SYS SUBSCRIPTION AGREEMENT
TABLE
OF CONTENTS
1. Closing
2. Subscriber’s
Representations and Warranties
2.1 Information
from Company
2.2 Information
on Subscriber
2.3 Purchase
For Own Account
2.4 Compliance
with Securities Act
2.5 Communication
of Offer
2.6 Correctness
of Representations
3. Company’s
Representations and Warranties
3.1 Due
Incorporation
3.2 Capitalization
3.3 Reports
3.4 Authority;
Enforceability
3.5 Additional
Issuances
3.6 Consents
3.7 No
Violation or Conflict
3.8 The
Securities
3.9 Shares
Legend
3.10 Note
Legend
3.11 Litigation
3.12 Reporting
Company Eligibility
3.13 No
Market
Manipulation
3.14 Defaults
3.15 No
Integrated Offering
3.16 No
General Solicitation
3.17 Listing
and Maintenance Requirements
3.18 Investment
Company
3.19 Internal
Accounting Controls
3.20 Correctness
of Representations
4. Regulation
D Offering
5. Reissuance
of Securities
6. Fees
6.1 Finders
6.2 Indemnification
7. Covenants
of Company
7.1 Offering
of Securities
7.2 Listing
of Shares
7.3 Notification
of Transactions
7.4 Registration
Compliance
7.5 Reservation
of Shares
7.6 Integration
8. Covenants
of Subscriber
8.1 No
Short
Sales
8.2 Compliance
with Law
9. Covenants
of Company and Subscriber Regarding Indemnification
9.1 Company
Covenants
9.2 Subscriber
Covenants
9.3 Applicable
Procedures
10. Conversion
of Note
10.1 All
Necessary Actions
10.2 Notice
of
Conversion
10.3 Maximum
Conversion
11. Registration
Rights
12. Registration
Procedures
12.1 Registration
Statement
12.2 Amendments
and Supplements
12.3 Copies
of
Registration Statements and Prospectus
12.4 Registration
Under State Securities Laws
12.5 Listing
of Registrable Securities
12.6 Notifications
of Registration
12.7 Inspection
13. Information
From Seller
14. Expenses
15. Indemnification
and Contribution
15.1 Indemnification
by Company
15.2 Indemnification
by Subscriber
15.3 Notice
of
Commencement of Action
15.4 Joint
Liability
16. Notices
17. Entire
Agreement; Amendment; Assignment
18. Execution
19. Governing
Law; Consent to Jurisdiction
20. Specific
Enforcement
21. Rate
of
Interest
Dear
Subscriber:
You
(the
“Subscriber”) hereby agree to purchase, and SYS, a California corporation (the
“Company”), hereby agrees to issue and to sell, at a price of $50,000 per Unit
and for the aggregate consideration set forth on the signature page hereof
(the
“Purchase Price”), ___ units, each of which consists of the following (each, a
“Unit” and, together, the “Units”): (a) ______ shares of the Company’s
common stock, no par value (the “Common Stock”), and (b) a 10% Unsecured
Subordinated Convertible Note (the “Note”), in principal amount of $25,000,
convertible in accordance with the terms thereof into ________ shares of Common
Stock. The form of Note is annexed hereto as Exhibit A. Repayment of the
Note will be subject to a Subordination Agreement with the Company’s principal
lender, a copy of which is attached hereto as Exhibit B. The Units, and the
Common Stock issuable upon conversion of the Note, are collectively referred
to
herein as the “Securities.” Upon acceptance of this Agreement by the Subscriber,
the Company will issue and deliver to the Subscriber the specified number of
Units against payment, by wire transfer or check payable to SYS, of the Purchase
Price in U.S. dollars.
This
subscription is concurrent with, and part of similar Subscription Agreements,
which relate to, an offering of up to $7,000,000 in aggregate Purchase Price
(the “Offering”). There is no minimum amount and units will be issued as
proceeds are received. The following terms and conditions apply to this
subscription.
1. Closing.
The
consummation of the transactions contemplated herein will take place at the
offices of the Company upon the satisfaction of all conditions to closing set
forth in this Agreement, and on subsequent dates upon which additional Units
may
be issued to the Subscriber. In each case, the closing date will be the date
that funds representing the net amount due the Company from the Subscriber
are
transmitted to the Company (each, a “Closing Date”).
2. Subscriber’s
Representations and Warranties.
The
Subscriber represents and warrants to and agrees with the Company
that:
2.1 Information
from Company.
The
Subscriber has been furnished with the Company’s Form 10-KSB for the fiscal year
ended June 30, 2005 as filed with the Securities and Exchange Commission
(the “Commission”), and has been advised to review any subsequent Forms 10-Q and
Forms 8-K and any amendments thereto filed prior to the date hereof
(collectively, the “Reports”).
2.2 Information
on Subscriber.
The
Subscriber is an “accredited investor,” as such term is defined in Regulation D
promulgated by the Commission under the Securities Act of 1933, as amended
(the
“1933 Act”), is experienced in investments and business matters, has made
investments of a speculative nature and has purchased securities of United
States publicly-owned companies in private placements in the past and, with
its
representatives, has such knowledge and experience in financial, tax and other
business matters as to enable the Subscriber to utilize the information made
available by the Company to evaluate the merits and risks of and to make an
informed investment decision with respect to the proposed purchase, which
represents a speculative investment. The Subscriber has the organizational
authority and is duly and legally authorized to purchase and own the Securities.
