EXHIBIT 10.1
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of May ___, 2004,
by and among SECURED SERVICES, INC., a Delaware corporation (the "Company"), and
the subscribers identified on the signature page hereto (each a "Subscriber" and
collectively "Subscribers").
WHEREAS, the Company and the Subscribers are executing and delivering this
Agreement in reliance upon an exemption from securities registration afforded by
the provisions of Section 4(2) and Rule 506 of Regulation D ("Regulation D") as
promulgated by the United States Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the
Subscribers, as provided herein, and the Subscribers shall purchase, in the
aggregate, approximately $7,000,000 (the "Purchase Price") of Units each Unit
consisting of (i) four (4) shares of the Company's common stock, $.0001 par
value (the "Common Stock"), and (ii) a warrant to purchase one (1) share of
Common Stock (the "Warrant Shares"), in the form attached hereto as Exhibit A
(the "Warrant"). The per Unit Purchase Price shall be $5.20. The Purchase Price
shall be payable to the Company on the Closing Date, as defined in Section 13(b)
hereof. The shares of Common Stock issuable to the Subscribers are referred to
herein as the "Shares," and the Shares, the Warrant and the Warrant Shares are
collectively referred to herein as the "Securities".
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Subscribers hereby
agree as follows:
1. Purchase and Sale of Shares and Warrants. Subject to the
satisfaction (or waiver) of the conditions to Closing set forth in this
Agreement, each Subscriber shall purchase the Shares and Warrant Shares set
forth opposite each such Subscriber's name on the signature page hereto for the
portion of the Purchase Price indicated on the signature page hereto, and the
Company shall sell such number of Shares and Warrant Shares to the Subscriber.
The Purchase Price for the Shares and Warrants shall be paid in cash.
2. Warrants. On the Closing Date the Company will issue Warrants to
the Subscribers. A warrant to purchase one (1) share of Common Stock will be
issued to each Subscriber for each four (4) shares issued to such Subscriber on
the Closing Date. The per Warrant Share exercise price to acquire a Warrant
Share upon exercise of a Warrant shall be $1.96. The Warrants shall be
exercisable for five (5) years after the Closing Date.
3. Subscriber's Representations and Warranties. Each Subscriber
hereby represents and warrants to and agrees with the Company only as to such
Subscriber that:
(a) Information on Company. The Subscriber has been furnished
with or has had access at the XXXXX Website of the Commission to the Company's
Form 10-KSB for the year ended December 31, 2003 as filed with the Commission,
together with all subsequently filed Forms 10-QSB, 8-K, and filings made with
the Commission available at the XXXXX website (hereinafter referred to
collectively as the "Reports"). the Subscriber has considered all factors the
Subscriber deems material in deciding on the advisability of investing in the
Securities.
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(b) Information on Subscriber. At the time the Subscriber was
offered the Securities it was, and as of the date hereof it is an "accredited
investor", as such term is defined in Regulation D promulgated by the Commission
under the 1933 Act, is experienced in investments and business matters, has made
investments of a speculative nature and has purchased securities of United
States publicly-owned companies in private placements in the past and, with its
representatives, has such knowledge and experience in financial, tax and other
business matters as to enable the Subscriber to utilize the information made
available by the Company to evaluate the merits and risks of and to make an
informed investment decision with respect to the proposed purchase, which
represents a speculative investment. The Subscriber has the authority to
purchase and own the Securities. The Subscriber is able to bear the economic
risk of such investment and at the present time, is able to afford a complete
loss thereof. The information set forth on the signature page hereto regarding
the Subscriber is accurate.
(c) Purchase of Common Stock and Warrants. The Subscribers is
purchasing the Common Stock and Warrants as principal for its own account and
not with a view to any distribution thereof (this representation and warranty
not limiting such Subscriber's right to sell the Shares and Warrant Shares
pursuant to the Registration Statement (as defined in Section 8(d) hereof) or
otherwise in compliance with applicable federal and state securities laws).
