GVI SECURITY SOLUTIONS, INC.
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT made as of this 29th day of October, 2004 between
GVI Security Solutions, Inc., a Delaware corporation (the "Company"), and
___________________ (the "Subscriber").
WHEREAS, the Company desires to issue up to 40 units (the "Bridge Units")
in a private placement (this "Offering"), each Unit consisting of $50,000
principal amount of 12% Subordinated Secured Convertible Promissory Notes (the
"Notes") in the form attached as Exhibit A hereto and warrants (the "Warrants")
to purchase 33,333 shares of the common stock, par value $.001 per share of the
Company (subject to adjustment as provided in the Warrants) in the form attached
as Exhibit B hereto on the terms and conditions hereinafter set forth and the
Subscriber desires to acquire the number of Bridge Units set forth on the
signature page hereof; and
WHEREAS, the Notes will be (i) secured by the assets of the Company
pursuant to a Security Agreement in the form of Exhibit C (the "Security
Agreement"), between the Company and W-net, Inc. as collateral agent (the
"Agent") for the subscribers in the Offering, and (ii) subordinated to the
Company's obligations to Laurus Master Fund Ltd. ("Laurus") pursuant to a
Subordination Agreement in the form of Exhibit D hereto, between Laurus, the
Company and the subscribers in the Offering; and
WHEREAS, the subscribers in the offering will appoint the Agent to act as
collateral agent for such subscribers under the Security Agreement pursuant to
the Agency Appointment Agreement in form of Exhibit E hereto.
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 BRIDGE UNITS AND REPRESENTATIONS BY AND COVENANTS
OF SUBSCRIBER
1.1 Subject to the terms and conditions hereinafter set forth, the
Subscriber hereby subscribes for and agrees to purchase from the Company such
number of Bridge Units as is set forth upon the signature page hereof at a price
equal to $50,000 per Bridge Unit, and the Company agrees to sell such Bridge
Units to the Subscriber for said purchase price. The Company will pay the
Subscriber a closing fee equal to one percent (1%) of the purchase price
hereunder (the "Closing Fee"). The purchase price for the Bridge Units (less the
Closing Fee) is payable by delivery of a certified or bank check made payable to
the Company, or by wire transfer to an account designated by the Company,
contemporaneously with the execution and delivery of this Subscription
Agreement. The Notes and Warrants will be delivered by the Company within five
days following the consummation of this Offering.
1.2 The Subscriber recognizes that the purchase of Bridge Units
involves a high degree of risk in that (i) 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 Bridge Units; (ii)
he may not be able to liquidate his investment; (iii) transferability of the
securities comprising the Bridge Units is extremely limited; and (iv) the
Company will be unable to repay the Notes without obtaining additional
financing.
1.3 The Subscriber represents and warrants that it is an "accredited
investor" as such term in defined in Rule 501 of Regulation D promulgated under
the Securities Act of 1933, as amended (the "Securities Act"), and that it is
able to bear the economic risk of an investment in the Bridge Units.
1.4 The Subscriber acknowledges that it has prior investment
experience, and that Subscriber recognizes the highly speculative nature of this
investment.
1.5 The Subscriber acknowledges that it has been furnished by the
Company during the course of this transaction with all information regarding the
Company that it has requested and; that it has been afforded the opportunity to
meet with, ask questions of and receive answers from duly authorized officers or
other representatives of the Company concerning the terms and conditions of this
Offering.
1.6 The Subscriber acknowledges that this Offering may involve tax
consequences, including, but not limited to, the possible need to recognize
interest income relating to the Warrants and that the Company has not provided
tax advice or information to the Subscriber. The Subscriber acknowledges that it
must retain his own professional advisors to evaluate the tax and other
consequences of an investment in the Bridge Units.
1.7 The Subscriber acknowledges that this Offering has not been
reviewed by the United States Securities and Exchange Commission ("SEC") because
of the Company's representations that this is intended to be a nonpublic
offering pursuant to Sections 4(2) and/or 3(b) of the Securities Act. The
Subscriber represents that the Notes and Warrants comprising his Bridge Units
are being purchased for its own account, for investment and not for distribution
or resale to others. The Subscriber agrees that it will not sell or otherwise
transfer the Notes or the Warrants unless they are registered under the
Securities Act or unless an exemption from such registration is available.
