(f) create or acquire any Subsidiary organized in the United States
of America (a "Domestic Subsidiary") after the date hereof unless (i) such
Subsidiary is a wholly-owned Subsidiary of the Company and (ii) such
Subsidiary becomes party to the Master Security Agreement, the Stock Pledge
Agreement and the Subsidiary Guaranty (either by executing a counterpart
thereof or an assumption or joinder agreement in respect thereof) and, to
the extent required by the Purchaser, satisfies each condition of this
Agreement and the Related Agreements as if such Subsidiary were a Domestic
Subsidiary on the Closing Date.
6.13 Reissuance of Securities. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Section 5.7 above at such time as:
(a) the holder thereof is permitted to dispose of such Securities
pursuant to Rule 144(k) under the Securities Act; or
(b) upon resale subject to an effective registration statement after
such Securities are registered under the Securities Act.
The Company agrees to cooperate with the Purchaser in connection with all
resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions
necessary to allow such resales provided the Company and its counsel receive
reasonably requested representations from the selling Purchaser and broker, if
any.
6.14 Opinion. On the Closing Date, the Company will deliver to the
Purchaser an opinion acceptable to the Purchaser from the Company's
external legal counsel. The Company will provide, at the Company's expense,
such other legal opinions in the future as are deemed reasonably necessary
by the Purchaser (and acceptable to the Purchaser) in connection with the
conversion of the Series A Preferred and exercise of the Warrant.
6.15 Margin Stock. The Company will not permit any of the proceeds of
the Series A Preferred or the Warrant to be used directly or indirectly to
"purchase" or "carry" "margin stock" or to repay indebtedness incurred to
"purchase" or "carry" "margin stock" within the respective meanings of each
of the quoted terms under Regulation U of the Board of Governors of the
Federal Reserve System as now and from time to time hereafter in effect.
6.16 Restricted Cash Disclosure. The Company agrees that, in
connection with its filing of its 8-K Report with the SEC concerning the
transactions contemplated by this Agreement and the Related Agreements
(such report, the "Laurus Transaction 8-K") in a timely manner after the
date hereof, it will disclose in such Laurus Transaction 8-K that the
entire amount of the proceeds of the Series A Preferred issued by SDA
America to the Purchaser has been placed in a restricted cash account under
the sole dominion and control of the Purchaser, and the release of the
proceeds set forth in such restricted cash account is subject to the
approval of the Purchaser. Furthermore, the Company agrees to disclose in
all public filings required by the Commission (where appropriate) following
the filing of the Laurus Transaction 8-K, the existence of the restricted
cash referred to in the immediately preceding sentence, together with the
amount thereof.
21
6.17 Foreign Security Agreements and Guarantees. No later than 60 days
following a request by the Purchaser, the Company shall cause each
Subsidiary of the Company requested by the Purchaser and organized in a
jurisdiction outside of the United States (collectively, the "Foreign
Subsidiaries") to, to the extent permitted under applicable law, execute
such documentation as the Purchaser deems necessary or desirable to (x)
grant in favor of the Purchaser a security interest in all of such Foreign
Subsidiary's assets, (y) cause the equity interests of any such Foreign
Subsidiary to be pledged to the Purchaser and (z) cause such Foreign
Subsidiary to guaranty the obligations of the Company set forth in this
Agreement and the Related Agreements, in each case pursuant to
documentation governed by the jurisdiction of organization of such Foreign
Subsidiary (the preceding clauses (x), (y) and (z), collectively, the
"Foreign Documentation"). All such Foreign Documentation shall be in form
and substance satisfactory to the Purchaser, and the Company agrees to
cause the respective Foreign Subsidiary to deliver all such other
documentation as is requested by the Purchaser in connection with the
execution and delivery of such Foreign Documentation (including, without
limitation, an opinion of counsel satisfactory to the Purchaser).
6.18 Reservation of Common Stock. At all times on and after August 29,
2004, the Company shall reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of Common
Stock upon the full conversion of the Series A Preferred (including all
principal, interest and fees related thereto) and the Warrant.
7. Covenants of the Purchaser. The Purchaser covenants and agrees
with the Company as follows:
7.1 Confidentiality. The Purchaser agrees that it will not
disclose, and will not include in any public announcement, the name of the
Company, unless expressly agreed to by the Company or unless and until such
disclosure is required by law or applicable regulation, and then only to the
extent of such requirement.