(d) Compliance with 1933 Act. The Subscriber understands and
agrees that the Securities have not been registered under the 1933 Act or any
applicable state securities laws, by reason of their issuance in a transaction
that does not require registration under the 1933 Act (based in part on the
accuracy of the representations and warranties of Subscriber contained herein),
and that such Securities must be held indefinitely unless a subsequent
disposition is registered under the 1933 Act or any applicable state securities
laws or is exempt from such registration.
(e) Authority; Enforceability. This Agreement and other
agreements delivered together with this Agreement or in connection herewith have
been duly authorized, executed and delivered by the Subscriber and are valid and
binding agreements enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity; and Subscriber has full power and
authority necessary to enter into this Agreement and such other agreements and
to perform its obligations hereunder and under all other agreements entered into
by the Subscriber relating hereto.
(f) Correctness of Representations. Each Subscriber represents
as to such Subscriber that the foregoing representations and warranties are true
and correct as of the date hereof in all material respects and, unless a
Subscriber otherwise notifies the Company prior to the Closing Date (as
hereinafter defined), shall be true and correct in all material respects as of
the Closing Date.
(g) Restrictions on Short Sales. Subscriber represents,
warrants and covenants that neither Subscriber nor any person or entity,
directly or indirectly controlling, controlled by or under direct or indirect
common control with such Subscriber ("Affiliate") which (x) has knowledge of the
transactions contemplated hereby, (y) has or shares discretion relating to such
Subscriber's investments or trading or information concerning such Subscriber's
investments, including in respect of the Securities, or (z) is subject to such
Subscriber's review or input concerning such Affiliate's investments or trading,
has or will, directly or indirectly, during the period beginning on the date on
which Subscriber was first contacted regarding the transactions contemplated by
this Agreement and ending on the Closing Date, engage in (i) any "short sales"
(as such term is defined in Rule 3b-3 promulgated under the 0000 Xxx) of the
Shares and/or the Warrant Shares, including, without limitation, the maintaining
of any short position with respect to, establishing or maintaining a "put
equivalent position" (within the meaning of Rule 16a-
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1(h) under the 0000 Xxx) with respect to, entering into any swap, derivative
transaction or other arrangement (whether any such transaction is to be settled
by delivery of Shares, other securities, cash or other consideration) that
transfers to another, in whole or in part, any economic consequences or
ownership, or otherwise dispose of, any of the Securities by such Subscriber or
(ii) any hedging transaction which establishes a net short position with respect
to the Securities (clauses (i) and (ii) together, a "Short Sale"); except for
(A) Short Sales by such Subscriber or an Affiliate of such Subscriber which was,
prior to the date on which such Subscriber was first contacted regarding the
transactions contemplated by this Agreement, a market maker for the Shares,
provided that such Short Sales are in the ordinary course of business of such
Subscriber or Affiliate of such Subscriber and are in compliance with the 1933
Act, the rules and regulations of the 1933 Act and such other securities laws as
may be applicable, (B) Short Sales by such Subscriber or an Affiliate of such
Subscriber which by virtue of the procedures of such Subscriber are made without
knowledge of the transactions contemplated by this Agreement or (C) Short Sales
by such Subscriber or an Affiliate of such Subscriber to the extent that such
Subscriber or Affiliate of such Subscriber is acting in the capacity of a
broker-dealer executing unsolicited third-party transactions.
The Company acknowledges and agrees that each Subscriber does not make or
has not made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section 3.
4. Company Representations and Warranties. The Company represents
and warrants to and agrees with each Subscriber that:
(a) Due Incorporation. The Company has one subsidiary. Each of
the Company and its subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of the respective jurisdictions of their
incorporation and have the requisite corporate power to own their properties and
to carry on their business as now being conducted. Each of the Company and its
subsidiary 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 or reasonably be
expected to result in (i) a material adverse effect on the legality, validity or
enforceability of any Transaction Document (as defined in Section 4(c) below),
(ii) a material adverse effect on the assets, business, results of operations,
financial condition or prospects of the Company or (iii) a material adverse
effect on the Company's ability to perform in any material respect on a timely
basis its obligations under any Transaction document(any of (i), (ii) or (iii) a
"Material Adverse Effect") and no action, claim, suit, investigation or
proceeding (including without limitation, an investigation or partial
proceeding, such as a deposition), has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail such
power and authority or qualification.