The Subscriber is able to bear the risk of such investment for an indefinite
period and to afford a complete loss thereof, provided that nothing contained
herein shall be deemed a covenant or agreement by such subscriber to hold the
Securities for any period of time.
2.3 Purchase
For Own Account.
The
Subscriber will purchase the Securities for its own account and not with a
view
to any distribution thereof.
2.4 Compliance
with Securities Act.
The
Subscriber understands and agrees that the Securities have not been registered
under the 1933 Act, by reason of their issuance in a transaction that does
not
require such registration (based in part on the accuracy of the representations
and warranties of the Subscriber contained herein), and that such Securities
must be held unless a subsequent disposition is registered under the 1933 Act
or
is exempt from such registration.
2.5 Communication
of Offer.
The
offer to sell the Securities was directly communicated to the Subscriber. At
no
time was the Subscriber presented with or solicited by any leaflet, newspaper
or
magazine article, radio or television advertisement, or any other form of
general advertising or solicited or invited to attend a promotional meeting
otherwise than in connection and concurrently with such communicated
offer.
2.6 Correctness
of Representations.
The
Subscriber represents that the foregoing representations and warranties are
true
and correct as of the date hereof and, unless the Subscriber otherwise notifies
the Company prior to a Closing Date, will be true and correct as of each Closing
Date. The foregoing representations and warranties will survive each Closing
Date.
3. Company’s
Representations and Warranties.
The
Company represents and warrants to and agrees with the Subscriber, except as
set
forth on Schedule 1 hereto, that:
3.1 Due
Incorporation.
The
Company is a California corporation duly organized, validly existing and in
good
standing under the laws of its jurisdiction of incorporation and has the
requisite corporate power to own, lease, use and operate its properties and
assets 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
each jurisdiction where the nature of the business conducted or property owned
by it makes such qualification necessary, other than those jurisdictions in
which the failure to so qualify would not have a material adverse effect on
the
business, operations or prospects or condition (financial or otherwise) of
the
Company.
3.2 Capitalization.
As of
February 2, 2006, the authorized capital stock of the Company consists of
48,000,000 shares of Common Stock, no par value, of which 12,670,845 shares
are
issued and outstanding; 2,000,000 shares of 9% Convertible Preferred Stock,
$1.00 par value, of which no shares are issued and outstanding; and 250,000
shares of 4% Convertible Preferred Stock, $.50 par value, of which no shares
are
issued or outstanding. The Company has reserved 3,751,727 shares of its Common
Stock for issuance upon the exercise or conversion of outstanding options,
warrants, and convertible securities. Except as set forth in the Reports or
the
Other Written Information, there are no options, warrants or rights to subscribe
to, or securities, rights or obligations convertible into or exchangeable for
or
giving any right to subscribe for any shares of, capital stock of the Company.
All of the outstanding shares of Common Stock of the Company have been duly
and
validly authorized and issued and are fully paid and nonassessable. The issue
and sale of the Securities will not, immediately or with the passage of time,
obligate the Company to issue shares of Common Stock or other securities to
any
person (other than those purchasing Units) and will not result in a right of
any
holder of Company securities to adjust the exercise, conversion, exchange or
reset price under such securities.
3.3 Reports.
The
Company has delivered or made available to the Subscriber true and complete
copies of the Reports (including, without limitation, proxy information and
solicitation materials). As of their respective dates, the Reports complied
in
all material respects with the requirements of the 1933 Act or the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), as the case may be, the
rules and regulations of the Commission promulgated there under and other
federal, state and local laws, rules and regulations applicable to such Reports,
and none of the Reports 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. The financial statements contained within the
reports fairly present, in all material respects, the financial condition and
results of operations of the Company.
3.4 Authority;
Enforceability.
This
Agreement and the other agreements entered into by the Company relating hereto
have been duly authorized, executed and delivered by the Company and are valid
and binding agreements enforceable in accordance with their terms, subject
to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors’ rights
generally and to general principles of equity. The Company has full corporate
power and authority necessary to enter into this Agreement and the other
agreements entered into by the Company relating hereto and to perform its
obligations hereunder and all other agreements entered into by the Company
relating hereto.
3.5 Additional
Issuances.
There
are no outstanding agreements or preemptive or similar rights affecting the
Company’s Common Stock and no outstanding rights, warrants or options to
acquire, or instruments convertible into or exchangeable for, or agreements
or
understandings with respect to the sale or issuance of, any shares of Common
Stock of the Company, except as described in the Reports.
3.6 Consents.
No
consent, approval, authorization or order of any court or governmental agency
having jurisdiction over the Company is required for the execution and delivery
of this Agreement and the other agreements entered into by the Company relating
hereto including, without limitation, the issuance and sale of the Securities
and the performance of the Company’s obligations hereunder. The Company is not
required to give any notice to, or make any filing or registration with, any
court or governmental agency in connection with the execution and delivery
of
this Agreement and the other agreements entered into by the Company relating
hereto other than (i) registration statements, (ii) state securities
laws filings and (iii) Form D filings.
3.7 No
Violation or Conflict.