1.8 The Subscriber understands that there is no public market for
the Notes or the Warrants. The Subscriber understands that Rule 144 (the "Rule")
promulgated under the Securities 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 Securities Act. The Subscriber understands that the
Company is currently a reporting company but makes no representation or warranty
regarding its fulfillment in the future of any reporting requirements under the
Securities Exchange Act of 1934, as amended, or its dissemination to the public
of any current financial or other information concerning the Company, as is
required by the Rule as one of the conditions of its availability. The
Subscriber agrees that the Company may, if it desires, permit the transfer of
the Notes, the shares of Common Stock issuable upon conversion of the Notes (the
"Conversion Shares"), the Warrants or the shares of Common Stock issuable upon
exercise of the Warrants (the "Warrant Shares" and, together with the Notes,
Conversion Shares and Warrants, the "Securities") out of his name only when his
request for transfer is accompanied by an opinion of counsel reasonably
satisfactory to the Company that neither the sale nor the proposed transfer
results in a violation of the Securities Act or any applicable state "blue sky"
laws.
1.9 The Subscriber consents to the placement of a legend on any
certificate or other document evidencing the Securities stating that they have
not been registered under the Securities Act and setting forth or referring to
the restrictions on transferability and sale thereof.
II. REPRESENTATIONS BY THE COMPANY
2.1 The Company represents and warrants to the Subscriber that prior
to the consummation of this Offering and on the Closing Date:
(a) The Company is a corporation duly organized, existing and
in good standing under the laws of the State of Delaware and has the corporate
power to conduct the business which it conducts and proposes to conduct.
(b) The execution, delivery and performance of this
Subscription Agreement by the Company will have been duly approved by the Board
of Directors of the Company and all other actions required to authorize and
effect the offer and sale of the Bridge Units and the securities contained
therein will have been duly taken and approved.
(c) The Notes and Warrants have been duly and validly
authorized, and when issued and paid for in accordance with the terms hereof,
will be valid and binding obligations of the Company enforceable in accordance
with its terms.
III. REGISTRATION RIGHTS
3.1 (a) If the Company shall determine to proceed with the actual
preparation and filing of a registration statement under the Securities Act
during the two-year period commencing on the date hereof 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), then the Company will give 20 days prior written notice of its
determination to all holders of the Securities (the "Holders"). Upon the written
request from any Holder, the Company will, except as herein provided, cause all
Conversion Shares and Warrant Shares (collectively, "Registrable Securities") to
be included in such registration statement, all to the extent requisite to
permit the sale or other disposition by the prospective seller or sellers of the
Registrable Securities to be so registered; provided, further, that nothing
herein shall prevent the Company from, at any time, abandoning, delaying,
suspending or withdrawing any registration. If any registration pursuant to this
Section 3.1(a) shall be underwritten in whole or in part, the Company may
require that the Registrable Securities requested for inclusion by the Holders
be included in the underwriting on the same terms and conditions as the
securities otherwise being sold through the underwriters. The obligation of the
Company under this Section 3.1(a) is limited to two registration statements. If
in the good faith judgment of the managing underwriter of such public offering
the inclusion of all of the Registrable Securities originally covered by a
request for registration (the "Requested Stock") would reduce the number of
shares to be offered by the Company or interfere with the successful marketing
of the shares of stock offered by the Company, the number of shares of Requested
Stock otherwise to be included in the underwritten public offering may be
reduced pro rata (by number of shares) among the holders thereof requesting such
registration or excluded in their entirety if so required by the underwriter. To
the extent only a portion of the Requested Stock is included in the underwritten
public offering, those shares of Requested Stock which are thus excluded from
the underwritten public offering shall be withheld from the market by the
holders thereof for a period which the managing underwriter reasonably
determines is necessary in order to effect the underwritten public offering. The
Holder may, at its option, request the registration of the Registrable
Securities in a registration statement made by the Company as contemplated by
3.1(a) prior to the acquisition of the Registrable Securities upon conversion of
the Note and exercise of the Warrant even though the Holder has not given notice
of conversion of the Note or exercise of the Warrant, as applicable.