(b) Outstanding Stock. All issued and outstanding shares of
capital stock of the Company and each of its subsidiaries has been duly
authorized and validly issued and are fully paid and non-assessable.
(c) Authority; Enforceability. This Agreement, the Warrants,
the Registration Rights Agreement by and among the Company and the Subscribers,
dated as of the date hereof (the "Registration Rights Agreement"), the issuance
of the Shares and the Warrant Shares upon exercise of the Warrants, and any
other agreements delivered together with this Agreement or in connection
herewith (collectively "Transaction Documents") have been (i) duly authorized by
all necessary action on the part of the Company and no further action is
required by the Company in connection therewith, (ii) duly executed and
delivered by the Company and (iii) are valid and binding agreements enforceable
against the Company in accordance with their terms, subject to bankruptcy,
insolvency,
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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 and deliver the Transaction Documents and to perform its
obligations thereunder.
(d) Additional Issuances. There are no outstanding agreements
or preemptive or similar rights affecting the Company's common stock or equity
and no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, agreements or understandings with respect
to the sale or issuance of any shares of common stock or equity of the Company
or other equity interest in any of the subsidiaries of the Company, or
stockholders agreements, voting agreements or other similar agreements with
respect to the Company's capital stock to which the company is a party or, to
the knowledge of the Company, between or among any of the Company's
stockholders, except as described on Schedule 4(d), or the Reports.
(e) Consents. No consent, approval, authorization or order of
any court, governmental agency or body or arbitrator having jurisdiction over
the Company, or any of its affiliates, the National Association of Securities
Dealers, Inc., Nasdaq National Market, Nasdaq SmallCap Market, the Bulletin
Board nor the Company's shareholders is required in connection with the
execution and delivery by the Company of the Transaction Documents and
compliance and performance by the Company of its obligations under the
Transaction Documents, including, without limitation, the issuance and sale of
the Securities, and the performance of the Company's obligations under the
Transaction Documents other than the filing with the Commission of the
Registration Statement, applicable Blue Sky filings and filings that have
already been made under applicable securities laws.
(f) No Violation or Conflict. Assuming the representations and
warranties of the Subscribers in Section 3 are true and correct, the issuance
and sale of the Securities, the execution, delivery and performance of the
Company's obligations under this Agreement and all other agreements entered into
by the Company relating thereto by the Company, and the consummation by the
Company of the other transactions contemplated by this Agreement and the other
Transaction Agreements do not and will not:
(i) violate, conflict with, result in a breach of, or
constitute a default (or an event which with the giving of notice or the lapse
of time or both would be reasonably likely to constitute a default) or give rise
to any right of termination, amendment, acceleration or cancellation under (A)
the articles or certificate of incorporation, charter or bylaws of the Company
or its subsidiary, (B) any decree, judgment, order, law, treaty, rule,
regulation or determination applicable to the Company of any court, governmental
agency or body, or arbitrator having jurisdiction over the Company or any of its
subsidiaries or over the properties or assets of the Company or any of its
affiliates, (C) the terms of any bond, debenture, note or any other evidence of
indebtedness, or any agreement, stock option or other similar plan, indenture,
lease, mortgage, deed of trust or other instrument to which the Company or any
of its affiliates or subsidiaries is a party, by which the Company or any of its
affiliates or subsidiaries is bound, or to which any of the properties of the
Company or any of its affiliates or subsidiaries is subject, or (D) the terms of
any "lock-up" or similar provision of any underwriting or similar agreement to
which the Company, or any of its affiliates or subsidiaries is a party except in
the case of clauses (B), (C) or (D), such as would not, individually or in the
aggregate, have or reasonably be expected to have a material adverse effect on
the Company; or
(ii) result in the creation or imposition of any lien,
charge or encumbrance upon the Securities or any of the assets of the Company,
its subsidiaries or any of its affiliates; or
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(iii) result in the activation of any anti-dilution
rights or a reset or repricing of any debt or security instrument of any other
creditor or equity holder of the Company, nor result in the acceleration of the
due date of any obligation of the Company; or
(iv) result in the activation of any piggy-back
registration rights of any person or entity holding securities of the Company or
having the right to receive securities of the Company.