Assuming the representations and warranties of the Subscriber in Section 2
are true and correct and the Subscriber complies with its obligations under
this
Agreement, neither the issuance nor sale of the Securities nor the performance
of the Company’s obligations under this Agreement will:
3.7.1. violate,
conflict with, result in a breach of, give to others any rights of termination,
amendment, acceleration or cancellation or constitute a default (or an event
which with the giving of notice or the lapse of time or both would be reasonably
likely to constitute a default) under (i) the articles of incorporation,
charter or bylaws of the Company, (ii) any decree, judgment, order, law,
treaty, rule, regulation or determination applicable to the Company of any
court, governmental agency or body, or arbitrator having jurisdiction over
the
Company or over the properties or assets of the Company, (iii) the terms of
any bond, debenture, note or any other evidence of indebtedness, or any
agreement, stock option or other similar plan, indenture, lease, mortgage,
deed
of trust or other instrument to which the Company is a party, by which the
Company is bound or to which any of the properties of the Company is subject
or
(iv) the terms of any “lock-up” or similar provision of any underwriting or
similar agreement to which the Company is a party; or
3.7.2. result
in
the creation or imposition of any lien, charge or encumbrance upon the
Securities or any of the assets of the Company.
3.8 The
Securities.
Upon
issuance, the Securities:
3.8.1. will
be
free and clear of any security interests, liens, claims or other encumbrances,
subject to restrictions upon transfer under the 1933 Act and state
laws;
3.8.2. will
be
duly and validly authorized, and on each Closing Date and the date the Note
is
converted will be duly and validly issued, fully paid and nonassessable (and
if
registered pursuant to the 1933 Act, and resold pursuant to an effective
registration statement, will be free trading and unrestricted, provided that
the
Subscriber complies with the prospectus delivery requirements);
3.8.3. will
not
have been issued or sold in violation of or subject to any preemptive or other
similar rights of the holders of any securities of the Company;
3.8.4. will
not
subject the holders thereof to personal liability by reason of being such
holders; and
3.8.5. the
Company has reserved from its duly authorized capital stock a sufficient number
of shares of Common Stock issuable pursuant to this Agreement and the Note,
in
order to issue the shares of its Common Stock constituting part of the
Securities.
3.9 Shares
Legend.
Except
as otherwise provided herein, the shares of Common Stock issued and issuable
pursuant to this Agreement will bear the following legend:
“THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO SYS THAT SUCH REGISTRATION IS NOT REQUIRED.
3.10 Note
Legend.
Except
as otherwise provided herein, the Note issued pursuant to this Agreement will
bear the following legend:
“THIS
NOTE AND THE SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE
SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
AS
TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO
SYS THAT SUCH REGISTRATION IS NOT REQUIRED.”
3.11 Litigation.
There
is no pending or, to the knowledge of the Company, threatened action, suit,
proceeding or investigation before any court, governmental agency or body or
arbitrator having jurisdiction over the Company that would affect the execution
and delivery by the Company of, or the performance by the Company of its
obligations under, or the legality, validity or enforceability of, this
Agreement or any of the other agreements entered into by the Company relating
hereto or the Securities. Except as disclosed in the Reports, there is no
pending or, to the knowledge of the Company, threatened action, suit, proceeding
or investigation before any court, governmental agency or body or arbitrator
having jurisdiction over the Company relating to the Company or any of its
directors or officers.
3.12 Reporting
Company Eligibility.
The
Company is a publicly held company whose Common Stock is (and has been for
the
past ninety (90) days) registered pursuant to the Exchange Act. Pursuant to
the
provisions of the Exchange Act, the Company has filed all reports and other
materials required to be filed thereunder with the Commission during the
preceding twelve (12) months on a timely basis (other than a Report on
Form 8-K with regard to an acquisition, which was not timely filed but
which was subsequently filed on March 23, 2005).
3.13 No
Market Manipulation.
The
Company has not taken, directly or indirectly, any action designed to, or that
might reasonably be expected to, cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or resale
of the Securities or affect the price at which the Securities may be
issued.
3.14 Defaults.
The
Company is not in violation of its certificate of incorporation or bylaws,
in
each case as amended to date, nor is the Company (i) in default under or in
violation of any other material agreement or instrument to which it is a party
or by which it or any of its properties are bound or affected, which default
or
violation would have a material adverse effect on the Company, (ii) in
default with respect to any order of any court, arbitrator or governmental
body
or subject to or party to any order of any court or governmental authority
arising out of any action, suit or proceeding under any statute or other law
respecting antitrust, monopoly, restraint of trade, unfair competition or
similar matters or (iii) to its knowledge, in violation of any statute,
rule or regulation of any governmental authority.
3.15 No
Integrated Offering.
The
Company has not, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security under circumstances that
would cause the offering of the Securities pursuant to this Agreement to be
integrated with prior offerings by the Company for purposes of the 1933
Act.
3.16 No
General Solicitation.
The
Company has not engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the 1933 Act), in
connection with the offer or sale of the Securities.
3.17 Listing
and Maintenance Requirements.
Except
as specified in the Reports, the Company has not, in the two years preceding
the
date hereof, received notice from any trading market to the effect that the
Company is not in compliance with the listing or maintenance requirements
thereof. The Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with the listing and
maintenance requirements for continued listing of the Common Stock on the
trading market on which the Common Stock is currently listed or quoted. To
the
best knowledge of the Company, upon Closing the issuance and sale of the
Securities will not contravene the rules and regulations of the trading market
on which the Common Stock is currently listed or quoted, and no approval of
the
shareholders of the Company thereunder is required for the Company to issue
and
deliver the Securities.