7.2 Non-Public Information. The Purchaser agrees not to effect
any sales in the shares of the Company's Common Stock while in possession of
material, non-public information regarding the Company if such sales would
violate applicable securities law.
8. Covenants of the Company and Purchaser Regarding Indemnification.
8.1 Company Indemnification. The Company agrees to indemnify,
hold harmless, reimburse and defend the Purchaser, each of the Purchaser's
officers, directors, agents, affiliates, control persons, and principal
shareholders, against any claim, cost, expense, liability, obligation, loss or
damage (including reasonable legal fees) of any nature, incurred by or imposed
upon the Purchaser which results, arises out of or is based upon: (i) any
misrepresentation by the Company or any of its Subsidiaries or breach of any
warranty by the Company or any of its Subsidiaries in this Agreement, any other
Related Agreement or in any exhibits or schedules attached hereto or thereto; or
(ii) any breach or default in performance by Company or any of its Subsidiaries
of any covenant or undertaking to be performed by Company or any of its
Subsidiaries hereunder, under any other Related Agreement or any other agreement
entered into by the Company and/or any of its Subsidiaries and Purchaser
relating hereto or thereto.
22
8.2 Purchaser's Indemnification. Purchaser agrees to indemnify,
hold harmless, reimburse and defend the Company and each of the Company's
officers, directors, agents, affiliates, control persons and principal
shareholders, at all times against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company which results, arises out of or is based
upon: (i) any misrepresentation by Purchaser or breach of any warranty by
Purchaser in this Agreement or in any exhibits or schedules attached hereto or
any Related Agreement; or (ii) any breach or default in performance by Purchaser
of any covenant or undertaking to be performed by Purchaser hereunder, or any
other agreement entered into by the Company and Purchaser relating hereto.
8.3 Procedures. The procedures and limitations set forth in
Section 10.2(c) and (d) shall apply to the indemnifications set forth in
Sections 8.1 and 8.2 above.
9. Conversion of Series A Preferred.
9.1 Mechanics of Conversion.
(a) Provided the Purchaser has notified the Company of the
Purchaser's intention to sell the Series A Preferred Shares and the
Series A Preferred Shares are included in an effective registration
statement or are otherwise exempt from registration when sold: (i)
upon the conversion of the Series A Preferred or part thereof, the
Company shall, at its own cost and expense, take all necessary action
(including the issuance of an opinion of counsel reasonably acceptable
to the Purchaser following a request by the Purchaser) to assure that
the Company's transfer agent shall issue shares of the Company's
Common Stock in the name of the Purchaser (or its nominee) or such
other persons as designated by the Purchaser in accordance with
Section 9.1(b) hereof and in such denominations to be specified
representing the number of Series A Preferred Shares issuable upon
such conversion; and (ii) 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 after the
Effectiveness Date (as defined in the Registration Rights Agreement)
the Series A Preferred Shares issued will be freely transferable
subject to the prospectus delivery requirements of the Securities Act
and the provisions of this Agreement, and will not contain a legend
restricting the resale or transferability of the Series A Preferred
Shares.
(b) Purchaser will give notice of its decision to exercise its
right to convert the Series A Preferred or part thereof by telecopying
or otherwise delivering an executed and completed notice of the number
of shares to be converted to the Company (the "Notice of Conversion").
The Purchaser will not be required to surrender the Series A Preferred
until the Purchaser receives a credit to the account of the
Purchaser's prime broker through the DWAC system (as defined below),
representing the Series A Preferred Shares or until the Series A
Preferred has been fully satisfied. Each date on which a Notice of
Conversion is telecopied or delivered to the Company in accordance
with the provisions hereof shall be deemed a "Conversion Date."
Pursuant to the terms of the Notice of Conversion, the Company will
issue instructions to the transfer agent accompanied by an opinion of
counsel within one (1) business day of the date of the delivery to the
Company 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 Purchaser's prime broker with
the Depository Trust Company ("DTC") through its Deposit Withdrawal
Agent Commission ("DWAC") system within three (3) business days after
receipt by the Company of the Notice of Conversion (the "Delivery
Date").
