MEDIA SERVICES GROUP, INC.
SUBSCRIPTION AGREEMENT (this "Agreement") made as of the date
set forth on the signature page hereto between Media Services Group, Inc., a
corporation organized under the laws of the State of Nevada (the "Company"), and
the undersigned (the "Subscriber").
WHEREAS, the Company desires to issue in a private placement
to "accredited investors" (the "Placement") shares of Common Stock, par value
$0.01 per share ("Common Stock") and warrants to purchase shares of the
Company's common stock, par value $0.01 (the "Common Stock Warrants"
collectively with the Common Stock, the "Offered Securities"), on the terms and
conditions set forth herein, and the Subscriber desires to acquire the Offered
Securities set forth on the signature page hereof; and
WHEREAS, the Offering Price for each share of Common Stock
shall be no less than $0.50 greater than the market price of the Company's
Common Stock on the day of each Closing (as defined below) and the exercise
price of each warrant shall be no less than $1.00 above the market price of the
Company's Common Stock on the date of each closing;
WHEREAS, the Company may issue Common Stock and Common Stock
Warrants in this offering for an aggregate offering price of up to $4,000,000
(the "Maximum Offering");
WHEREAS, the Common Stock, including the Common Stock
underlying the Common Stock Warrants, substantially in the form attached hereto
as Exhibit A (collectively, the "Reserved Shares") are entitled to registration
rights on the terms set forth in this Subscription Agreement; and
WHEREAS, the Subscriber is delivering simultaneously herewith
a completed investor questionnaire (the "Investor Questionnaire").
NOW, THEREFORE, for and in consideration of the premises and
the mutual covenants hereinafter set forth, the parties hereto do hereby agree
as follows:
I. SUBSCRIPTION FOR OFFERED SECURITIES AND REPRESENTATIONS BY AND COVENANTS OF
SUBSCRIBER
1.1 Subscription for Offered Securities. Subject to the terms and conditions
hereinafter set forth, the Subscriber hereby subscribes for and agrees to
purchase from the Company such number of Offered Securities as is set forth upon
the signature page hereof at a price per share equal to $0.50 greater than the
market price of the Company's Common Stock on the date of each closing, and the
Company agrees to sell such Offered Securities to the Subscriber for said
purchase price. The Subscriber shall also receive a five year warrant for the
purchase of one share of Common Stock, for every two shares of Common Stock
purchased by such Subscriber, and such warrants shall have an exercise price per
share equal to $1.00 greater than the market price of the Company's Common Stock
on the date of each closing. The purchase price is payable by certified or bank
check made payable to "Xxxxxxxxx Xxxxxxx LLP-MSGI Escrow Account" or by wire
transfer of funds, contemporaneously with the execution and delivery of this
Subscription Agreement. Xxxxxxxxx Traurig LLP (the "Escrow Agent") shall act as
such in accordance with the terms and conditions of an escrow agreement to be
entered into among the Company and the Escrow Agent. 1.2 Reliance on Exemptions.
The Subscriber acknowledges that the Placement has not been reviewed by the
United States Securities and Exchange Commission (the "SEC") or any state agency
because of the Company's representations that this is intended to be a nonpublic
offering exempt from the registration requirements of the Securities Act of
1933, as amended (the "1933 Act") and state securities laws. The Subscriber
understands that the Company is relying in part upon the truth and accuracy of,
and the Subscriber's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of the Subscriber set forth
herein and in the Investor Questionnaire in order to determine the availability
of such exemptions and the eligibility of the Subscriber to acquire the Offered
Securities.
1.3 Investment Purpose. The Subscriber represents that the Offered Securities
are being purchased for its own account, for investment purposes only and not
for distribution or resale to others in contravention of the registration
requirements of the 1933 Act. The Subscriber agrees that it will not sell or
otherwise transfer the Offered Securities or the Reserved Shares (collectively,
the "Securities") unless they are registered under the 1933 Act or unless an
exemption from such registration is available. 1.4 Accredited Investor. The
Subscriber represents and warrants that it is an "accredited investor" as such
term is defined in Rule 501 of Regulation D promulgated under the 1933 Act, as
indicated by its responses to the Investor Questionnaire, and that it is able to
bear the economic risk of any investment in the Offered Securities. The
Subscriber further represents and warrants that the information furnished by the
Subscriber in the Investor Questionnaire is accurate and complete in all
material respects. 1.5 Risk of Investment. The Subscriber recognizes that the
purchase of the Offered Securities involves a high degree of risk in that: (a)
an investment in the Company is highly speculative and only investors who can
afford the loss of their entire investment should consider investing in the
Company and the Securities; (b) transferability of the Securities is limited;
and (c) the Company may require substantial additional funds to operate its
business and there can be no assurance that the Maximum Offering will be
completed or that any other funds will be available to the Company, in addition
to all of the other risks set forth in the SEC Documents (as defined in Section
1.6 hereof). The Subscriber acknowledges the disclosure relating to the risks
affecting the Company set forth in the SEC Documents, and attached hereto as
Exhibit B.
1.6 Information. The Subscriber acknowledges that the Company has provided
herewith, as amended: (a) the Company's Annual Report on Form 10-K for the year
ended June 30, 2004, (b) the Company's Quarterly Reports, on Form 10-Q for the
fiscal quarter ended September 30, 2004. The Subscriber further acknowledges
that the Company has made available for its review the Company's Proxy
Statements, Definitive Information Statements, and Current Reports on Form 8-K,
as filed with the SEC between December 31, 2003 and the date of this
Subscription Agreement (collectively the "SEC Documents") and Subscriber hereby
represents and warrants that: (i) the Subscriber has been furnished by the
Company during the course of this transaction with all information regarding the
Company which it has requested; and (ii) that the Subscriber has been afforded
the opportunity to ask questions of and receive answers from duly authorized
officers of the Company concerning the terms and conditions of the Placement,
and any additional information which it has requested, if any. 1.7 No
Representations. The Subscriber hereby represents that, except as expressly set
forth in (a) this Subscription Agreement, (b) the Common Stock Warrants and (c)
all exhibits, schedules and appendices which are part of the aforementioned
documents, (collectively, the "Offering Documents"), no representations or
warranties have been made to the Subscriber by the Company or any agent,
employee or affiliate of the Company, including the Placement Agent, and in
entering into this transaction the Subscriber is not relying on any information
other than that contained in the Offering Documents, the SEC Documents and the
results of independent investigation by the Subscriber. 1.8 Tax Consequences.
The Subscriber acknowledges that the Placement may involve tax consequences and
that the contents of the Offering Documents do not contain tax advice or
information. The Subscriber acknowledges that he must retain his own
professional advisors to evaluate the tax and other consequences of an
investment in the Offered Securities.
1.9 Transfer or Resale. The Subscriber understands that Rule 144 (the "Rule")
promulgated under the 1933 Act requires, among other conditions, a one-year
holding period prior to the resale (in limited amounts) of securities acquired
in a non-public offering without having to satisfy the registration requirements
under the 1933 Act. The Subscriber understands and hereby acknowledges that the
Company is under no obligation to register the securities comprising the Offered
Securities under the 1933 Act, with the exception of certain registration rights
covering the resale of the Reserved Shares set forth in Article V hereof.