3.18 Investment
Company.
The
Company is not, and is not an Affiliate of, and immediately following the
Closing will not have become, an “investment company” within the meaning of the
Investment Company Act of 1940, as amended.
3.19 Internal
Accounting Controls.
The
Company’s certifying officers have evaluated the effectiveness of the Company’s
disclosure controls and procedures in accordance with Item 307 of
Regulation S-K under the Exchange Act for the Company’s most recently ended
fiscal quarter or fiscal year-end (such date, the “Evaluation Date”). The
Company presented in its most recently filed Form 10-K or Form 10-Q
the conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no significant
changes in the Company’s internal controls (as described in Item 308(c) of
Regulation S-K under the Exchange Act) or, to the Company’s knowledge, in
other factors that could significantly affect the Company’s internal controls
which were required to be disclosed in the SEC Reports and were not so
disclosed.
3.20 Correctness
of Representations.
The
Company represents that the foregoing representations and warranties are true
and correct as of the date hereof and, unless the Company otherwise notifies
the
Subscriber prior to a Closing Date, will be true and correct as of each Closing
Date. The foregoing representations and warranties will survive each Closing
Date.
4. Regulation
D Offering.
This
Offering is being made pursuant to the exemption from the registration
provisions of the 1933 Act afforded by Rule 506 of Regulation D promulgated
thereunder, which exemption is based in part on the accuracy of the Subscriber’s
representations and warranties contained herein.
5. Reissuance
of Securities.
The
Company agrees to reissue certificates representing the Securities without
the
legends set forth in Sections 3.9 and 3.10 hereof (i) at such time as
the holder thereof is permitted to and disposes of such Securities pursuant
to
Rule 144(d) or Rule 144(k) under the 1933 Act, in the opinion of counsel
reasonably satisfactory to the Company, or (ii) upon resale subject to an
effective registration statement after the Securities are registered under
the
0000 Xxx. The Company agrees to cooperate with the Subscriber in connection
with
all resales pursuant to Rule 144(d) and Rule 144(k), provided the Company and
its counsel receive all reasonably requested representations from the Subscriber
and the selling broker, if any.
6. Fees.
Except
as provided below, the Company and the Subscriber will each pay their own fees
and costs incurred in connection with this transaction. The Company shall pay
all stamp and other taxes and duties levied in connection with the sale of
the
Securities.
6.1 Finders.
The
Company anticipates placement of the Units without paying any finders fees.
However, the Company reserves the right to pay fees of up to three percent
(3%)
of the aggregate Purchase Price in the Offering paid by investors introduced
to
the Company by a finder (the “Finder’s Fee”) to finders (collectively, the
“Finders” and, individually, a “Finder”) in the event that sufficient
subscribers are not secured without the use of Finders. Any such Finder’s Fee
that might be paid will be paid on each Closing Date with respect to the Units
issued on such date.
6.2 Indemnification.
The
Company on the one hand, and the Subscriber on the other hand, each agree to
indemnify the other against and hold the other harmless from any and all
liabilities to any persons or entities other than the Finder claiming brokerage
commissions or finder’s fees on account of services purported to have been
rendered on behalf of the indemnifying party (which shall be the responsibility
of such indemnifying party) in connection with this Agreement or the
transactions contemplated hereby and arising out of such party’s actions. Except
for the Finder and respective counsel for each party, the Company and the
Subscriber each represent that no other parties are entitled to receive fees,
commissions or similar payments in connection with the Offering.
7. Covenants
of Company.
The
Company covenants and agrees with the Subscriber as follows:
7.1 Offering
of Securities.
The
Company will advise the Subscriber, promptly after it receives notice of
issuance by the Commission, any state securities commission or any other
regulatory authority of any stop order or of any order preventing or suspending
any offering of any securities of the Company, or of the suspension of the
qualification of the Common Stock of the Company for offering or sale in any
jurisdiction, or of the initiation of any proceeding for any such
purpose.
7.2 Listing
of Shares.
The
Company will use commercially reasonable efforts to maintain the listing and
trading of its Common Stock on the American Stock Exchange and will comply
in
all respects with the Company’s reporting, filing and other obligations under
the bylaws or rules of the American Stock Exchange and any other exchanges,
as
applicable.
7.3 Notification
of Transactions.
The
Company will notify the Commission, the American Stock Exchange and applicable
state authorities, in accordance with their requirements, of the transactions
contemplated by this Agreement, and will take all other necessary action as
may
be required and permitted by applicable law, rule and regulation for the legal
and valid issuance of the Securities to the Subscriber.
7.4 Registration
Compliance.
Until
at least two (2) years after the effectiveness of the registration
statement required pursuant to Section 11 hereof, the Company will use
commercially reasonable efforts to comply with (i) its reporting and filing
obligations under the Exchange Act, and (ii) all requirements related to
any registration statement filed pursuant to this Agreement. The Company will
not take any action or file any document (whether or not permitted by the 1933
Act or the Exchange Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under said Acts until the later of (y) two (2) years after the
effective date of the registration statement required pursuant to
Section 11 hereof or (z) the sale by the Subscriber of all the
Securities issuable by the Company pursuant to this Agreement.