23
(c) The Company understands that a delay in the delivery of the
Series A Preferred Shares in the form required pursuant to Section 9
hereof beyond the Delivery Date could result in economic loss to the
Purchaser. In the event that the Company fails to direct its transfer
agent to deliver the Series A Preferred Shares to the Purchaser via
the DWAC system within the time frame set forth in Section 9.1(b)
above and the Series A Preferred Shares are not delivered to the
Purchaser by the Delivery Date, as compensation to the Purchaser for
such loss, the Company agrees to pay late payments to the Purchaser
for late issuance of the Series A Preferred Shares in the form
required pursuant to Section 9 hereof upon conversion of the Series A
Preferred Shares in the amount equal to the greater of: (i) $200 per
business day after the Delivery Date; or (ii) the Purchaser's actual
damages from such delayed delivery. Notwithstanding the foregoing, the
Company will not owe the Purchaser any late payments if the delay in
the delivery of the Series A Preferred Shares beyond the Delivery Date
is solely out of the control of the Company and the Company is
actively trying to cure the cause of the delay. The Company shall pay
any payments incurred under this Section in immediately available
funds upon demand and, in the case of actual damages, accompanied by
reasonable documentation of the amount of such damages. Such
documentation shall show the number of shares of Common Stock the
Purchaser is forced to purchase (in an open market transaction) which
the Purchaser anticipated receiving upon such conversion, and shall be
calculated as the amount by which (A) the Purchaser's total purchase
price (including customary brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (B) the aggregate
principal and/or interest amount of the Series A Preferred, for which
such Conversion Notice was not timely honored.
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 amount permitted by such
law, any payments in excess of such maximum shall be credited against amounts
owed by the Company to a Purchaser and thus refunded to the Company.
10. Registration Rights.
10.1 Registration Rights Granted. The Company hereby grants
registration rights to the Purchaser pursuant to a Registration Rights Agreement
dated as of even date herewith between the Company and the Purchaser.
10.2 Offering Restrictions. Except as previously disclosed in the SEC
Reports or in the Exchange Act Filings, or stock or stock options granted to
employees or directors of the Company (these exceptions hereinafter referred to
as the "Excepted Issuances"), neither the Company nor any of its Subsidiaries
will issue any securities with a continuously variable/floating conversion
feature which are or could be (by conversion or registration) free-trading
securities (i.e. common stock subject to a registration statement) prior to the
full repayment or conversion of the Series A Preferred (together with all
accrued and unpaid interest and fees related thereto) (the "Exclusion Period").
24
11. Miscellaneous.
11.1 Governing Law. THIS AGREEMENT AND EACH RELATED 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 AND EACH RELATED 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 INDIVIDUALS EXECUTING THIS AGREEMENT AND THE RELATED AGREEMENTS
ON BEHALF OF THE COMPANY AGREE TO SUBMIT TO THE JURISDICTION OF SUCH COURTS AND
WAIVE TRIAL BY JURY. IN THE EVENT THAT ANY PROVISION OF THIS AGREEMENT OR ANY
RELATED AGREEMENT DELIVERED IN CONNECTION HEREWITH IS INVALID OR UNENFORCEABLE
UNDER ANY APPLICABLE STATUTE OR RULE OF LAW, THEN SUCH PROVISION SHALL BE DEEMED
INOPERATIVE TO THE EXTENT THAT IT MAY CONFLICT THEREWITH AND SHALL BE DEEMED
MODIFIED TO CONFORM WITH SUCH STATUTE OR RULE OF LAW. ANY SUCH PROVISION WHICH
MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW SHALL NOT AFFECT THE VALIDITY
OR ENFORCEABILITY OF ANY OTHER PROVISION OF THIS AGREEMENT OR ANY RELATED
AGREEMENT.
11.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Purchaser and
the closing of the transactions contemplated hereby to the extent provided
therein. All statements as to factual matters contained in any certificate or
other instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as of the date of
such certificate or instrument.
11.3 Successors. Except as otherwise expressly provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, heirs, executors and administrators of the parties hereto and shall
inure to the benefit of and be enforceable by each person who shall be a holder
of the Securities from time to time, other than the holders of Common Stock
which has been sold by the Purchaser pursuant to Rule 144 or an effective
registration statement. Purchaser may not assign its rights hereunder to a
competitor of the Company.
11.4 Entire Agreement. This Agreement, the Related Agreements, the
exhibits and schedules hereto and thereto and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and no party shall be
liable or bound to any other in any manner by any representations, warranties,
covenants and agreements except as specifically set forth herein and therein.
25
11.5 Severability. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
11.6 Amendment and Waiver.
(a) This Agreement may be amended or modified only upon the written
consent of the Company and the Purchaser.
(b) The obligations of the Company and the rights of the Purchaser
under this Agreement may be waived only with the written consent of the
Purchaser.