(g) The Securities. The Securities upon issuance:
(i) are, and will be, free and clear of any security
interests, charges, liens, claims or other encumbrances, subject to restrictions
upon transfer under the 1933 Act and any applicable state securities laws;
(ii) have been, or will be, duly and validly authorized
and on the date of issuance of the Shares and upon exercise of the Warrants, the
Shares and Warrant Shares will be duly and validly issued, fully paid and
nonassessable (and if registered pursuant to the 1933 Act, and resold pursuant
to an effective registration statement will be free trading and unrestricted,
provided that each Subscriber complies with the prospectus delivery requirements
of the 1933 Act);
(iii) will not have been issued or sold in violation of
any preemptive or other similar rights of the holders of any securities of the
Company; and
(iv) will not subject the holders thereof to personal
liability by reason of being such holders.
(h) Litigation. There is no action, suit, inquiry, notice of
violation, proceeding or investigation affecting or pending or, to the best
knowledge of the Company, threatened against or affecting the Company, any
subsidiary or any of their respective properties before or by any court,
governmental or administrative agency or body, regulatory authority (federal,
state, county, local or foreign), or arbitrator (collectively, an "Action") that
(i) would affect the execution by the Company or the performance by the Company
of its obligations under this Agreement, and all other agreements entered into
by the Company relating hereto. Except as disclosed in the Reports, there is no
action, suit, inquiry, notice of violation, proceeding or investigation
affecting, pending or, to the best knowledge of the Company, basis for or
threatened Action which, individually or in the aggregate if adversely
determined could have a material adverse effect on the Company. Neither the
Company nor any subsidiary, nor to the knowledge of the company, any director or
officer thereof, is or has been the subject of any Action involving a claim of
violation of or liability under federal or state securities laws or a claim of
breach of fiduciary duty. There has not been, and to the knowledge of the
Company, there is not pending or contemplated any investigation by the
Commission involving the Company or any current or former director or officer of
the Company. The Commission has not issued any stop order or other order
suspending the effectiveness of any registration statement filed by the Company
or any subsidiary under the 1934 Act or the 1933 Act.
(i) Reporting Company. The Company is a publicly-held company
subject to reporting obligations pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended (the "1934 Act") and has a class of common
shares registered pursuant to Section 12(g) of the 1934 Act. Pursuant to the
provisions of the 1934 Act, the Company has timely filed all reports and other
materials required to be filed thereunder with the Commission during the
preceding twelve months. The Company has not taken action designed to, or which
to its knowledge is likely to have the effect of, terminating the
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registration of the Common Stock under the 1934 Act nor has the Company received
any notification that the Commission is contemplating terminating such
registration.
(j) No Market Manipulation. The Company has not taken, and
will not take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or manipulation of
the price of the common stock of the Company to facilitate the sale or resale of
the Securities or affect the price at which the Securities may be issued or
resold.
(k) Information Concerning Company. The Reports contain all
material information relating to the Company and its operations and financial
condition as of their respective dates which information is required to be
disclosed therein. Since the date of the financial statements included in the
Reports, there has been no material adverse change in the Company's business,
financial condition or affairs not disclosed in the Reports. The Reports do not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances when made.
(l) Stop Transfer. The Securities, when issued, will be
restricted securities. The Company will not issue any stop transfer order or
other order impeding the sale, resale or delivery of any of the Securities,
except as may be required by any applicable federal or state securities laws and
unless contemporaneous notice of such instruction is given to the Subscriber.