1.10 Legends. The Subscriber understands that the certificates or other
instruments representing the Securities, until such time as they have been
registered under the 1933 Act, shall bear a restrictive legend in substantially
the following form (and a stop-transfer order may be placed against transfer of
such certificates or other instruments):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR (B) AN OPINION OF
COUNSEL, IN A REASONABLY ACCEPTABLE FORM, THAT REGISTRATION IS
NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES
LAWS, OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed and the Company shall promptly issue
a certificate or other instrument without such legend to the holder of the
Securities upon which it is stamped, if (a) such Securities are being sold by
the holder pursuant to an effective registration statement under the 1933 Act,
or (b) such holder delivers to the Company an opinion of counsel, in a
reasonably satisfactory and acceptable form to the Company and its counsel
directed to the Company or expressly providing that the Company may rely
thereon, that a disposition of the Securities is being made pursuant to an
exemption from such registration.
1.11 No General Solicitation. The Subscriber represents that the Subscriber was
not induced to invest by any of the following: (a) any advertisement, article,
notice or other communication published in any newspaper, magazine or similar
media or broadcast over the news or radio; and (b) any seminar or meeting whose
attendees were invited by any general solicitation or advertising. 1.12
Validity; Enforcement. If the Subscriber is a corporation, partnership, trust or
other entity, the Subscriber represents and warrants that: (a) it is authorized
and otherwise duly qualified to purchase and hold the Offered Securities; and
(b) that this Subscription Agreement has been duly and validly authorized,
executed and delivered and constitutes the legal, binding and enforceable
obligation of the undersigned.
1.13 Address. The Subscriber hereby represents that the address of Subscriber
furnished by the Subscriber at the end of this Subscription Agreement is the
principal residence if the Subscriber is an individual or its principal business
address if it is a corporation or other entity.
1.14 No Hedging Transactions. The Subscriber hereby agrees not to engage in any
Hedging Transaction until such time as the Reserved Shares have been registered
for resale under the 1933 Act or may otherwise be sold in the public market
without an effective registration statement under the 1933 Act. "Hedging
Transaction" means any short sale (whether or not against the box) or any
purchase, sale or grant of any right (including, without limitation, any put or
call option) with respect to any security (other than a broad-based market
basket or index) that includes, relates to or derives any significant part of
its value from the Company's Common Stock or any rights, warrants, options or
other securities that are convertible into, or exercisable or exchangeable for,
Common Stock. 1.15 Foreign Subscriber. If the Subscriber is not a United States
person, such Subscriber hereby represents that it has satisfied itself as to the
full observance of the laws of its jurisdiction in connection with any
invitation to subscribe for the Securities comprising the Offered Securities or
any use of this Subscription Agreement, including: (a) the legal requirements
within its jurisdiction for the purchase of the Offered Securities; (b) any
foreign exchange restrictions applicable to such purchase; (c) any governmental
or other consents that may need to be obtained; and (d) the income tax and other
tax consequences, if any, that may be relevant to the purchase, holding,
redemption, sale or transfer of the Securities. Such Subscriber's subscription
and payment for, and its continued beneficial ownership of the Securities, will
not violate any applicable securities or other laws of the Subscriber's
jurisdiction. 1.16 NASD Member. The Subscriber acknowledges that if it is a
Registered Representative of a NASD member firm, the Subscriber must give such
firm notice required by the NASD's Rules of Fair Practice, receipt of which must
be acknowledged by such firm on the signature page hereof.
II. REPRESENTATIONS BY THE COMPANY
The Company represents and warrants to the Subscriber, except as set forth in
the SEC Documents, the Memorandum or the disclosure schedules attached hereto:
2.1 Securities Law Compliance. The offer, offer for sale, and sale of the
Offered Securities have not been registered under the 1933 Act. The Offered
Securities are to be offered, offered for sale and sold in reliance upon the
exemptions from the registration requirements of Section 4 of the 1933 Act. The
Company will use its commercially reasonable efforts to conduct the Placement in
compliance with the requirements of Regulation D of the General Rules and
Regulations under the 1933 Act and applicable state "blue sky" laws, and the
Company will file all appropriate notices of offering with the SEC. The Offering
Documents will not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
light of the circumstances in which they were made, not misleading. If at any
time prior to the completion of the Placement or other termination of this
Subscription Agreement any event shall occur as a result of which it might
become necessary to amend or supplement the Offering Documents so that they do
not include any untrue statement of any material fact or omit to state any
material fact necessary in order to make the statements therein, in the light of
the circumstances then existing, not misleading, the Company will promptly
notify the Subscriber and will supply the Subscriber with amendments or
supplements correcting such statement or omission.
2.2 Organization and Qualification. The Company is duly organized and validly
existing in good standing under the laws of the jurisdiction in which it is
organized, and has the requisite power and authorization to own its properties
and to carry on its business as now being conducted. The Company is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not have
a Material Adverse Effect. As used in this Subscription Agreement, "Material
Adverse Effect" means any material adverse effect on the business, properties,
assets, operations, results of operations, financial condition of the Company,
or on the transactions contemplated hereby, or on the authority or ability of
the Company to perform its obligations under this Subscription Agreement.
2.3 SEC Documents; Financial Statements. The SEC Documents represent all
reports, schedules, forms, statements and other documents required to be filed
by it since June 30, 2003 with the SEC pursuant to the reporting requirements of
the Securities Exchange Act of 0000 (xxx "Xxxxxxxx Xxx"). The Company has made
available to the Subscriber or its representatives copies of the SEC Documents.
As of their respective dates, the SEC Documents complied in all material
respects with the requirements of the Exchange Act and the rules and regulations
of the SEC promulgated thereunder applicable to the SEC Documents, and none of
the SEC Documents, at the time they were filed with the SEC, contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. As of
their respective dates, the financial statements of the Company included in the
SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (a) as may be otherwise indicated in such financial
statements or the notes thereto, or (b) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments that would not be
material). The Company has no reason to believe its independent auditors will
withhold their consent to the inclusion of their audit opinion concerning the
Company's financial statements which are to be included in any Registration
Statement.
2.4 Absence of Changes. Since June 30, 2004, other than as set forth in the SEC
Documents, neither the Company, nor, to the Company's knowledge, its
subsidiaries have (a) incurred any debts, obligations or liabilities, absolute,
accrued, contingent or otherwise, whether due or to become due, except current
liabilities incurred in the usual and ordinary course of business and consistent
with past practices, having individually or in the aggregate a Material Adverse
Effect, (b) made or suffered any changes in its contingent obligations by way of
guaranty, endorsement (other than the endorsement of checks for deposit in the
usual and ordinary course of business), indemnity, warranty or otherwise, (c)
discharged or satisfied any liens or paid any obligation or liability other than
current liabilities shown on the balance sheet dated as of June 30, 2004, in
each case in the usual and ordinary course of business and consistent with past
practices, (d) mortgaged, pledged or subjected to lien any of its assets,
tangible or intangible, (e) sold, transferred or leased any of its assets except
in the usual and ordinary course of business and consistent with past practices,
(f) cancelled or compromised any debt or claim, or waived or released any right,
of material value, (g) suffered any physical damage, destruction or loss
(whether or not covered by insurance) adversely affecting any of its properties,
business or prospects, (h) entered into any transaction other than in the usual
and ordinary course of business except for this Subscription Agreement, (i)
declared or paid any dividends on or made any other distributions with respect
to, or purchased or redeemed, any of its outstanding equity securities, (j)
suffered or experienced any change in, or condition affecting, its condition
(financial or otherwise), properties, assets, liabilities, business operations,
results of operations or prospects other than changes, events or conditions in
the usual and ordinary course of its business and consistent with past
practices, having (either by itself or in conjunction with all such other
changes, events and conditions) a Material Adverse Effect or (k) made any change
in the accounting principles, methods or practices followed by it or
depreciation or amortization policies or rates theretofore adopted. 2.5 Title.