7.5 Reservation
of Shares.
The
Company undertakes to reserve, from its authorized but unissued Common Stock,
within thirty (30) days after the last Closing Date and thereafter for such
time
that any Notes remain outstanding, a number of Common Shares equal to not less
than 100% of the amount of Common Shares necessary to allow the Subscriber
to be
able to convert all of its outstanding Note or Notes issued on such Closing
Date, at the then applicable Conversion Price.
7.6 Integration.
The
Company shall not, and shall use commercially reasonable efforts to ensure
that
no Affiliate or agent of the Company shall, sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined
in
Section 2 of the Securities Act of 1933, as amended) that would be
integrated with the offer or sale of the Securities in a manner that would
require the registration under the Securities Act of the sale of the Securities,
or that would be integrated with the offer or sale of the Securities for
purposes of the rules and regulations of the principal trading market for the
Common Stock, in a manner that would require stockholder approval of the sale
of
the Securities.
8. Covenants
of Subscriber.
8.1 No
Short Sales.
Until
such time as the Note has been repaid and/or converted in full, the Subscriber
agrees for itself and its affiliates that, prior to the effective date of the
registration statement described in Section 11, the Subscriber and its
affiliates will not engage in short sales of the Company’s Common Stock. The
Subscriber agrees for itself and its affiliates that, after the effective date
of the registration statement described in Section 11, the Subscriber and
its affiliates will not engage in short sales of any of the Company’s Common
Stock; provided, however, that the Subscriber may enter into a short sale or
other hedging transaction only in connection with Common Stock the Subscriber
anticipates receiving in connection with a Conversion Notice (as defined in
the
Note) that has been given to the Company.
8.2 Compliance
with Law.
The
Subscriber’s trading activities with respect to the Common Stock will be in
compliance in all material respects with all applicable state and federal
securities laws, rules and regulations and the rules and regulations of the
American Stock Exchange and any other market or exchange on which the Common
Stock is or becomes listed.
9. Covenants
of Company and Subscriber Regarding Indemnification.
9.1 Company
Covenants.
The
Company agrees to indemnify, hold harmless, reimburse and defend the Subscriber,
and the Subscriber’s officers, directors or other persons acting in similar
capacities, against any claim, cost, expense, liability, obligation, loss or
damage (including reasonable legal fees) of any nature incurred by or imposed
upon the Subscriber or any such person which results, arises out of or is based
upon (i) any misrepresentation by the Company or breach by the Company of
any warranty in this Agreement or in any exhibits or schedules attached hereto
or of any other agreement delivered pursuant hereto or (ii) after any
applicable notice and cure periods, any breach or default in performance by
the
Company of any covenant or undertaking to be performed by the Company hereunder
or of any other agreement entered into by the Company and the Subscriber
relating hereto.
9.2 Subscriber
Covenants.
The
Subscriber agrees to indemnify, hold harmless, reimburse and defend the Company,
and the Company’s officers, directors or other persons acting in similar
capacities, against any claim, cost, expense, liability, obligation, loss or
damage (including reasonable legal fees) of any nature incurred by or imposed
upon the Company or any such person which results, arises out of or is based
upon (i) any misrepresentation by the Subscriber or breach by the
Subscriber of any warranty in this Agreement or in any exhibits or schedules
attached hereto or of any other agreement delivered pursuant hereto or
(ii) after any applicable notice and cure periods, any breach or default in
performance by the Subscriber of any covenant or undertaking to be performed
by
the Subscriber hereunder or of any other agreement entered into by the Company
and the Subscriber relating hereto.
9.3 Applicable
Procedures.
The
procedures set forth in Section 15 will apply to the indemnification
obligations set forth in Sections 9.1 and 9.2 hereof.
10. Conversion
of Note.
10.1 All
Necessary Actions.
Upon
the conversion of a Note the Company will, at its own cost and expense, take
all
necessary action to ensure that the Company’s transfer agent issues stock
certificates in the name of the Subscriber (or its nominee) or such other
persons as designated by the Subscriber, and in such denominations to be
specified at conversion representing the number of shares of Common Stock
issuable upon such conversion.
10.2 Notice
of Conversion.
The
Subscriber will give notice of its decision to exercise its right to convert
a
Note by faxing an executed and completed Conversion Notice (as defined in the
Note) to the Company. The Subscriber will not be required to surrender the
Note
until the Note has been fully converted or satisfied. Each date on which a
Notice of Conversion is faxed to the Company in accordance with the provisions
hereof will be deemed a “Conversion Date.” The Company will transmit, or will
cause the transfer agent to transmit, the Company’s Common Stock certificates
representing the Common Stock issuable upon conversion of the Note to the
Subscriber via express courier for receipt by such Subscriber within three
(3) business days after receipt by the Company of the Conversion Notice
(the “Delivery Date”). To the extent that the Subscriber elects not to surrender
a Note for reissuance upon conversion, the Subscriber hereby indemnifies the
Company against any and all loss or damage attributable to a third-party claim
in an amount in excess of the actual amount then due under the
Note.
10.3 Maximum
Conversion.