(m) Defaults. Neither the Company nor its subsidiary is in
violation of any of the provisions of its respective certificate or articles of
incorporation or bylaws or other organizational or charter documents. The
Company is (i) not in default under or in violation of any other agreement or
instrument to which it is a party or by which it or any of its properties are
bound or affected, which default or violation would have a material adverse
effect on the Company, (ii) not in default with respect to any order of any
court, arbitrator or governmental body or subject to or party to any order of
any court or governmental authority arising out of any action, suit or
proceeding under any statute or other law respecting antitrust, monopoly,
restraint of trade, unfair competition or similar matters, or (iii) not in
violation of any statute, rule or regulation of any governmental authority which
violation would have a material adverse effect on the Company.
(n) No Integrated Offering. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offer of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
the Bulletin Board. Nor will the Company or any of its affiliates or
subsidiaries take any action or steps that would cause the offer of the
Securities to be integrated with other offerings. The Company will not conduct
any offering other than the transactions contemplated hereby that will be
integrated with the offer or issuance of the Securities.
(o) No General Solicitation. Neither the Company, nor any of
its affiliates, nor to its knowledge, any person acting on its or their behalf,
has engaged in any form of general solicitation or general advertising (within
the meaning of Regulation D under the 0000 Xxx) in connection with the offer or
sale of the Securities. The Company offered the Shares for sale only to the
Subscribers and certain other "accredited investors" within the meaning of Rule
501 under the 1933 Act.
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(p) Listing. The Company's common stock is quoted on the
Bulletin Board. The Company has not received any oral or written notice that its
common stock is not eligible nor will become ineligible for quotation on the
Bulletin Board nor that its common stock does not meet all requirements for the
continuation of such quotation and the Company satisfies and as of the Closing
Date, the Company will satisfy all the requirements for the continued quotation
of its common stock on the Bulletin Board.
(q) No Undisclosed Liabilities. The Company has no liabilities
or obligations which are material, individually or in the aggregate, which are
not disclosed in the Reports , other than those incurred in the ordinary course
of the Company's businesses since December 31, 2003 and which, individually or
in the aggregate, would reasonably be expected to have a material adverse effect
on the Company's financial condition, other than as set forth in Schedule 4(q).
(r) No Undisclosed Events or Circumstances. Since December 31,
2003, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the Reports. The Company further confirms
that neither the Company nor any other person acting on its behalf has provided
any of the Subscribers or their agents or counsel with any information that
constitutes or might constitute material, non-public information.
(s) Capitalization. The authorized and outstanding capital
stock of the Company as of the date of this Agreement and the Closing Date are
set forth on Schedule 4(s). Except as set forth in the Reports and Schedule
4(d), there are no options, warrants, or rights to subscribe to, securities,
rights or obligations convertible into or exchangeable for or giving any right
to subscribe for any shares of capital stock of the Company or any right to
participate in the transactions contemplated by the Transaction Documents. The
issue and sale of the Securities will not obligate the Company to issue shares
of Common Stock or other securities to any person (other than the Subscribers)
and will not result in a right of any holder of securities of the Company to
adjust the exercise, conversion, exchange or reset price under such securities.
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, have been
issued in compliance with all federal and state securities laws and none of such
outstanding shares was issued in violation of any preemptive rights or similar
rights to subscribe for or purchase securities.
(t) Dilution. The Company's executive officers and directors
understand the nature of the Securities being sold hereby and recognize that the
issuance of the Securities will have a potential dilutive effect on the equity
holdings of other holders of the Company's equity or rights to receive equity of
the Company. The board of directors of the Company has concluded, in its good
faith business judgment, that the issuance of the Securities is in the best
interests of the Company. The Company specifically acknowledges that its
obligation to issue the Securities is binding upon the Company and enforceable
regardless of the dilution such issuance may have on the ownership interests of
other shareholders of the Company or parties entitled to receive equity of the
Company.