The Company, and to the Company's knowledge, each of its subsidiaries have good
and marketable title to all properties and assets owned by it, free and clear of
all liens, charges, encumbrances or restrictions, except such as are not
significant or important in relation to its business. All of the material leases
and subleases under which the Company or, to the Company's knowledge, any of its
subsidiaries is the lessor or sublessor of properties or assets or under which
they hold properties or assets as lessee or sublessee are in full force and
effect. Neither the Company nor, to the Company's knowledge, any of its
subsidiaries is in default in any material respect with respect to any of the
terms or provisions of any of such leases or subleases, and no material claim
has been asserted by anyone adverse to the rights of the Company or, to the
Company's knowledge, its subsidiaries as lessor, sublessor, lessee or sublessee
under any of the leases or subleases mentioned above, or affecting or
questioning the right of the Company or, to the Company's knowledge, any of its
subsidiaries to continued possession of the leased or subleased premises or
assets under any such lease or sublease. The Company and, to the Company's
knowledge, each subsidiary own or lease all such properties as are necessary to
its operations. 2.6 Proprietary Rights. The Company and, to the Company's
knowledge, each subsidiary own, or is duly licensed to use or possess, or
possesses exclusive and enforceable rights to use all patents, patent
applications, trademarks, service marks, copyrights, trade secrets, processes,
formulations, technology or know-how used in the conduct of its business (the
"Proprietary Rights"). The Company and, to the Company's knowledge, its
subsidiaries, have not received any notice of any claims, and the Company does
not have any knowledge of any threatened claims, and knows of no facts which
would form the basis of any claim, asserted by any person to the effect that the
sale or use of any product or process now used or offered by the Company or its
subsidiaries proposed to be used or offered by the Company or its subsidiaries
infringes on any patents or infringes upon the use of any such Proprietary
Rights of another person and, to the best of the Company's knowledge, no others
have infringed the Company's or any of its subsidiaries' Proprietary Rights. 2.7
Litigation. There is no material action, suit, investigation, customer
complaint, claim or proceeding at law or in equity by or before any arbitrator,
court, governmental instrumentality or agency, self-regulatory organization or
body or public board now pending or, to the knowledge of the Company, threatened
against the Company, its subsidiaries, or any of the Company's officers or
directors in their capacities as such (or basis therefor known to the Company),
the adverse outcome of which would have a Material Adverse Effect. Neither the
Company nor, to the Company's knowledge, any subsidiary is subject to any
judgment, order, writ, injunction or decree of any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign that has a Material Adverse Effect.
2.8 Non-Defaults; Non-Contravention. The Company and, to the Company's
knowledge, its subsidiaries, are not in violation of or in default under, nor
will the execution and delivery of this Subscription Agreement or consummation
of the transactions contemplated herein result in a violation of or constitute a
default in the performance or observance of any obligation under: (a) its
Certificate of Incorporation, or its By-laws; or (b) any indenture, mortgage,
contract, material purchase order or other agreement or instrument to which the
Company or, to the Company's knowledge, its subsidiaries is a party or by which
it or its property is bound, where such violation or default would have a
Material Adverse Effect; or (c) any material order, writ, injunction or decree
of any court of any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign
(including, to the Company's knowledge, federal and state securities laws and
regulations), where such violation or default would have a Material Adverse
Effect.
2.9 Taxes. The Company has filed all tax returns that are required to be filed
by it or otherwise met its disclosure obligations to the relevant agencies and
all such returns are true and correct. The Company has paid or adequately
provided for all tax liabilities of the Company as reflected on such returns or
pursuant to any assessments received by it or that it is obligated to withhold
from amounts owing to any employee, creditor or third party. The Company has
properly accrued all taxes required to be accrued by GAAP consistently applied.
The income tax returns of the Company have not been audited by any government or
regulatory authorities with in the last five years. The Company has not waived
any statute of limitations with respect to taxes or agreed to any extension of
time with respect to any tax assessment or deficiency.
2.10 Compliance With Laws; Licenses, Etc. The Company and, to the Company's
knowledge, its subsidiaries have not received notice of any violation of or
noncompliance with any laws, ordinances, regulations and orders applicable to
its business that would have a Material Adverse Effect and that has not been
cured. The Company and, to the Company's knowledge, its subsidiaries have all
material licenses and permits and other governmental certificates,
authorizations and permits and approvals (collectively, "Licenses") required by
every government or regulatory body for the operation of its business as
currently conducted and the use of its properties. The Licenses are in full
force and effect and to the Company's knowledge no violations currently exist in
respect of any License and no proceeding is pending or threatened to revoke or
limit any thereof.
2.11 Authorization; Enforcement; Validity. The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Subscription Agreement and the other Offering Documents, to file and
perform its obligations under the Offering Documents, and to issue the
Securities in accordance with the terms of the Offering Documents. The execution
and delivery of the Offering Documents by the Company and the consummation by
the Company of the transactions contemplated by the Offering Documents,
including without limitation the issuance of the Securities, have been duly
authorized by the Company's board of directors. This Agreement constitutes the
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms. 2.12 Authorization of Securities. The issuance, sale
and delivery of the Offered Securities have been duly authorized by all
requisite corporate action of the Company. When so issued, sold and delivered in
accordance with the Offering Documents for the consideration set forth therein,
the Offered Securities will be duly executed, issued and delivered and will
constitute valid and legal obligations of the Company enforceable in accordance
with their respective terms and, in each case, will not be subject to preemptive
or any other similar rights of the stockholders of the Company or others which
rights shall not have been waived prior to the Initial Closing (as defined
herein). Prior to the Initial Closing, the Offered Securities will be duly
reserved for issuance and when so issued, sold, paid for and delivered for the
consideration set forth in the Offering Documents, the Offered Securities will
be validly issued and outstanding, fully paid and nonassessable, and not subject
to preemptive or any other similar rights of the stockholders of the Company or
others which rights shall not have been waived prior to the Initial Closing. The
Common Stock issuable upon exercise of the Common Stock Warrants purchased under
this Agreement has been duly and validly reserved for issuance and, upon
issuance will be duly and validly issued, fully paid, and nonassessable and will
be free of restrictions on transfer other than restrictions on transfer under
this Agreement and under applicable state and federal securities laws.
2.13 Exemption from Registration. Assuming the accuracy of the information
provided by the respective Subscribers in the Subscription Agreements, the offer
and sale of the Offered Securities pursuant to the terms of this Subscription
Agreement are exempt from the registration requirements of the 1933 Act and the
rules and regulations promulgated thereunder.
2.14 Registration Rights. Except as set forth in Article V to this Subscription
Agreement and on Schedule 2.14 attached hereto, no person has any right to cause
the Company to effect registration under the 1933 Act of any securities of the
Company. 2.15 Brokers. Neither the Company nor any of its officers, directors,
employees or stockholders has employed any broker or finder in connection with
the transactions contemplated by this Subscription Agreement. Notwithstanding,
the Company may pay to a registered broker dealer a cash fee of 6% of the
aggregate offering actually sold in the Placement through such registered broker
dealer. In addition, the Company may to issue to any registered broker dealer
five year common stock warrants equal to the number of shares of Common Stock
actually sold through such broker dealer in the Placement on the same terms as
the Common Stock Warrants issued in this Placement. 2.16 Title to Securities.
When the Offered Securities have been duly delivered to the Subscribers
participating in the Placement and payment shall have been made therefor, the
several Subscribers shall receive from the Company good and marketable title to
such securities free and clear of all liens, encumbrances and claims whatsoever
(with the exception of claims arising through the acts or omissions of the
Subscribers and except as arising from applicable federal and state securities
laws), and the Company shall have paid all taxes, if any, in respect of the
original issuance thereof.