The
Subscriber will not be entitled to convert on any Conversion Date an amount
of
any Note or Notes in connection with that number of shares of Common Stock
which
would be in excess of the sum of either (i) the number of shares of Common
Stock beneficially owned by the Subscriber and its affiliates on a Conversion
Date or (ii) the number of shares of Common Stock issuable upon the
conversion of the Note or Notes on a Conversion Date, in the case of either
clause (i) or clause (ii) which conversion would result in beneficial
ownership by the Subscriber and its affiliates of more than 9.99% of the
outstanding shares of Common Stock of the Company on such Conversion Date,
as
determined in accordance with Section 13(d) of the Exchange Act and
Regulation 13d-3 thereunder. Subject to the foregoing, the Subscriber will
not be limited to aggregate conversions of only 9.99%. The Subscriber may
allocate which of the equity of the Company deemed beneficially owned by the
Subscriber will be included in the 9.99% limit and which will be allocated
to
the excess above 9.99%.
11. Registration
Rights.
The
Company will file with the Commission within ninety (90) days after the final
Closing Date (the “Filing Date”), and use its commercially reasonable efforts to
cause to be declared effective as soon as reasonably practicable thereafter
(the
“Effective Date”), a Form S-3 registration statement in order to register
the aggregate Common Stock issued to the Subscriber in each Closing and the
Common Stock issuable to the Subscriber under each Note (collectively, the
“Registrable Securities”) for resale and distribution under the 1933 Act. The
Company will register not less than a number of shares of Common Stock that
is
equal to 100% of the Common Stock issued in the Offering and all of the Common
Stock issuable upon conversion of all Notes at the Conversion Price in effect
on
the Effective Date. The shares registered pursuant to such registration
statement will be reserved and set aside exclusively for the benefit of the
Subscriber, and not issued, employed or reserved for anyone other than the
Subscriber.
12. Registration
Procedures.
In
connection with the registration of the Registrable Securities under the 1933
Act, the Company will do the following:
12.1 Registration
Statement.
Prepare
and file with the Commission the registration statement required in
Section 11 hereof and use its commercially reasonable efforts to cause such
registration statement to become effective and promptly provide to the holders
of Registrable Securities (each, a “Seller” and collectively, “Sellers”) copies
of all filings with the Commission.
12.2 Amendments
and Supplements.
Prepare
and file with the Commission such amendments and supplements, including
post-effective amendments, to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective until two (2) years after the Closing Date, and comply
with the provisions of the 1933 Act with respect to the disposition of all
of
the Registrable Securities covered by such registration statement in accordance
with the Seller’s intended method of disposition set forth in such registration
statement for such period.
12.3 Copies
of Registration Statements and Prospectus.
Furnish
to the Seller such number of copies of the registration statement and the
prospectus included therein (including each preliminary prospectus) as the
Seller reasonably may request in order to facilitate the public sale or other
disposition of the securities covered by such registration
statement.
12.4 Registration
Under State Securities Laws.
Use
commercially reasonable efforts to register or qualify the Seller’s Registrable
Securities covered by such registration statement under the securities or “blue
sky” laws of any jurisdictions the Seller, and in the case of an underwritten
public offering, the managing underwriter, reasonably requests; provided,
however, that the Company may not for any such purpose be required to qualify
generally to transact business as a foreign corporation in any jurisdiction
where it is not so qualified or to consent to general service of process in
any
such jurisdiction.
12.5 Listing
of Registrable Securities.
List
the Registrable Securities that are covered by such registration statement
with
any securities exchange or other trading market, venue or service on which
the
Common Stock of the Company is then listed.
12.6 Notifications
of Registration.
Use
commercially reasonable efforts to notify the Seller and each underwriter under
such registration statement at any time when: (i) a prospectus relating
thereto is required to be delivered under the 1933 Act; (ii) of the
happening of any event of which the Company has knowledge as a result of which
the prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing; (iii) of the
filing of the registration statement or any post-effective amendment thereto,
(iv) with respect to the registration statement or any post-effective
amendment, when the same has become effective; (v) of the issuance by the
Securities and Exchange Commission of any stop order suspending the
effectiveness of the registration statement or the initiation of any proceedings
for that purpose; or (vi) of the receipt by the Company of any notification
with respect to the suspension of the qualification or exemption from
qualification of any securities covered by the registration statement for sale
in any jurisdiction, or the initiation of any proceeding for such
purpose.
12.7 Inspection.
Make
available for inspection by the Seller, any underwriter participating in any
distribution pursuant to such registration statement, and any attorney,
accountant or other agent retained by the Seller or underwriter, all publicly
available, non-confidential financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company’s officers,
directors and employees to supply all publicly available, non-confidential
information reasonably requested by the Seller or such underwriter, attorney,
accountant or agent in connection with such registration statement.
13. Information
From Seller.
In
connection with the registration required pursuant to Section 11 hereof,
the Seller will furnish to the Company in writing such information and
representation letters with respect to itself and the proposed distribution
as
are reasonably necessary in order to assure compliance with federal and
applicable state securities laws. In connection with such registration if
covering an underwritten public offering, the Company and the Seller agree
to
enter into a written agreement with the managing underwriter in such form and
containing such provisions as are reasonable and customary in the securities
business for such an arrangement between such underwriter and companies of
the
Company’s size and investment stature.