(c) The obligations of the Purchaser and the rights of the Company
under this Agreement may be waived only with the written consent of the
Company.
11.7 Delays or Omissions. It is agreed that no delay or omission
to exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement or the Related
Agreements, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring. All remedies, either under this Agreement or the Related
Agreements, by law or otherwise afforded to any party, shall be cumulative and
not alternative.
11.8 Notices. All notices required or permitted hereunder shall
be in writing and shall be deemed effectively given:
(a) upon personal delivery to the party to be notified;
(b) when sent by confirmed facsimile if sent during normal
business hours of the recipient, if not, then on the next business
day;
(c) three (3) business days after having been sent by registered
or certified mail, return receipt requested, postage prepaid; or
(d) one (1) day after deposit with a nationally recognized overnight
courier, specifying next day delivery, with written verification of
receipt.
All communications shall be sent as follows:
If to the Company, to: Secured Digital Applications, Inc.
00 Xxxxx 00X/000
00000 Xxxxxxxx Xxxx, Xxxxxxxx, Xxxxxxxx
Attention: Chief Financial Officer
Facsimile: 000 0000-0000
26
with a copy to: SICHENZIA XXXX XXXXXXXX
XXXXXXX LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Attention: Xxx XxXxxxxx
Facsimile: (000) 000-0000
If to the Purchaser, to: Laurus Master Fund, Ltd.
c/o Ironshore Corporate Services ltd.
X.X. Xxx 0000 G.T.
Queensgate House, South Church Street
Grand Cayman, Cayman Islands
Facsimile: 000-000-0000
with a copy to:
Xxxx X. Xxxxxx, Esq.
000 Xxxxx Xxxxxx 00xx Xxxxx
Xxx Xxxx, XX 00000
Facsimile: 000-000-0000
or at such other address as the Company or the Purchaser may designate by
written notice to the other parties hereto given in accordance herewith.
11.9 Attorneys' Fees. In the event that any suit or action is
instituted to enforce any provision in this Agreement, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including, without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
11.10 Titles and Subtitles. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
11.11 Facsimile Signatures; Counterparts. This Agreement may be
executed by facsimile signatures and in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
11.12Broker's Fees. Except as set forth on Schedule 11.12 hereof,
each party hereto represents and warrants that no agent, broker, investment
banker, person or firm acting on behalf of or under the authority of such party
hereto is or will be entitled to any broker's or finder's fee or any other
commission directly or indirectly in connection with the transactions
contemplated herein. Each party hereto further agrees to indemnify each other
party for any claims, losses or expenses incurred by such other party as a
result of the representation in this Section 11.12 being untrue.
27
11.13 Construction. Each party acknowledges that its legal
counsel participated in the preparation of this Agreement and the Related
Agreements 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 Agreement to favor any party against the other.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
28
IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
SECURED DIGITAL APPLICATIONS, INC. LAURUS MASTER FUND, LTD.
By: /s/ Xxxxxxx Soon-Xxxx Xxx By: /s/ Xxxxx Grin
Name: Xxxxxxx Soon-Xxxx Xxx Name: Xxxxx Grin
Title: Chairman Title: Director
SDA AMERICA, INC.
By: /s/ Xxxxxxx Soon-Xxxx Xxx
Name: Xxxxxxx Soon-Xxxx Xxx
Title: Chairman
29
Securities Purchase Agreement
SCHEDULE OF EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES
This Schedule of Exceptions is made and given pursuant to Articles 4 and 11 of
that certain Securities Purchase Agreement dated May 28, 2004 by and among
Secured Digital Applications, Inc. and the Laurus Master Fund, Inc., as the
Purchaser listed in the Securities Purchase Agreement attached thereto (the
"Agreement"). The section numbers in this Schedule of Exceptions correspond to
the section numbers in the Agreement; however, any information disclosed herein
under any section number shall be deemed to be disclosed and incorporated into
any other section number under the Agreement where such disclosure would
otherwise be appropriate. Any terms defined in the Agreement shall have the same
meaning when used in this Schedule of Exceptions as when used in the Agreement
unless the context otherwise requires.
Nothing herein constitutes an admission of any liability or obligation on the
part of the Company nor an admission against the Company's interest. The
inclusion of any schedule herein or any exhibit hereto should not be interpreted
as indicating that the Company has determined that such an agreement or other
matter is necessarily material to the Company. The Purchaser acknowledges that
certain information contained in these schedules may constitute material
confidential information relating to the Company, which may not be used for any
purpose other than that contemplated in the Agreement. Copies of the agreements
described herein are available upon request of the Company for review by the
Purchaser.