2.17 Consents. Except as contemplated by this Subscription Agreement, to the
Company's knowledge, the Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency or any regulatory or self-regulatory agency in order for it
to execute, deliver or perform any of its obligations under or contemplated by
this Subscription Agreement. Except as otherwise provided in this Subscription
Agreement, all consents, authorizations, orders, filings and registrations that
the Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof. The Company is unaware of
any facts or circumstances that might prevent the Company from obtaining or
effecting any of the foregoing. 2.18 No General Solicitation. None of the
Company, any of its affiliates, and, to the Company's knowledge, any person
acting on its behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the 0000 Xxx) in
connection with the offer or sale of the Securities.
III. TERMS OF PURCHASE
3.1 Closing Date. Provided the funds representing the sale thereof shall have
cleared, and all conditions to closing have been satisfied or waived and the
Company has not notified the Subscribers that they do not intend to effect the
closing, the initial closing shall take place at the offices of counsel to the
Company, Xxxxxxxxx Xxxxxxx LLP, 000 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, or
such other location as mutually agreed to by the Company and the Subscribers
within three business days thereafter (the "Initial Closing"). At the Initial
Closing, payment for the Offered Securities issued and sold by the Company shall
be made against delivery of the Offered Securities comprising such Offered
Securities. Subsequent closings (each of which shall be deemed a "Closing"
hereunder) shall take place at any time prior to the Termination Date as may be
decided by the Company. The date of the last closing of the Placement is
hereinafter referred to as the "Final Closing" and the date of any Closing
hereunder is hereinafter referred to as a "Closing Date." The Placement will
commence on December 16, 2004 and will terminate on February 16, 2005 (the
"Termination Date"), however the Company may extend the Placement pursuant to
one or more extensions with the agreement of the placement agent for an
additional period or periods ending on or before 90 days thereafter.
3.2 Expenses. Simultaneously with payment for and delivery of the Offered
Securities at each Closing, the Company may pay a registered broker dealer a fee
of 6%, if applicable, in accordance with Section 2.15. The Company shall also
pay all expenses in connection with the qualification of the Securities under
the blue sky laws of the states which the Company shall designate. 3.3 Escrow.
Pending the sale of the Offered Securities, all funds paid hereunder shall be
deposited by the Company in escrow with the Escrow Agent. If the Company does
not have the Initial Closing on or before the Termination Date, and the Company
does not extend the Offering, pursuant to Section 3.1 above, then this
subscription shall be void and all funds paid hereunder by the Subscriber,
without interest, shall be promptly returned to the Subscriber, subject to
Section 3.5 hereof.
3.4 Certificates. The Subscriber hereby authorizes and directs the Company, upon
each Closing in the Offering, to deliver the Offered Securities to be issued to
such Subscriber pursuant to this Subscription Agreement to the Subscriber's
address indicated on the signature page hereto.
3.5 Return of Funds. The Subscriber hereby authorizes and directs the Company to
return any funds for unaccepted subscriptions to the same account from which the
funds were drawn.
IV. USE OF PROCEEDS
The Company will receive net proceeds of up to approximately
$3,700,000 (assuming a fee is paid on all of the Offered Securities), if all
Offered Securities are sold, after deducting the fee payable to any placement
agent and other offering costs.
Net proceeds from the Placement will be used by the Company in
accordance with the description in the Memorandum. V. REGISTRATION RIGHTS 5.1
"Piggyback" Registration Rights. Commencing 90 days after the Initial Closing,
if the Company shall determine to proceed with the actual preparation and filing
of a new registration statement under the 1933 Act in connection with the
proposed offer and sale of any of its securities by it or any of its security
holders (other than a registration statement on Form X-0, X-0 or other limited
purpose form), the Company will give written notice of its determination to all
record holders of the Reserved Shares. Upon the written request from any Holders
(the "Requesting Holders"), within 15 days after receipt of any such notice from
the Company, the Company will, except as herein provided, cause all of the
Reserved Shares covered by such request (the "Requested Stock") held by the
Requesting Holders to be included in such registration statement, all to the
extent requisite to permit the sale or other disposition by the prospective
seller or sellers of the Requested Stock; provided, further, that nothing herein
shall prevent the Company from, at any time, abandoning or delaying any
registration. If any registration pursuant to this Section 5.1 shall be
underwritten in whole or in part, the Company may require that the Requested
Stock be included in the underwriting on the same terms and conditions as the
securities otherwise being sold through the underwriters. In such event, the
Requesting Holders shall, if requested by the underwriters, execute an
underwriting agreement containing customary representations and warranties by
selling stockholders and a lock-up on Reserved Shares not being sold. If in the
good faith judgment of the managing underwriter of such public offering the
inclusion of all of the Requested Stock would reduce the number of shares to be
offered by the Company or interfere with the successful marketing of the shares
of stock offered by the Company, the number of shares of Requested Stock
otherwise to be included in the underwritten public offering may be reduced pro
rata (by number of shares) among the Requesting Holders and all other holders of
registration rights who have requested inclusion of their securities or excluded
in their entirety if so required by the underwriter. To the extent only a
portion of the Requested Stock is included in the underwritten public offering,
those shares of Requested Stock which are thus excluded from the underwritten
public offering and any other securities of the Company held by such holders
shall be withheld from the market by the Holders thereof for a period, not to
exceed 90 days, which the managing underwriter reasonably determines is
necessary in order to effect the underwritten public offering. The obligation of
the Company under this Section 5.1 shall not apply after the earlier of (a) the
date that all of the Reserved Shares have been sold pursuant to Rule 144 under
the 1933 Act or an effective registration statement, or (b) such time as the
Reserved Shares are eligible for immediate resale pursuant to Rule 144(k) under
the 1933 Act.
5.2 Registration Procedures. To the extent required by Section 5.1,
the Company will:
(a) prepare and file with the SEC a registration statement with respect to the
Reserved Shares, and use its reasonable best efforts to cause such registration
statement to become and remain effective; (b) prepare and file with the SEC such
amendments to such registration statement and supplements to the prospectus
contained therein as may be necessary to keep such registration statement
effective; (c) furnish to the Holders participating in such registration and to
the underwriters of the securities being registered such reasonable number of
copies of the registration statement, preliminary prospectus, final prospectus
and such other documents as such underwriters may reasonably request in order to
facilitate the public offering of such securities; (d) use its reasonable best
efforts to register or qualify the securities covered by such registration
statement under such state securities or blue sky laws of such jurisdictions as
the Holders may reasonably request in writing within 20 days following the
original filing of such registration statement, except that the Company shall
not for any purpose be required to execute a general consent to service of
process or to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified; (e) notify the Holders, promptly
after it shall receive notice thereof, of the time when such registration
statement has become effective or a supplement to any prospectus forming a part
of such registration statement has been filed; (f) notify the Holders promptly
of any request by the SEC for the amending or supplementing of such registration
statement or prospectus or for additional information; (g) prepare and file with
the SEC, promptly upon the request of any Holders, any amendments or supplements
to such registration statement or prospectus which, in the opinion of counsel
for such Holders (and concurred in by counsel for the Company), is required
under the 1933 Act or the rules and regulations thereunder in connection with
the distribution of Common Stock by such Holders; (h) prepare and promptly file
with the SEC and promptly notify such Holders of the filing of such amendment or
supplement to such registration statement or prospectus as may be necessary to
correct any statements or omissions if, at the time when a prospectus relating
to such securities is required to be delivered under the 1933 Act, any event
shall have occurred as the result of which any such prospectus or any other
prospectus as then in effect would include an untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein, in the light of the circumstances in which they were made, not
misleading; and (i) advise the Holders, promptly after it shall receive notice
or obtain knowledge thereof, of the issuance of any stop order by the SEC
suspending the effectiveness of such registration statement or the initiation or
threatening of any proceeding for that purpose and promptly use its best efforts
to prevent the issuance of any stop order or to obtain its withdrawal if such
stop order should be issued.