14. Expenses.
All
expenses incurred by the Company in complying with Section 11 and
Section 12 hereof, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
reasonable legal fees) incurred in connection with complying with state
securities or “blue sky” laws, fees of any stock exchange, transfer taxes, fees
of transfer agents and registrars, and costs of insurance are called
“Registration Expenses.” All underwriting discounts and selling commissions
incurred by the Sellers applicable to the sale of Registrable Securities, as
well as any fees and disbursements of any special counsel to the Seller, are
called “Selling Expenses.” In connection with any registration statement filed
or proposed to be filed pursuant to Section 11, all Registration Expenses
will be borne by the Company and all Selling Expenses will be borne by the
Sellers. Selling Expenses may be apportioned among the Sellers in proportion
to
the number of shares sold by each Seller relative to the number of shares sold
under such registration statement or as all Sellers thereunder may otherwise
agree.
15. Indemnification
and Contribution.
15.1 Indemnification
by Company.
The
Company will, notwithstanding any termination of this Agreement, indemnify
and
hold harmless the Subscriber, each officer of the Subscriber (or other person
serving in a similar capacity), each director, agent, employee, member and
partner of the Subscriber (or other person serving in a similar capacity),
each
underwriter of Registrable Securities and each other person, if any, who
controls such Subscriber or underwriter within the meaning of the 1933 Act
and
officers, directors, agents and employees of each such control person, from
and
against all losses, claims, damages, costs (including reasonable attorneys’
fees) incurred in conformance with this Agreement, or liabilities, joint or
several, to which the Subscriber or such officer, director, agent, partner,
member or employee, other person in a similar capacity, underwriter or
controlling person may become subject under the 1933 Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any registration statement under which such
Registrable Securities were registered under the 1933 Act pursuant to
Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of, relate to
or
are based upon the omission or alleged omission of a material fact required
to
be stated therein or necessary to make the statements therein not misleading,
and will reimburse the Subscriber and each such officer, director, agent,
partner, member or employee, other person serving in a similar capacity,
underwriter and controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company will
not
be liable to the Subscriber or any of the Subscriber’s officers, directors,
agents, partners, members, or employees or other persons serving in similar
capacities, to the extent that any such damages arise out of or are based upon
an untrue statement or omission made in any preliminary prospectus (i) if
the Subscriber failed to send or deliver a copy of the final prospectus
delivered by the Company to the Subscriber with or prior to the delivery of
written confirmation of the sale by the Subscriber to the person asserting
the
claim from which such damages arise and if the final prospectus would have
corrected such untrue statement or alleged untrue statement or such omission
or
alleged omission or (ii) to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with information
furnished by any such Subscriber, or any such controlling person, in writing
specifically for use in such registration statement or prospectus.
15.2 Indemnification
by Subscriber.
The
Subscriber will indemnify and hold harmless the Company, and each person, if
any, who controls the Company within the meaning of the 1933 Act, each officer
of the Company who signs the registration statement (or other person serving
in
a similar capacity), each director of the Company (or other person serving
in a
similar capacity), each underwriter of Registrable Securities and each person
who controls any underwriter within the meaning of the 1933 Act, against all
losses, claims, damages or liabilities, joint or several, to which the Company
or such officer, director, other person in a similar capacity, underwriter
or
controlling person may become subject under the 1933 Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any registration statement under which such
Registrable Securities were registered under the 1933 Act pursuant to
Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse the Company and each such officer, director, other person
serving in a similar capacity, underwriter and controlling person for any legal
or other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
however, that the Subscriber will be liable hereunder in any such case if and
only to the extent that any such loss, claim, damage or liability arises out
of
or is based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in conformity with
information pertaining to such Subscriber, as such, furnished in writing to
the
Company by such Subscriber specifically for use in such registration statement
or prospectus; and provided, further, that the liability of the Subscriber
hereunder will be limited to the net proceeds received by the Subscriber from
the sale of Registrable Securities covered by such registration
statement.
15.3 Notice
of Commencement of Action.
Promptly after receipt by an indemnified party hereunder of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party hereunder, notify the
indemnifying party in writing thereof, but the omission so to notify the
indemnifying party will not relieve the indemnifying party from any liability
which it may have to such indemnified party other than under this
Section 15.3 and will only relieve it from any liability which it may have
to such indemnified party under this Section 15.3 if and to the extent it
shall be determined by a court of competent jurisdiction that the indemnifying
party is materially prejudiced by such omission. In case any such action is
brought against any indemnified party and such indemnified party notifies the
indemnifying party of the commencement thereof, the indemnifying party will
be
entitled to participate in and, to the extent it wishes, to assume and undertake
the defense thereof with counsel satisfactory to such indemnified party and,
after notice from the indemnifying party to such indemnified party of its
election so to assume and undertake the defense thereof, the indemnifying party
will not be liable to such indemnified party under this Section 15.3 for
any legal expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation and of
liaison with counsel so selected; provided, however, that if the defendants
in
any such action include both the indemnified party and the indemnifying party
and the indemnified party has reasonably concluded that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified
party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified parties will have the right to select one separate
counsel and to assume such legal defenses and otherwise to participate in the
defense of such action, with the reasonable expenses and fees of such separate
counsel and other expenses related to such participation to be reimbursed by
the
indemnifying party as incurred. The indemnifying party may not settle an
indemnified claim without the consent of the indemnified party unless the
settlement (i) does not provide for damages or equitable relief against the
indemnified party, (ii) provides an unconditional release with regard to
the indemnified party, and (iii) does not require an admission of fault by
the indemnified party.