Schedule 4.2
Subsidiaries
----------------------------- ------------------------------ ----------------
Name of Subsidiary Address No. of Shares
and Interest
----------------------------- ------------------------------ ----------------
Eystar Media Inc. 000 Xxxx Xxxxxx 00xx Xxxxx, 000 shares
Xxx Xxxx, XX 00000 100%
----------------------------- ------------------------------ ----------------
Animated Electronic 11 Jalan 51A/223, 46100 9,000,000
Industries Sdn Bhd Petaling Jaya, Selangor, shares
Malaysia 100%
----------------------------- ------------------------------ ----------------
Perwimas Telecommunications 11 Jalan 51A/223, 46100 11,478,000
Sdn Bhd Petaling Jaya, Selangor, shares
Malaysia 86.4%
----------------------------- ------------------------------ ----------------
Asiaco Multi Corporation 11 Jalan 51A/223, 46100 2 shares
Sdn Bhd Petaling Jaya, Selangor, 100%
Malaysia .
----------------------------- ------------------------------ ----------------
Secured Shipping Sdn Bhd 11 Xxxxx 00X/000, 00000 0 xxxxxx
Xxxxxxxx Xxxx, Xxxxxxxx, 100%
Malaysia
----------------------------- ------------------------------ ----------------
Temasya Wira Sdn Bhd 11 Jalan 51A/223, 46100 15,000 shares
Petaling Jaya, Selangor, 60%
Malaysia
----------------------------- ------------------------------ ----------------
Vista Positive Sdn Bhd 11 Xxxxx 00X/000, 00000 0 xxxxxx
Xxxxxxxx Xxxx, Xxxxxxxx, 100%
Malaysia
----------------------------- ------------------------------ ----------------
Asiaco Material Handling Lot K-9722, Taman Cukai 120,000 shares
(East Coast) Sdn Bhd Utama, 80%
Xxxxx Xxxxxx Xxxxx, 00000
Xxxxxxx, Xxxxxxxxx, Xxxxxxxx
----------------------------- ------------------------------ ----------------
Asiaco Logistic Sdn Bhd 0, Xxxxxx Xxxxxxxx 0, Xxxxx 140,000 shares
Perindustrian Saga Jaya, 67%
00000 Xxxx
Xxxxxxxx
----------------------------- ------------------------------ ----------------
Asiaco Services Sdn Bhd 00, Xxxxxx Xxxxxxxx 0, Xxxxx 450,000 shares
Perindustrian Saga Jaya, 60%
00000 Xxxx
Xxxxxxxx
----------------------------- ------------------------------ ----------------
Asiaco Taiping Sdn Bhd 73, Jalan Taiping Utara, 351,001 shares
34600 Kamunting, 62%
Perak, Malaysia
----------------------------- ------------------------------ ----------------
Schedule 4.3
4.3(a) Capitalization of Subsidiaries
----------------------------- ----------------------- -------------------------- ---------------------------
Name of Subsidiary Address Authorized Capital: Authorized
Capital: Issued
----------------------------- ----------------------- -------------------------- ---------------------------
Eystar Media Inc. 000 Xxxx Xxxxxx 00xx Xxxxxx: 000 Xxxxxx: 000
Xxxxx,
Xxx Xxxx, XX 00000 Preferred: 0 Preferred: 0
----------------------------- ----------------------- -------------------------- ---------------------------
Animated Electronic 00 Xxxxx 00X/000, Xxxxxx: 10,000,000 Common: 9,000,000
Industries Sdn Bhd 00000 Xxxxxxxx Xxxx,
Xxxxxxxx, Xxxxxxxx Preferred: 0 Preferred: 0
----------------------------- ----------------------- -------------------------- ---------------------------
Perwimas Telecommunications 00 Xxxxx 00X/000, Xxxxxx: 20,000,000 Common: 13,288,000
Sdn Bhd 00000 Xxxxxxxx Xxxx,
Xxxxxxxx, Xxxxxxxx Preferred: 0 Preferred: 0
----------------------------- ----------------------- -------------------------- ---------------------------
----------------------------- ----------------------- -------------------------- ---------------------------
Asiaco Multi Corporation 00 Xxxxx 00X/000, Xxxxxx: 10,000,000 Common: 2
Sdn Bhd 00000 Xxxxxxxx Xxxx,
Xxxxxxxx, Xxxxxxxx . Preferred: 0 Preferred: 0
----------------------------- ----------------------- -------------------------- ---------------------------
Secured Shipping Sdn Bhd 00 Xxxxx 00X/000, Xxxxxx: 100,000 Common: 2
00000 Xxxxxxxx Xxxx,