The Holders shall cooperate with the Company in providing the
information necessary to effect the registration of their Reserved Shares,
including completion of customary questionnaires. Failure to do so may result in
exclusion of such Holders' Reserved Shares from the registration statement.
5.3 Expenses.
(a) With respect to the any registration required pursuant to Section 5.1
hereof, all fees, costs and expenses of and incidental to such registration,
inclusion and public offering (as specified in paragraph (b) below) in
connection therewith shall be borne by the Company, provided, however, that the
Holders shall bear their pro rata share of the underwriting discount and
commissions and transfer taxes.
(b) The fees, costs and expenses of registration to be borne by the Company as
provided in paragraph (a) above shall include, without limitation, all
registration, filing, and NASD fees, printing expenses, fees and disbursements
of counsel and accountants for the Company, fees of counsel to the Holders (not
to exceed $20,000 in the aggregate) and all legal fees and disbursements and
other expenses of complying with state securities or blue sky laws of any
jurisdictions in which the securities to be offered are to be registered and
qualified (except as provided in 5.3(a) above). Fees and disbursements of
counsel for the Holders in excess of $20,000 and any other expenses incurred by
the Holders not expressly included above shall be borne by the Holders (on a pro
rata basis if and to the extent required by state securities laws).
5.4 Indemnification.
(a) The Company will indemnify and hold harmless each Holder of Reserved Shares
which are included in a registration statement pursuant to the provisions of
Section 5.1 hereof, its directors and officers, and any underwriter (as defined
in the 0000 Xxx) for such Holder and each person, if any, who controls such
Holder or such underwriter within the meaning of the 1933 Act, from and against,
and will reimburse such Holder and each such underwriter and controlling person
with respect to, any and all loss, damage, liability, cost and expense to which
such Holder or any such underwriter or controlling person may become subject
under the 1933 Act or otherwise, insofar as such losses, damages, liabilities,
costs or expenses are caused by any untrue statement or alleged untrue statement
of any material fact contained in such registration statement, any prospectus
contained therein or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading; provided,
however, that the Company will not be liable in any such case to the extent that
any such loss, damage, liability, cost or expenses arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by or on behalf of
such Holder, such underwriter or such controlling person in writing specifically
for use in the preparation thereof. (b) Each Holder of Reserved Shares included
in a registration pursuant to the provisions of Section 5.1 hereof will
indemnify and hold harmless the Company, its directors and officers, any
controlling person and any underwriter from and against, and will reimburse the
Company, its directors and officers, any controlling person and any underwriter
with respect to, any and all loss, damage, liability, cost or expense to which
the Company or any controlling person and/or any underwriter may become subject
under the 1933 Act or otherwise, insofar as such losses, damages, liabilities,
costs or expenses are caused by any untrue statement or alleged untrue statement
of any material fact contained in such registration statement, any prospectus
contained therein or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was so made in reliance upon
and in strict conformity with written information furnished by or on behalf of
such Holder specifically for use in the preparation thereof. (c) Promptly after
receipt by an indemnified party pursuant to the provisions of paragraph (a) or
(b) of this Section 5.4 of notice of the commencement of any action involving
the subject matter of the foregoing indemnity provisions such indemnified party
will, if a claim thereof is to be made against the indemnifying party pursuant
to the provisions of said paragraph (a) or (b), promptly notify the indemnifying
party of the commencement thereof; but the omission to so notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party otherwise under this Section except to the extent the
defense of the claim is prejudiced. In case such action is brought against any
indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party shall have the right to participate in, and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party, provided, however, if counsel for the indemnifying party
concludes that a single counsel cannot under applicable legal and ethical
considerations, represent both the indemnifying party and the indemnified party,
the indemnified party or parties have the right to select separate counsel to
participate in the defense of such action on behalf of such indemnified party or
parties; provided that there shall be no more than one such separate counsel.
After notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party pursuant to the provisions of said paragraph
(a) or (b) for any legal or other expense subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation, unless (i) the indemnified party shall have employed
counsel in accordance with the provisions of the preceding sentence, (ii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after the notice of the commencement of the action or (iii) the
indemnifying party has, in its sole discretion, authorized the employment of
counsel for the indemnified party at the expense of the indemnifying party. VI.
CONDITIONS TO CLOSING. The Subscriber's obligation to purchase the Offered
Securities is subject to the satisfaction of the following conditions, any one
or more of which may be waived or modified by the Subscriber.
6.1 Material Adverse Event. There shall not have occurred, at any time prior to
the closing of this subscription (a) any domestic or international event, act or
occurrence that has materially disrupted, or in the Subscriber's opinion will in
the immediate future materially disrupt, the securities markets; (b) a general
suspension of, or a general limitation on prices for, trading in securities on
the New York Stock Exchange, the Nasdaq, or the Amex Stock Exchange; (c) any
outbreak of major hostilities or other national or international calamity; (d)
any banking moratorium declared by a state or federal authority; (e) any
moratorium declared in foreign exchange trading by major international banks or
other persons; (f) any material interruption in the mail service or other means
of communication within the United States; (g) any material adverse change in
the business, properties, assets, results of operations, or financial condition
of the Company; or (h) any material adverse change in the market for securities
in general or in political, financial, or economic conditions.
6.2 Additional Conditions. The obligations of the parties are subject to
the following additional conditions:
(a) All representations and warranties of the other party contained herein shall
remain true and correct as of the Closing Date and all covenants of the other
party shall have been performed if due prior to such date. (b) From the date
hereof to the Closing Date, trading in the Common Stock shall not have been
suspended by the SEC (except for any suspension of trading of limited duration
agreed to by the Company, which suspension shall be terminated prior to the
Closing), and, at any time prior to the Closing Date, trading in securities
generally as reported by Bloomberg Financial Markets shall not have been
suspended or limited, or minimum prices shall not have been established on
securities whose trades are reported by such service, or on any Principal
Market, nor shall a banking moratorium have been declared either by the United
States or New York State authorities nor shall there have occurred any material
outbreak or escalation of hostilities or other national or international
calamity of such magnitude in its effect on, or any material adverse change in,
any financial market which, in each case, in the reasonable judgment of each
Subscriber, makes it impracticable or inadvisable to purchase the Shares at the
Closing.
(c) There shall not then be in effect any legal or other order enjoining or
restraining the transactions contemplated by this Agreement. (d) There shall not
be in effect any law, rule or regulation prohibiting or restricting such sale or
requiring any consent or approval of any person to issue the Shares which
consent or approval shall not have been obtained (except as may otherwise be
provided in this Agreement).
VII. MISCELLANEOUS
7.1 Notice. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Subscription Agreement must be in
writing and will be deemed to have been delivered: (a) upon receipt, when
delivered personally, (b) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party), or (c) one (1) business day after deposit
with an overnight courier service, in each case properly addressed to the party
to receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company:
Media Services Group, Inc.
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn.: Xxxxxx Xxxxxxx
With a copy to:
Xxxxxxxxx Traurig, LLP
MetLife Building
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxx X. Annex, Esq.
If to the Subscriber, to its address and facsimile number set forth at the end
of this Subscription Agreement, or to such other address and/or facsimile number
and/or to the attention of such other person as specified by written notice
given to the Company five (5) days prior to the effectiveness of such change.