(b) Upon written request (the "Demand Notice"), delivered any time
after April 29, 2005, from Holders representing beneficial ownership of an
aggregate of more than 50% of the Registrable Securities, the Company shall no
later than 30 days after receipt of the Demand Notice (the "Filing Deadline"),
prepare and file with the SEC a registration statement under the Securities Act
covering the resale of all of the Registrable Securities which are the subject
of such request and shall use its best efforts to cause such registration
statement to be declared effective by the SEC within ninety days after the
Filing Deadline (the "Required Effective Date"). In addition, upon receipt of
the Demand Notice, the Company shall promptly give written notice to the other
Holders not a party to the Demand Notice that such registration is to be
effected. The Company shall include in such registration statement the
Registrable Securities for which it has received written requests to register by
such other Holders within 15 days after the delivery of the Company's written
notice to such other Holders.
(c) In the event that (A) the registration statement under Section
3.1(b) is not filed by the Filing Deadline or (B) a registration statement filed
under either Section 3.1(a) or (b) is not declared effective by the Required
Effective Date, the Company shall pay to each Holder (except for any Holder
whose failure to provide information as required hereunder causes a delay in
filing or obtaining effectiveness) liquidated damages at a rate equal to one
percent (1%) per month (pro rata on a 30-day basis) of the total purchase price
of the Bridge Units purchased by such Holder for the period that the
registration statement is not (A) filed with the SEC on or before the Filing
Deadline or (B) declared effective by the SEC following Required Effective Date.
Such liquidated damages shall be payable in cash within ten (10) days of the end
of each one (1) month anniversary of the Required Filing Date or Required
Effective Date, as the case may be.
3.2 The Company will, until such time as the Registrable Securities may be
sold under Rule 144 without volume limitation:
(i) 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;
(ii) use its best efforts to register or qualify the securities
covered by such registration statement under such state securities or blue
sky laws of such jurisdictions as the 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 or subject itself to taxation in any such jurisdiction;
(iii) 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;
(iv) 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; and
(v) 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 Company may require each Holder of Registrable Securities as to which
any registration is being effected to furnish to the Company such information
regarding the distribution of such Registrable Securities as the Company may
from time to time reasonably request in writing.
3.3 All fees, costs and expenses of and incidental to the registrations
pursuant to Sections 3.1 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. The fees, costs and expenses of registration to
be borne by the Company as provided above shall include, without limitation, all
registration, filing, and NASD fees, printing expenses, fees and disbursements
of counsel and accountants for the Company, and all legal fees and disbursements
and other expenses of complying with state securities or blue sky laws of any
jurisdictions in which the securities to be offered are to be registered and
qualified (except as provided above). Fees and disbursements of counsel and
accountants for the Holders and any other expenses incurred by the Holders not
expressly included above shall be borne by the Holders.
3.4 The Company will indemnify and hold harmless each Holder of
Registrable Securities which are included in a registration statement pursuant
to the provisions of Section 3.1 hereof, its directors and officers, and any
underwriter (as defined in the Securities Act) for such Holder and each person,
if any, who controls such Holder or such underwriter within the meaning of the
Securities 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 Securities Act or otherwise,
insofar as such losses, damages, liabilities, costs or expenses are caused by
any untrue statement or alleged untrue statement of any material fact contained
in such registration statement, any prospectus contained therein or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; provided, however, that
the Company will not be liable in any such case to the extent that any such
loss, damage, liability, cost or expenses arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission so
made in conformity with information furnished by such Holder, such underwriter
or such controlling person in writing specifically for use in the preparation
thereof.
3.5 Each Holder of Registrable Securities included in a registration
pursuant to the provisions of Section 3.1 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
Securities Act or otherwise, insofar as such losses, damages, liabilities, costs
or expenses are caused by any untrue statement or alleged untrue statement of
any material fact contained in such registration statement, any prospectus
contained therein or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was so made in reliance upon
and in strict conformity with written information furnished by or on behalf of
such Holder specifically for use in the preparation thereof.
3.6 Promptly after receipt by an indemnified party pursuant to the
provisions of Sections 3.4 or 3.5 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 Sections 3.4 or 3.5,
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 than hereunder.
In case such action is brought against any indemnified party and it notifies the
indemnifying party of the commencement thereof, the indemnifying party shall
have the right to participate in, and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party, provided, however,
if counsel for the indemnifying party concludes that a single counsel cannot
under applicable legal and ethical considerations, represent both the
indemnifying party and the indemnified party, the indemnified party or parties
have the right to select separate counsel to participate in the defense of such
action on behalf of such indemnified party or parties. After notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party pursuant to the provisions of said Sections 3.4 or 3.5 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 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 authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party.