Xxxxxxxx, Xxxxxxxx Preferred: 0 Preferred: 0
----------------------------- ----------------------- -------------------------- ---------------------------
Temasya Wira Sdn Bhd 00 Xxxxx 00X/000, Xxxxxx: 100,000 Common: 25,000
00000 Xxxxxxxx Xxxx,
Xxxxxxxx, Xxxxxxxx Preferred: 0 Preferred: 0
----------------------------- ----------------------- -------------------------- ---------------------------
Vista Positive Sdn Bhd 00 Xxxxx 00X/000, Xxxxxx: 100,000 Common: 2
00000 Xxxxxxxx Xxxx,
Xxxxxxxx, Xxxxxxxx Preferred: 0 Preferred: 0
----------------------------- ----------------------- -------------------------- ---------------------------
Asiaco Material Xxxxxxxx Xxx X-0000, Xxxxx Xxxxxx: 500,000 Common: 150,000
(East Coast) Sdn Bhd Cukai Utama,
Jalan Kubang Kurus, Preferred: 0 Preferred: 0
24000 Kemaman,
Trengganu, Malaysia
----------------------------- ----------------------- -------------------------- ---------------------------
Asiaco Logistic Sdn Bhd 0, Xxxxxx Xxxxxxxx 0, Xxxxxx: 500,000 Common: 210,000
Taman Perindustrian
Saga Jaya, 13600 Prai Preferred: 0 Preferred: 0
Malaysia
----------------------------- ----------------------- -------------------------- ---------------------------
Asiaco Services Sdn Bhd 00, Xxxxxx Xxxxxxxx Xxxxxx: 1,000,000 Common: 750,000
4, Taman
Perindustrian Saga Preferred: 0 Xxxxxxxxx: 0
Xxxx, 00000 Xxxx
Xxxxxxxx
----------------------------- ----------------------- -------------------------- ---------------------------
Asiaco Taiping Sdn Bhd 00, Xxxxx Xxxxxxx Xxxxxx: 1,000,000 Common: 569,703
Xxxxx, 00000
Xxxxxxxxx, Xxxxxxxxx: 0 Xxxxxxxxx: 0
Xxxxx, Xxxxxxxx
----------------------------- ----------------------- -------------------------- ---------------------------
----------------------------- ----------------------- -------------------------- ---------------------------
Asiaco Transport Sdn Bhd 0, Xxxxxx Xxxx Xxxx Common: 500,000 Common: 173,002
2, Taman
Perindustrian Saga Preferred: 0 Xxxxxxxxx: 0
Xxxx, 00000 Xxxx
Xxxxxxxx
----------------------------- ----------------------- -------------------------- ---------------------------
Asiaco Engineering Sdn Bhd Xxxx 000, XX0 Xxxxxx Xxxxxx: 500,000 Common: 150,000
Xxxxxxxxxx 0, Xxxx
Xxxxxxxxxx Xxxxxx, Xxxxxxxxx: 0 Xxxxxxxxx: 0
00000 Xxxx, Xxxxxxxx
----------------------------- ----------------------- -------------------------- ---------------------------
4.3(b)Agreements for the Purchase or Acquisition of Shares
Options
------------------------------------------ ------------------------------------
Officers and Employees Consultants
------------------------------------------ ------------------------------------
0 Xxxxxxxx Xxxxxxx, 300,000
(Expires 6/30/04)
------------------------------------------ ------------------------------------
Common Stock
---------------------------------------- ---------------------------------------
Officers and Employees Consultants
---------------------------------------- ---------------------------------------
0 562,000
---------------------------------------- ---------------------------------------
The Company may issue shares from time The Company may issue shares
to time as compensation for from time to time as payment
members of its board of directors for the services of consultants not
not to exceed 2,000,000 shares to exceed 2,000,000 shares
---------------------------------------- ---------------------------------------
Preferred Stock
---------------------------------------- ---------------------------------------
Officers and Employees Consultants
---------------------------------------- ---------------------------------------
Xxxxxxx Xxx 100,000 Convertible Voting 0
Series A Preferred. Conversion Rate 80
Common/1 Preferred
Dividend: $2.20, accrued quarterly and
paid annually in common stock at $0.28/
share. If not earlier converted,
mandatory conversion after 10 years.