15.4 Joint
Liability.
In
order to provide for just and equitable contribution in the event of joint
liability under the 1933 Act in any case in which either (i) the
Subscriber, or any controlling person of the Subscriber, makes a claim for
indemnification pursuant to this Section 15 but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding
the
fact that this Section 15 provides for indemnification in such case or
(ii) contribution under the 1933 Act may be required on the part of the
Subscriber or controlling person of the Subscriber in circumstances for which
indemnification is provided under this Section 15 then, and in each such
case, the Company and the Subscriber will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion as is appropriate to reflect the relative fault
of each party in connection with the actions, statements or omissions that
resulted in the liability as well as any other relevant equitable
considerations. The relative fault of each party shall be determined by
reference to, among other things, whether any action in question has been taken
or made by, or relates to information supplied by, such party, and the parties’
relative intent, knowledge, access to information and opportunity to correct
or
prevent such action. The Subscriber shall be responsible only for the lesser
of
(i) the portion of the liability represented by the percentage that the
public offering price of its securities offered by the registration statement
bears to the public offering price of all securities offered by such
registration statement and (ii) an amount equal to the net proceeds by the
Subscriber from sales pursuant to the registration statement; provided, however,
that, in any such case, no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 10(f) of the 0000
Xxx) will be entitled to contribution from any person or entity who was not
guilty of such fraudulent misrepresentation.
16. Notices.
All
notices or other communications given or made hereunder must be in writing
and
be personally delivered or will be deemed delivered the first business day
after
being faxed (provided that a copy is delivered by first class mail) to the
party
to receive the same at its address set forth below or to such other address
as
either party may hereafter give to the other by notice duly made under this
Section: (i) if to the Company, to SYS, 0000 Xxxxxx Xxxxxx Xxxx,
Xxxxx 000, Xxx Xxxxx, Xxxxxxxxxx 00000, and (ii) if to the
Subscriber, to the name, address and facsimile number set forth on the signature
page hereto, with a copy by facsimile only to
________________________________________, facsimile number
__________.
17. Entire
Agreement; Amendment; Assignment.
This
Agreement, the other agreements contemplated hereby and the Note represent
the
entire agreement between the parties hereto with respect to the subject matter
hereof. It is the express understanding of the parties hereto that no party
has
made any representation whatsoever, express or implied, oral or written, other
than those representations of the parties hereto expressly set forth in this
Agreement and the Note. This Agreement may be amended only by a writing executed
by the parties hereto. No right or obligation of either party may be assigned
by
such party without prior notice to and the written consent of the other
party.
18. Execution.
This
Agreement may be executed by facsimile transmission, and in counterparts, each
of which will be deemed an original.
19. Governing
Law; Consent to Jurisdiction.
This
Agreement will be governed by and construed in accordance with the laws of
the
State of California without regard to principles of conflicts of laws. Any
action brought by any party against the others concerning the transactions
contemplated by this Agreement may be brought only in the state courts of
California or in the federal courts located in the Southern District of
California. The parties executing this Agreement agree to submit to the
jurisdiction of such courts and waive trial by jury. In the event that any
provision of this Agreement is invalid or unenforceable under any applicable
statute or rule of law, then such provision will be deemed inoperative to the
extent that it may conflict therewith and will be deemed modified to conform
with such statute or rule of law. No such provision, which may prove invalid
or
unenforceable under any law, may affect the validity or enforceability of any
other provision of this Agreement. Subject to this Section 19, each of the
Company and the Subscriber hereby waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of such courts, that the suit, action or proceeding is brought
in
an inconvenient forum or that the venue of the suit, action or proceeding is
improper. Nothing in this Section 19 may affect or limit any right to serve
process in any other manner permitted by law.
20. Specific
Enforcement.
The
Company and the Subscriber acknowledge and agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It
is accordingly agreed that the parties will be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement
and
to enforce specifically the terms and provisions hereof, this being in addition
to any other remedy to which any of them may be entitled by law or
equity.
21. Rate
of Interest.
Nothing
contained herein or in any document referred to herein or delivered in
connection herewith may be deemed to establish or require the payment of a
rate
of interest or other charges in excess of the maximum permitted by applicable
law. In the event that the rate of interest or dividends required to be paid
or
other charges hereunder exceed the maximum permitted by such law, any payments
in excess of such maximum will be credited against amounts owed by the Company
to the Subscriber and thus refunded to the Company.
[THE
REMAINDER OF THIS PAGE HAS INTENTIONALLY BEEN LEFT BLANK]
SIGNATURE
PAGE TO SUBSCRIPTION AGREEMENT
Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing
and returning a copy to the undersigned, whereupon it will become a binding
agreement.
| Dated: February 14, 2006 | SYS, a California corporation | ||
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By:
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| Xxxxxxx X. Xxxxx, Xx. | |||
| President and Chief Executive Officer | |||
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Subscriber
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Number of Units | Total Purchase Price | |||
| (Signature) | |||||
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Print
Name:
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|
Address:
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Facsimile
No:
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Phone
No:
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E-Mail:
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