(u) No Disagreements with Accountants and Lawyers. There are
no disagreements of any kind presently existing, or reasonably anticipated by
the Company to arise, between the Company and the accountants and lawyers
formerly or presently employed by the Company, including but not limited to
disputes or conflicts over payment owed to such accountants and lawyers.
(v) Investment Company. The Company is not, and is not an
Affiliate (as defined in Rule 405 under the 0000 Xxx) of, and immediately after
receipt of payment for the shares, will
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not be an Affiliate of, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended. The Company shall conduct its
business in a manner so that it will not become subject to the Investment
Company Act of 1940, as amended.
(w) Labor Relations. No material labor dispute exists or, to
the knowledge of the company, is imminent with respect to any of the employees
of the Company which, individually or in the aggregate, could reasonable be
expected to result in a Material Adverse Effect.
(x) Regulatory Permits. The Company and its subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
federal, state, local or foreign regulatory authorities necessary to conduct
their respective businesses as described in the Reports, except where the
failure to possess such permits would not, individually or in the aggregate,
have or reasonably be expected to result in a Material Adverse Effect, and
neither the company nor any subsidiary has received any notice of proceedings
relating to the revocation or modification of any such certificates,
authorizations and permits.
(y) Title to Assets. Except as set forth in the Reports, the
Company and its subsidiaries have good and marketable title in fee simple to all
real property owned by them that is material to the business of the Company and
its subsidiaries, taken as a whole, and good and marketable title in all
personal property owned by them that is material to the business of the Company
and its subsidiaries, taken as a whole, in each case free and clear of all
security interests, charges, liens, claims or other encumbrances, except for
such as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such property
by the Company and its subsidiaries and liens for the payment of federal, state
or other taxes, the payment of which is neither delinquent nor subject to
penalties. Except as set forth in the Reports, any real property and facilities
held under lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable eases with which the Company and its
subsidiaries are in material compliance.
(z) Patents and Trademarks. To the knowledge of the Company
and its subsidiaries, the Company and the subsidiaries have, or have rights to
use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses and other similar rights that
are necessary or material for use in connection with their respective businesses
as described in the Reports and which the failure to so have, individually or in
the aggregate, could have or reasonably be expected to result in a Material
Adverse Effect (collectively, the "Intellectual Property Rights"). Neither the
Company nor any subsidiary has received a written notice that the Intellectual
Property Rights used by the Company or any subsidiary violates or infringes the
rights of any person. To the knowledge of the Company, all such Intellectual
Property Rights are enforceable and do not violate or infringe the Intellectual
Property Rights of others.
(aa) Transactions with Affiliates and Employees. Except as set
forth in the Reports, none of the officers or directors of the Company and, to
the knowledge of the Company, none of the employees of the Company is presently
a party to any transaction with the Company or its subsidiaries (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner, in each case in excess of $60,000 other than (a) for payment of salary
or consulting fees for services rendered, (b) reimbursement for expenses
incurred on behalf of the Company and (c) for other employee benefits, including
stock option agreements under any stock option plan of the Company.
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(ab) Internal Accounting Controls. The Company and its
subsidiaries maintains a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences. The Company has established disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Company
and designed such disclosure controls and procedures to ensure that material
information relating to the Company, including its subsidiaries, is made known
to the certifying officers by others within those entities, particularly during
the period in which the Company's Form 10-KSB or 10-QSB, as the case may be, is
being prepared. The Company's certifying officers evaluated the effectiveness of
the Company's controls and procedures as of the end of December 31, 2003. The
Company presented in its Form 10-KSB for the year ended December 31, 2003 the
conclusions of the certifying officers about the effectiveness of the disclosure
controls and procedures based on their evaluation. Since December 31, 2003,
there have been no significant changes in the Company's internal controls (as
such term is defined in Item 307 of Regulation S-B under the Exchange Act) or,
to the Company's knowledge, in other factors that could significantly affect the
Company's internal controls.