Liquidation Value: $35
---------------------------------------- ---------------------------------------
4.3(c) Assessable Shares
As of May 24, 2004, a share certificate for 1,840,000 shares of the
common stock of Kalan Gold, Inc. , a Colorado corporation, the predecessor in
interest to the Company, had been issued to a former consultant, Xxxxxxx
Xxxxxxx. The Company takes the position that such shares were issued improperly
by the former board of Kalan Gold prior to a reverse merger with Animated
Electronic Industries, Sdn Bhd, and that the services to be performed in
consideration for such shares were not in fact performed. The shares are subject
to a stop-transfer order and it is the view of management that they are not
fully paid and are assessable.
Schedule 4.6
4.6(a) Agreements
1. Capital Leases for video communication hardware and peripherals,
Maybahn Finance Bhd, $108,000 at March 31, 2004.
2. Income Tax Liabilities, $55,000.
3. As disclosed in prior Exchange Act filings, Secured Digital
Applications is a systems integrator that has in the ordinary course
of business licensed the technologies and/or products utilized in its
services, and has from time to time in the ordinary course of business
entered into reseller agreements for certain technologies. In
providing its owns services to customers, the ordinary course of
business of the Company is to provide a customary indemnity that the
Company has the right to utilize the property of third parties that
are incorporated in the services provided to customers of the Company.
Schedule 4.7
Sums owed to insiders or affilates. The Company is presently indebted
-----------------------------------
to Xxxxxxx Soon-Xxxx Xxx in the amount of $28,000 and to LSH Asset Holdings, a
subsidiary, in the amount of $28,000. Xx. Xxx and the subsidiary companies have
from time to time made advances or loans to the Company for the purpose of
providing operating capital, and the Company anticipates that it will continue
to obtain such funds in a manner consitent with past practices disclosed in its
Exchange Act filings.
Schedule 4.8
No applicable disclosures
Schedule 4.9
No applicable disclosures
Schedule 4.12
Litigation
1. An action arising out of certain alleged defamatory statements is
pending in the Superior Court of New Jersey, Law Division, Hunterdon
County, as disclosed in the Company's Exchange Act filings for the
period ending March 31, 2004, which is incorporated by reference.
2. The Company reserves it right to issue a capital call to Xxxxxxx
Xxxxxxx for certain common stock subject to a stop order and which the
company believes is not fully paid and is assessable, and to pursue
such remedies as are permitted by Delaware law. The Company
incorporates by reference the descriptions of its dispute with Xx.
Xxxxxxx made in the Company's Exchange Act filings.
Schedule 4.13
No applicable disclosures.
Schedule 4.14
No applicable disclosures.
Schedule 4.15
Registration Rights
1. The Company has agreed to and may from time to time issue shares to
consultants registered on Form S-8. At present, 486,111 shares of common
stock are due and owing to Xxx X. XxXxxxxx, Esq., for legal services
performed as a member of Sichenzia Xxxx Xxxxxxxx Xxxxxxx. The Company may
issue options, restricted shares or shares registered on Form S-8 to
consultants in the future, not to exceed 2,000,000 additional shares.
Schedule 4.17
No applicable disclosures.
Schedule 4.21
No applicable disclosures.
Schedule 11.21
No applicable disclosures.
EXHIBIT A
FORM OF CONVERTIBLE SERIES A PREFERRED AND CERTIFICATE OF
DESIGNATION
A-1
EXHIBIT B
FORM OF WARRANT
B-1
EXHIBIT C
FORM OF OPINION
1. Each of the Company and each of its Subsidiaries is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware [insert other jurisdictions] and has all requisite corporate
power and authority to own, operate and lease its properties and to carry on its
business as it is now being conducted.
2. Each of the Company and each of its Subsidiaries has the requisite
corporate power and authority to execute, deliver and perform its obligations
under the Agreement and the Related Agreements. All corporate action on the part
of the Company and each of its Subsidiaries and its officers, directors and
stockholders necessary has been taken for: (i) the authorization of the
Agreement and the Related Agreements and the performance of all obligations of
the Company and each of its Subsidiaries thereunder; and (ii) the authorization,
sale, issuance and delivery of the Securities pursuant to the Agreement and the
Related Agreements. The Series A Preferred Shares and the Warrant Shares, when
issued pursuant to and in accordance with the terms of the Agreement and the
Related Agreements and upon delivery shall be validly issued and outstanding,
fully paid and non assessable.