IV. MISCELLANEOUS
4.1 Any notice or other communication given hereunder shall be
deemed sufficient if in writing and sent by registered or certified mail, return
receipt requested, addressed to the Company, at 0000 Xxxxx Xxxxxx Xxxxx, Xxxxx
000, Xxxxxxxxx, Xxxxx 00000, Attn: Xxxxxxxxx X. Xxxxxxxx, and to Subscriber at
his address indicated on the signature page of this Subscription Agreement.
Notices shall be deemed to have been given on the date of mailing, except
notices of change of address, which shall be deemed to have been given when
received.
4.2 This Subscription Agreement shall not be changed, modified or
amended except by a writing signed by the parties to be charged, and this
Subscription Agreement may not be discharged except by performance in accordance
with its terms or by a writing signed by the party to be charged.
4.3 This Subscription Agreement shall be binding upon and inure to
the benefit of the parties hereto and to their respective heirs, legal
representatives, successors and assigns. This Subscription Agreement sets forth
the entire agreement and understanding between the parties as to the subject
matter thereof and merges and supersedes all prior discussions, agreements and
understandings of any and every nature among them.
4.4 Notwithstanding the place where this Subscription Agreement may
be executed by any of the parties hereto, the parties expressly agree that all
the terms and provisions hereof shall be construed in accordance with and
governed by the laws of the State of New York. The parties hereby agree that any
dispute which may arise between them arising out of or in connection with this
Subscription Agreement shall be adjudicated before a court located in New York
City and they hereby submit to the exclusive jurisdiction of the courts of the
State of New York located in New York, New York and of the federal courts in the
Southern District of New York with respect to any action or legal proceeding
commenced by any party, and irrevocably waive any objection they now or
hereafter may have respecting the venue of any such action or proceeding brought
in such a court or respecting the fact that such court is an inconvenient forum,
relating to or arising out of this Subscription Agreement or any acts or
omissions relating to the sale of the securities hereunder, and consent to the
service of process in any such action or legal proceeding by means of registered
or certified mail, return receipt requested, in care of the address set forth
below or such other address as the undersigned shall furnish in writing to the
other.
4.5 This Subscription Agreement may be executed in counterparts.
Upon the execution and delivery of this Subscription Agreement by each
Subscriber, this Subscription Agreement shall become a binding obligation of
each Subscriber with respect to the purchase of the Bridge Units as herein
provided; subject, however, to the right hereby reserved to the Company to enter
into the same agreements with other subscribers and to add and/or to delete
other persons as subscribers.
4.6 The holding of any provision of this Subscription Agreement to
be invalid or unenforceable by a court of competent jurisdiction shall not
affect any other provision of this Subscription Agreement, which shall remain in
full force and effect.
4.7 The parties agree to execute and deliver all such further
documents, agreements and instruments and take such other and further action as
may be necessary or appropriate to carry out the purposes and intent of this
Subscription Agreement.
IN WITNESS WHEREOF, the parties have executed this Subscription Agreement
as of the day and year first written above.
______________________________________ ______________________________________
Signature of Subscriber Signature of Co-Subscriber
______________________________________ ______________________________________
Name of Subscriber Name of Co-Subscriber
[please print] [please print]
______________________________________ ______________________________________
Address of Subscriber Address of Co-Subscriber
______________________________________ ______________________________________
Social Security or Taxpayer Social Security or Taxpayer
Identification Number of Subscriber Identification Number of Co-Subscriber
______________________________________
Purchase Price of Units Subscribed For
Subscription Accepted:
GVI SECURITY SOLUTIONS, INC.
By: __________________________________
Name: Xxxxxxxxx X. Xxxxxxxx
Title: Chief Executive Officer and
Chief Financial Officer
EXHIBIT A
FORM OF NOTES
EXHIBIT B
FORM OF WARRANTS
EXHIBIT C
FORM OF SECURITY AGREEMENT
EXHIBIT D
FORM OF SUBORDINATION AGREEMENT
EXHIBIT E
FORM OF AGENCY APPOINTMENT AGREEMENT