(ac) Application of Takeover Protections. The Company and its
Board of Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company's certificate of incorporation (or
similar charter documents) or the laws of its state of incorporation that is or
could become applicable to the Subscribers as a result of the Subscribers and
the Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation the Company's issuance of
the Securities and the Subscribers' ownership of the Securities.
(ad) Solvency. Based on the financial condition of the Company
as of the Closing Date, after giving effect to the transactions contemplated
hereby, (i) the Company's fair saleable value of its assets exceeds the amount
that will be required to be paid on or in respect of the Company's existing
debts and other liabilities (including known contingent liabilities) as they
mature; (ii) the Company's assets do not constitute unreasonably small capital
to carry on its business for the current fiscal year as now conducted and as
proposed to be conducted including its capital needs taking into account the
particular capital requirements of the business conducted by the Company, and
projected capital requirements and capital availability thereof, and including
the anticipated proceeds of the sale of the Securities; and (iii) the current
cash flow of the Company, together with the proceeds the Company would receive,
were it to liquidate all of its assets, after taking into account all
anticipated uses of the cash, would be sufficient to pay all amounts on or in
respect of its debt when such amounts are required to be paid. The Company does
not intend to incur debts beyond its ability to pay such debts as they mature
(taking into account the timing and amounts of cash to be payable on or in
respect of its debt).
(ae) Registration Rights. Except pursuant to the Transaction
Documents and as set forth on Schedule 4(ae), no person has any right to cause
the Company to effect the registration under the 1933 Act of any securities of
the Company.
(af) Form SB-2 Eligibility. The Company is eligible to
register the resale of its Common Stock by the Subscribers under Form SB-2
promulgated under the 1933 Act.
9
(ag) Taxes. Except for matters that would not individually or
in the aggregate, have or reasonably be expected to result in a Material Adverse
Effect, the Company and its subsidiaries have filed all necessary federal, state
and foreign income and franchise tax returns and have paid or accrued all taxes
shown as due thereon, and the Company has no knowledge of a tax deficiency which
has been asserted or threatened against the Company or any subsidiary.
(ah) Foreign Corrupt Practices. Neither the Company, nor to
the knowledge of the Company, any agent or other person acting on behalf of the
Company, has (i) directly or indirectly, used any corrupt funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
foreign or domestic political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to any foreign or
domestic political parties or campaigns from corporate funds, (iii) failed to
disclosure fully any contribution made by the Company (or made by any person
acting on its behalf of which the Company is aware) which is in violation of
law, or (iv) violated in any material respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended.
(ai) Accountants. To the best of the Company's knowledge, X.X.
Xxxx, LLP are independent accountants.
(aj) Acknowledgment Regarding Subscribers' Purchase of
Securities. The Company acknowledges and agrees that each of the Subscribers is
acting solely in the capacity of an arm's length purchaser with respect to the
Transaction Documents and the transactions contemplated hereby. The Company
further acknowledges that no Subscriber is acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to this
Agreement and the transactions contemplated hereby and any advice given by any
Subscriber or any of their respective representatives or agents in connection
with this Agreement and the transactions contemplated hereby is merely
incidental to the Subscribers' purchase of the Securities. The Company further
represents to each Subscriber that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its representatives.
(ak) Correctness of Representations. The Company understands
and confirms that the Subscribers will rely on the foregoing representations and
covenants in effecting transactions in securities of the Company. The Company
represents that the foregoing representations and warranties, including the
Disclosure Schedules and all other disclosure provided to the Subscribers
regarding the Company are (i) true and correct as of the date hereof in all
material respects, and, unless the Company otherwise notifies the Subscribers
prior to the Closing Date, shall be true and correct in all material respects as
of the Closing Date and (ii) do not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
(al) Survival. The foregoing representations and warranties
shall survive the Closing Date and delivery of the Shares.