Written confirmation of receipt (a) given by the recipient of such notice,
consent, waiver or other communication, (b) mechanically or electronically
generated by the sender's facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission, or (c)
provided by an overnight courier service shall be rebuttable evidence of
personal service, receipt by facsimile or receipt from an overnight courier
service in accordance with clause (a), (b) or (c) above, respectively.
7.2 Listing of Common Stock. The Company hereby agrees to use best efforts to
maintain the listing of the Common Stock on a Principal Market, and as soon as
practicable following the Closing (but not later than the earlier of the
Effective Date and the first anniversary of the Closing Date) to list all of the
Reserved Shares on such Principal Market. The Company further agrees, if the
company applies to have the Common Stock traded on any other Principal Market,
it will include in such application all of the Reserved Shares, and will take
such other action as is necessary to cause all of the Reserved Shares to be
listed on such other Principal Market as promptly as possible. The Company will
take all action reasonably necessary to continue the listing and trading 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 Principal Market. "Principal Market" initially means the NASDAQ Small-Cap
Market and shall also include the New York Stock Exchange, the Nasdaq National
Market or the American Stock Exchange, whichever is at the time the principal
trading exchange or market for the Common Stock, based upon share volume.
7.3 Equal Treatment of Purchasers. No consideration shall be offered or paid to
any person to amend or consent to a waiver or modification of any provision of
any of the Offering Documents unless the same consideration is also offered to
all of the parties to the Offering Documents. For clarification purposes, this
provision constitutes a separate right granted to each Subscriber by the Company
and negotiated separately by each Subscriber, and is intended to treat the
Subscriber as a class and shall not in any way be construed as the Subscribers
acting in concert or as a group with respect to the purchase, disposition or
voting of Shares or otherwise. 7.4 Entire Agreement; Amendment. This
Subscription Agreement supersedes all other prior oral or written agreements
between the Subscriber, the Company, their affiliates and persons acting on
their behalf with respect to the matters discussed herein, and this Subscription
Agreement and the instruments referenced herein contain the entire understanding
of the parties with respect to the matters covered herein and therein and,
except as specifically set forth herein or therein, neither the Company nor the
Subscriber makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Subscription Agreement may be
amended or waived other than by an instrument in writing signed by the Company
and the Subscriber.
7.5 Severability. If any provision of this Subscription Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Subscription Agreement in that jurisdiction or the validity or
enforceability of any provision of this Subscription Agreement in any other
jurisdiction. 7.6 Governing Law; Jurisdiction; Jury Trial. All questions
concerning the construction, validity, enforcement and interpretation of this
Subscription Agreement shall be governed by the internal laws of the State of
New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the federal courts sitting in the Southern District of New York,
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by sending a copy thereof to such
party by overnight courier service at the address for such notices to it under
this Subscription Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law. Each party hereby irrevocably waives any right it may have,
and agrees not to request, a jury trial for the adjudication of any dispute
hereunder or in connection with or arising out of this Subscription Agreement or
any transaction contemplated hereby.
7.7 Headings. The headings of this Subscription Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Subscription Agreement. 7.8 Successors And Assigns. This Subscription Agreement
shall be binding upon and inure to the benefit of the parties and their
respective successors and assigns, including any Subscribers of the Offered
Securities. The Company shall not assign this Subscription Agreement or any
rights or obligations hereunder without the prior written consent of the holders
of at least a majority the Securities then outstanding, except by merger or
consolidation. The Subscriber may assign some or all of its rights hereunder
without the consent of the Company, provided, however, that any such assignment
shall not release the Subscriber from its obligations hereunder unless such
obligations are assumed by such assignee and the Company has consented to such
assignment and assumption, which consent shall not be unreasonably withheld.
7.9 Survival. The representations and warranties of the Company and the
Subscriber contained in Articles I and II shall survive the Final Closing for a
period of one year. 7.10 Further Assurances. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Subscription Agreement and the
consummation of the transactions contemplated hereby.
7.11 No Strict Construction. The language used in this Subscription Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party,
notwithstanding anything herein to the contrary.
7.12 Legal Representation. The Subscriber acknowledges that: (a) it has read
this Subscription Agreement and the exhibits hereto; (b) it understands that the
Company has been represented in the preparation, negotiation, and execution of
this Subscription Agreement by Xxxxxxxxx Traurig, LLP, counsel to the Company;
and that such counsel has not represented and is not representing it or any
other Subscriber; (c) it understands that any placement agent has been
represented by its own counsel and that such counsel has not represented and is
not representing it or any other Subscriber; (d) it has either been represented
in the preparation, negotiation, and execution of this Subscription Agreement by
legal counsel of its own choice, or has chosen to forgo such representation by
legal counsel after being advised to seek such legal representation; and (e) it
understands the terms and consequences of this Subscription Agreement and is
fully aware of its legal and binding effect.
7.13 Confidentiality; Required Press Release. The Subscriber agrees that it
shall keep confidential and not divulge, furnish or make accessible to anyone,
the confidential information concerning or relating to the business or financial
affairs of the Company, if any, contained in the Offering Documents to which it
becomes privy until such information has been publicly disclosed by the Company
or until such information is no longer confidential. The Company agrees promptly
after the closing of the Final Closing, it shall issue a press release which
shall set forth all of the material terms of the Placement, including pricing.
7.14 Counterparts. This Subscription Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
7.15 Legal Fees. In the event that any dispute among the parties to this
Agreement should result in litigation, 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
Subscription Agreement, including without limitation such reasonable fees and
expenses of attorneys and accountants, which shall include, without, limitation,
all fees, costs and expense of appeals.
[remainder of page intentionally left blank]
IN WITNESS WHEREOF, the parties have executed this Subscription
Agreement as of the day and year first written above.
SUBSCRIBER**: CO-SUBSCRIBER**:
Signature of Subscriber Signature of Co-Subscriber
Name of Subscriber [please print] Name of Co-Subscriber [please print]
Address of Subscriber Address of Co-Subscriber
Social Security or Taxpayer Social Security or Taxpayer Identification
Identification Number of Subscriber Number of Co-Subscriber
Name of Holder(s) as it should appear on the security certificates*
[please print]
*Please provide the exact names that you wish to see on the certificates (1) For
individuals, print full name of Subscriber. (2) For joint, print full name of
Subscriber and all co-Subscribers.
(3) For corporations, partnerships, LLC, print full name of entity, including
"&," "Co.," "Inc.," "etc.," "LLC," "LP," etc. (4) For Trusts, print trust name
(please contact your trustee for the exact name that should appear on the
certificates).
Subscription Accepted:
Dollar Amount of Common Stock and Warrants Subscribed For: By:
Name:
$ Title:
------------------------------------------------------
$
Amount of Offered Securities Subscription Accepted
** If Subscriber is a Registered Representative with an The undersigned NASD
member firm acknowledges receipt NASD member firm or an affiliated person of an
NASD member of the notice required by Rule 3040 of the NASD Conduct firm, have
the acknowledgment to the right signed by the Rules.
appropriate party
Name of NASD Member
By
Authorized Officer Accepted
7
VIII. RISK FACTORS
You should carefully consider the following factors and other
information before deciding to purchase our Common Stock.
Risks Related to Our Business
We compete against entities that have significantly greater name recognition and
resources than we do, that may be able to respond to changes in customer
requirements more quickly than we can and that are able to allocate greater
resources to the marketing of their products.