3. The execution, delivery and performance by each of the Company and
each of its Subsidiaries of the Agreement and the Related Agreements to which it
is a party and the consummation of the transactions on its part contemplated by
any thereof, will not, with or without the giving of notice or the passage of
time or both:
(a) Violate the provisions of their respective Charter or
bylaws; or
(b) Violate any judgment, decree, order or award of any court
binding upon the Company or any of its Subsidiaries; or
(c) Violate any [insert jurisdictions in which counsel is
qualified] or federal law
4. The Agreement and the Related Agreements will constitute, valid and
legally binding obligations of each of the Company and each of its Subsidiaries
(to the extent such person is a party thereto), and are enforceable against each
of the Company and each of its Subsidiaries in accordance with their respective
terms, except:
(a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights; and
(b) general principles of equity that restrict the
availability of equitable or legal remedies.
5. To such counsel's knowledge, the sale of the Series A Preferred
Shares and the subsequent conversion of the Series A Preferred into Series A
Preferred Shares are not subject to any preemptive rights or rights of first
refusal that have not been properly waived or complied with. To such counsel's
knowledge, the sale of the Warrant and the subsequent exercise of the Warrant
for Warrant Shares are not subject to any preemptive rights or, to such
counsel's knowledge, rights of first refusal that have not been properly waived
or complied with.
C-1
6. Assuming the accuracy of the representations and warranties of the
Purchaser contained in the Agreement, the offer, sale and issuance of the
Securities on the Closing Date will be exempt from the registration requirements
of the Securities Act. To such counsel's knowledge, 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 and security under circumstances that would cause the offering of the
Securities pursuant to the Agreement or any Related Agreement to be integrated
with prior offerings by the Company for purposes of the Securities Act which
would prevent the Company from selling the Securities pursuant to Rule 506 under
the Securities Act, or any applicable exchange-related stockholder approval
provisions.
7. There is no action, suit, proceeding or investigation pending or, to
such counsel's knowledge, currently threatened against the Company or any of its
Subsidiaries that prevents the right of the Company or any of its Subsidiaries
to enter into this Agreement or any of the Related Agreements, or to consummate
the transactions contemplated thereby. To such counsel's knowledge, the Company
is not a party or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality; nor is
there any action, suit, proceeding or investigation by the Company currently
pending or which the Company intends to initiate.
8. The terms and provisions of the Master Security Agreement and the
Stock Pledge Agreement create a valid security interest in favor of Laurus, in
the respective rights, title and interests of the Company and its Subsidiaries
in and to the Collateral (as defined in each of the Master Security Agreement
and the Stock Pledge Agreement). Each UCC-1 Financing Statement naming the
Company or any Subsidiary thereof as debtor and Laurus as secured party are in
proper form for filing and assuming that such UCC-1 Financing Statements have
been filed with the Secretary of State of Delaware [Insert other jurisdictions],
the security interest created under the Master Security Agreement will
constitute a perfected security interest under the Uniform Commercial Code in
favor of Laurus in respect of the Collateral that can be perfected by filing a
financing statement. After giving effect to the delivery to Laurus of the stock
certificates representing the ownership interests of each Subsidiary of the
Company (together with effective endorsements) and assuming the continued
possession by Laurus of such stock certificates in the State of New York, the
security interest created in favor of Laurus under the Stock Pledge Agreement
constitutes a valid and enforceable first perfected security interest in such
ownership interests (and the proceeds thereof) in favor of Laurus, subject to no
other security interest. No filings, registrations or recordings are required in
order to perfect (or maintain the perfection or priority of) the security
interest created under the Stock Pledge Agreement in respect of such ownership
interests.
9. Assuming that North Fork Bank is a "bank" (as such term is defined
in Section 9-102(a)(8) of the UCC), and that the Restricted Account (as defined
in the Restricted Account Agreement) constitutes a "deposit account" (as such
term is defined in Section 9-102(a)(29) of the UCC), under the Uniform
Commercial Code, the due execution and delivery of the Restricted Account
Agreement perfects the Purchaser's security interest in the Restricted Account.
C-2
C-3
EXHIBIT D
FORM OF ESCROW AGREEMENT
D-4