The security industry is highly competitive and has become more so over
the last several years as security issues and concerns have become a primary
consideration at both government and private facilities worldwide. Competition
is intense among a wide ranging and fragmented group of product and service
providers, including security equipment manufacturers, providers of integrated
security systems, systems integrators, consulting firms and engineering and
design firms and others that provide individual elements of a system, some of
which are larger than us and possess significantly greater name recognition,
assets, personnel, sales and financial resources. These entities may be able to
respond more quickly to changing market conditions by developing new products
that meet customer requirements or are otherwise superior to our products and
may be able to more effectively market their products than we can because of the
financial and personnel resources they possess. We cannot assure investors that
we will be able to distinguish our self in a competitive market. To the extent
that we are unable to successfully compete against existing and future
competitors, our business, operating results and financial condition would be
materially and adversely affected.
We are dependent on third party suppliers for principal components used in our
products, and disruptions in supply or significant increases in component costs
could materially harm our business.
We rely on third parties to supply several key components utilized in
the manufacture and implementation of our products and services. Our reliance on
suppliers involves certain risks, including a potential inability to obtain an
adequate supply of required components, price increases, timely delivery and
component quality. Although to date, we have not experienced any disruption in
supplies of components, we cannot assure you that there will not be a disruption
of our supplies in the future. Disruption or termination of the supply of these
components could delay shipments of products and could have a material adverse
affect on our business, operating results and financial condition.
Our industry is characterized by rapid technological change, evolving industry
standards and continuous improvements in products and required customer
specifications. Due to the constant changes in our markets, our future success
depends on our ability to improve our manufacturing processes, improve existing
products and develop new products.
The commercialization of new products involves substantial expenditures
in research and development, production and marketing. We may be unable to
successfully design or manufacture these new products and may have difficulty
penetrating new markets. Because it is generally not possible to predict the
amount of time required and the costs involved in achieving certain research,
development and engineering objectives, actual development costs may exceed
budgeted amounts and estimated product development schedules may be extended.
Our business may be materially and adversely affected if:
|X| we are unable to improve our existing products on a timely basis; |X| our
new products are not introduced on a timely basis; |X| we incur budget overruns
or delays in our research and development efforts; or |X| our new products
experience reliability or quality problems.
All of our orders and contracts may be cancelled so there is a risk that our
backlog may not be fulfilled.
All of our orders and contracts are subject to cancellation by our
customers at any time so we cannot be certain that our backlog will be
fulfilled. Government contracts are often awarded prior to legislative approval
of the funding to support those contracts. Consequently, the entire amount of
orders and contracts may never be funded.
Our services and reputation may be adversely affected by product defects or
inadequate performance.
Management believes that we offer state-of-the art products that are
reliable and competitively priced. In the event that our products do not perform
to specifications or are defective in any way, our reputation may be materially
adversely affected and we may suffer a loss of business and a corresponding loss
in revenues.
If we are unable to retain key executives or hire new qualified personnel, our
business will be adversely affected.
We rely on our officers and key employees and their expertise. The loss
of the services of any of these individuals may materially and adversely affect
our ability to pursue our current business strategy.
We may face risks associated with potential acquisitions, investments, strategic
partnerships or other ventures, including whether such transactions can be
located, completed and the other party integrated with our business on favorable
terms.
Although the Company continues to devote significant efforts to
improving its current operations and profitability, the success of the Company's
business strategy may depend upon the acquisition of complimentary businesses.
No assurances can be made that the Company will be successful in identifying and
acquiring such businesses or that any such acquisitions, if consummated, will
result in operating profits. In addition, any additional equity financing
required in connection with such acquisitions may be dilutive to stockholders,
and debt financing may impose substantial additional restrictions on the
Company's ability to operate and raise capital. In addition, the negotiation of
potential acquisitions may require management to divert its time and resources
away from the Company's operations.
The Company periodically evaluates potential acquisition opportunities,
particularly those that could be material in size and scope. Acquisitions
involve a number of special risks, including: |X| the focus of management's
attention on the assimilation of the acquired companies and their employees and
on the management of
expanding operations;
|X| the incorporation of acquired businesses into the Company's service line and
methodologies; |X| the increasing demands on the Company's operational systems;
|X| adverse effects on the Company's reported operating results; |X| the
amortization of acquired intangible assets; and |X| the loss of key employees
and the difficulty of presenting a unified corporate image.
We may have problems raising money we need in the future.
We may require additional capital, especially in light of our recent
acquisitions. We may, from time to time, seek additional funding through public
or private financing, including debt or equity financing. We cannot assure you
that adequate funding will be available as needed or, if it is available, that
it will be on acceptable terms. If additional financing is required, the terms
of the financing may be adverse to the interests of existing stockholders,
including the possibility of substantially diluting their ownership position.
Our business is difficult to evaluate because our financial statements do not
reflect the operations of our recent acquisitions.
We recently completed a significant sale of an operating division, and
have subsequently acquired new operating divisions. Therefore, our historical
operating results may not be indicative of our future operating results. Our
financial statements do not reflect such activities, are not comparable to our
historical financial statements, nor do they give a clear indication of our
future performance.
We need to be able to acquire and integrate companies and new product lines
successfully to implement our growth strategy.
Our growth strategy includes completing acquisitions that expand and
complement our business. If we are unable to make these acquisitions, we may not
be able to meet or exceed our historical levels of revenue growth and earnings.
As a result, our stock price may be adversely affected.
We may be unable to make acquisitions due to,among other reasons, these factors:
|X| the companies we seek to acquire or invest in have excessive valuation;
|X| we may not be able to identify suitable companies to buy because many
of the companies in the businesses we are evaluating are relatively
small when compared to us;
|X| we may not be able to purchase companies at favorable prices, or at all
, due to increased competition for these companies; and,
|X| we may not be able to raise funds in the future to finance future
acquisitions.
Future acquisitions only will succeed if we can effectively assess
characteristics of potential target companies or product lines, such as:
|X| financial condition and results of operations;
|X| attractiveness of products;
|X| suitability of distribution channels; and
|X| management ability.
We cannot assure you that we can identify attractive acquisition
candidates or negotiate acceptable acquisition terms, and our failure to do so
may adversely affect our results of operations and our ability to sustain
growth.
Completed acquisitions may give rise to a number of additional
difficulties, including:
|X| difficulty integrating acquired technologies,operations and personnel with
the existing business;
|X| diversion of management attention in connection with both negotiating the
acquisitions and integrating the assets;
|X| strain on managerial and operational resources as management
tries to oversee larger operations;
|X| potential issuance of securities in connection with the acquisition,which
issuance lessens or dilutes the rights and values of currently outstanding
securities;
|X| incurrence of additional debt;
|X| the write-off of in-process research and development of and other
development costs;
|X| the amortization of goodwill and other intangible assets;
|X| loss of key personnel from acquired companies;
|X| failure of an acquired
business to achieve targeted financial results; and
|X| unanticipated problems
and liabilities of acquired companies.
We may not be able to successfully address these problems. Our future
operating results will depend to a significant degree on our ability to
successfully manage growth and integrate acquisitions.
We may experience variations from quarter to quarter in operating results and
net income which could adversely affect the price of our common stock.
We expect to experience significant fluctuations in future quarterly
operating results. Quarterly fluctuations could adversely affect the market
price of our common stock. Many factors, some of which are beyond our control,
may cause future quarterly fluctuations, including:
|X| new customer contracts which may require us to incur costs in periods prior to recognizing revenue under those contracts;
|X| the effect of the change of business mix on profit margins;
|X| the timing of additional selling, general and administrative expenses to support new business;
|X| the costs and timing of the completion and integration of acquisitions, sales of assets and investments;
|X| the timing of sales of assets;
|X| the cyclical elements of our clients' industries;
|X| the demand for our products and services;
|X| the market acceptance of new products and services;
|X| specific economic conditions in the electronic surveillance industry; and
|X| general economic conditions.
The anticipated quarterly fluctuations make predictions concerning our
future revenues difficult. We believe that period-to-period comparisons of our
results of operations will not necessarily be meaningful and should not be
relied upon as indicative of our future performance for any subsequent fiscal
quarter or for a full fiscal year. It also is possible that in some future
quarters our operating results will be below the expectations of securities
analysts and investors. In such circumstances, the price of our common stock may
decline.
Because our sales tend to be concentrated among a small number of customers, our
operating results may be subject to substantial fluctuations. Accordingly, our
revenues and operating results for any particular quarter may not be indicative
of our performance in future quarters, making it difficult for investors to
evaluate our future prospects based on the results of any one quarter.
Given the nature of our customers and products, we receive relatively
large orders for products from a relatively small number of customers.
Consequently, a single order from one customer may represent a substantial
portion of our sales in any one period and significant orders by any customer
during one period may not be followed by further orders from the same customer
in subsequent periods. Our sales and operating results are subject to very
substantial periodic variations. Since quarterly performance is likely to vary
significantly, our results of operations for any quarter are not necessarily
indicative of the results that we might achieve for any subsequent period.
Accordingly, quarter-to-quarter comparisons of our operating results may not be
meaningful.
The price of our stock has been volatile.
The market price of our common stock has been, and is likely to
continue to be, volatile, experiencing wide fluctuations. Such fluctuations may
be triggered by:
|X| differences between our actual or forecasted operating
results and the expectations of securities analysts and investors;
|X| announcements regarding our products, services or technologies;
|X| announcements regarding the products, services or technologies of our
competitors;
|X| developments relating to our patents or proprietary rights;
|X| specific conditions affecting the electronic surveillance industry;
|X| sales of our common stock into the public market;
|X| general market conditions; and
|X| other factors.
In recent years the stock market has experienced significant price and
volume fluctuations which have particularly impacted the market prices of equity
securities of many companies providing Internet-related products and services.
Some of these fluctuations appear unrelated or disproportionate to the operating
performance of such companies. Future market movements may adversely affect the
market price of our stock.
We may be unable to protect our intellectual property rights and we may be
liable for infringing the intellectual property rights of others.
Our success depends in part on our intellectual property rights and our
ability to protect such rights under applicable patent, trademark, copyright and
trade secret laws. We seek to protect the intellectual property rights
underlying our products and services by filing applications and registrations,
as appropriate, and through our agreements with our employees, suppliers,
customers and partners. However, the measures we have adopted to protect our
intellectual property rights may not prevent infringement or misappropriation of
our technology or trade secrets. A further risk is introduced by the fact that
many legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in the context of the Internet industry
currently are not resolved.
We license certain components of our products and services from third
parties. Our failure to maintain such licenses, or to find replacement products
or services in a timely and cost effective manner, may damage our business and
results of operations. Although we believe our products and information systems
do not infringe upon the proprietary rights of others, there can be no assurance
that third parties will not assert infringement claims against us. From time to
time we have been, and we expect to continue to be, subject to claims in the
ordinary course of our business, including claims of our alleged infringement of
the intellectual property rights of third parties. Any such claims could damage
our business and results of operations by:
|X| subjecting us to significant liability for damages;
|X| resulting in invalidation of our proprietary rights;
|X| being time-consuming and expensive to defend even if such claims are
not meritorious; and
|X| resulting in the diversion of management time and attention.
Even if we prevail with respect to the claims, litigation could be
time-consuming and expensive to defend, and could result in the diversion of our
time and attention. Any claims from third parties also may result in limitations
on our ability to use the intellectual property subject to these claims unless
we are able to enter into agreements with the third parties making such claims.
Risks Related to this Placement
Future sales of our shares could adversely affect its stock price.
As of September 30, 2004, there were 1,596,262 shares of our common
stock outstanding, of which approximately 1,186,262 shares are freely tradable
without restriction under the Securities Act or are eligible for sale in the
public market without regard to the availability of current public information,
volume limitations, manner of sale restrictions, or notice requirement under
Rule 144(k), and does not include any shares held by or purchased from persons
deemed to be our "affiliates" which are subject to certain resale limitations
pursuant to Rule 144 under the Securities Act. The remaining shares of common
stock outstanding are eligible for sale pursuant to rule 144 under the
Securities Act.
Sales of our common stock could adversely affect the market price of
our common stock and could impair our future ability to raise capital through
the sale of equity securities or make acquisitions for stock.
We do not intend to pay cash dividends on our Common Stock.
We do not intend to pay any cash dividends on our common stock for the
foreseeable future. Our existing credit arrangement prohibits the payment of
cash dividends. In addition, we cannot assure you that our operations will
generate sufficient revenues to enable us to declare or pay cash dividends. We
have not paid cash dividends on any of our capital stock in at least the last
six years. It is anticipated that future earnings, if any, will be used to
finance our future growth.
Our ability to issue "blank check" preferred stock and certain other provisions
of our articles of incorporation could prevent or delay takeovers.
Our restated articles of incorporation authorizes the issuance of
"blank check" preferred stock (that is, preferred stock which our board of
directors can create and issue without prior stockholder approval) with rights
senior to those of our common stock. Furthermore, we have a staggered board of
directors. These provisions, together with certain provisions of Nevada law
limiting the voting rights of an acquirer of a controlling interest in a Nevada
corporation (such as ourselves), as well as restrictions on certain business
combinations (including certain mergers and exchanges), could delay or impede a
merger, tender offer or other transaction resulting in a change in control, even
if such a transaction would have significant benefits to our stockholders. As a
result, these provisions could limit the price that certain investors might be
willing to pay in the future for shares of our common stock.
Management has discretion over the use of proceeds from this Placement.
Management has broad discretion over the use of proceeds from this
Placement. We may use the proceeds of this Placement in ways that do not improve
our operating results or the market value of our securities. We have significant
flexibility as to the timing and the use of the proceeds. You will rely on our
judgment with only limited information about our specific intentions regarding
the use of proceeds. We may spend most of the net proceeds of this Placement in
ways with which you may not agree. If we fail to apply these funds effectively,
our business, results of operations and financial condition may be materially
and adversely affected.
Our securities may trade below the offering price.
The offering price per share of our securities offered in this
Placement has been determined through negotiations between the Company and the
Subscribers and does not necessarily relate to any established criteria of
value. We cannot assure you that the trading price of our securities after this
Placement will equal or exceed the offering price.
Our common stock has experienced fluctuation in the past and may continue to do
so in the future.
The stock market in recent years has experienced significant
price and volume fluctuations that have affected market prices for the stock of
technology companies. These fluctuations have often been unrelated to or
disproportionately affected by the operating performance of these companies. The
market price of our common stock could fluctuate significantly after this
Placement in response to a variety of factors, some of which may be beyond our
control. These factors may include one or more of the following: |X| quarterly
operating results falling below or exceeding analysts' or investors'
expectations in any given period; |X| changes in financial estimates or
investment recommendations by securities analysts following our business; |X|
changes in market valuations of, or earnings and other announcements by, our
competitors; |X| announcements by our competitors of new technological
innovations, service offerings, contracts, acquisitions or strategic
relationships;
|X| departures of key personnel; and
|X| changes in business or regulatory conditions.
In the past, following periods of market volatility,
stockholders have instituted securities class action litigation. If we were to
be involved in securities litigation, we could incur a substantial cost and
experience diversion of resources and the attention of management away from our
business. We cannot predict the future performance of the capital markets in
general and the technology stocks in particular, and we cannot assure you that
the price for our common stock will not drop significantly subsequent to this
offering, whether related to our business or to the capital markets generally.