5. Regulation D Offering. The offer and issuance of the Securities
to the Subscribers is being made pursuant to the exemption from the registration
provisions of the 1933 Act afforded by Section 4(2) of the 1933 Act and Rule 506
of Regulation D promulgated thereunder. On the Closing Date, the Company will
provide an opinion reasonably acceptable to Subscriber from the Company's legal
counsel opining on the availability of an exemption from registration under the
1933 Act as it relates to the offer and issuance of the Securities and other
matters reasonably requested by Subscribers. A form of the legal opinion is
annexed hereto as Exhibit C. The Company will provide, at
10
the Company's expense, such other legal opinions in the future as are reasonably
necessary for the resale of the Common Stock and exercise of the Warrants and
resale of the Warrant Shares.
6. Legal Fees. The Company shall pay to counsel for 033 Asset
Management, LLC fees up to but not in excess of $30,000 in the aggregate as
reimbursement for services rendered to 033 Asset Management, LLC in connection
with this Agreement and the purchase and sale of the Shares and Warrants (the
"Offering").
7. Placement Agent. The Company on the one hand, and each Subscriber
(for itself only) on the other hand, agrees to indemnify the other against and
hold the other harmless from any and all liabilities to any persons claiming
brokerage commissions or finder's fees (each a "Placement Agent") other than as
set forth below on account of services purported to have been rendered on behalf
of and to the indemnifying party in connection with this Agreement or the
transactions contemplated hereby and arising out of such party's actions.
Anything to the contrary in this Agreement notwithstanding, each Subscriber is
providing indemnification only for such Subscriber's own actions and not for any
action of any other Subscriber. Each Subscriber's liability hereunder is several
and not joint. The Company represents that there are no parties entitled to
receive fees, commissions, or similar payments in connection with the Offering
except Xxxxxxxx Curhan Ford & Co., P.C. in the amount designated on Schedule 7
("Placement Agent's Fee").
8. Covenants of the Company. The Company covenants and agrees with
the Subscribers as follows:
(a) Stop Orders. The Company will advise the Subscribers,
promptly after it receives notice of issuance by the Commission, any state
securities commission or any other regulatory authority of any stop order or of
any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the Common Stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
(b) Listing. The Company shall promptly secure the listing of
the shares of Common Stock and the Warrant Shares upon each national securities
exchange, or automated quotation system upon which they are or become eligible
for listing (subject to official notice of issuance) and shall maintain such
listing so long as any Shares or Warrants are outstanding. The Company will
maintain the listing of its Common Stock on the American Stock Exchange, Nasdaq
SmallCap Market, Nasdaq National Market System, Bulletin Board, or New York
Stock Exchange (whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock (the "Principal Market")), and will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market, as applicable. As
soon as commercially reasonable after becoming eligible to list its Common Stock
on a national securities exchange or the automated quotation system of a
national securities association (including, without limitation the New York
Stock Exchange and Nasdaq National Market), the Company will promptly obtain
such listing and maintain such listing so long as any Shares or Warrants are
outstanding. The Company will provide the Subscribers copies of all notices it
receives notifying the Company of the threatened and actual delisting of the
Common Stock from any Principal Market. As of the date of this Agreement and the
Closing Date, the Bulletin Board is and will be the Principal Market. The
Company further agrees, if the Company applies to have the Common Stock traded
on any other trading exchange or market other than the Principal Market, it will
include in such application the Shares and Warrant Shares and will take such
other action as is necessary or desirable in the opinion of the Subscribers to
cause the Shares and Warrant Shares to be listed on such other trading exchange
or market as promptly as possible.
11
(c) Market Regulations. The Company shall notify the
Commission, the Principal Market and applicable state authorities, in accordance
with their requirements, of the transactions contemplated by this Agreement, and
shall take all other necessary action and proceedings as may be required and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Securities to the Subscribers and promptly provide copies
thereof to Subscriber.
(d) Reporting Requirements. From the date of this Agreement
and until all the Shares and Warrant Shares have been resold or transferred by
all the Subscribers pursuant to the registration statement described in Section
2 of the Registration Rights Agreement (the "Registration Statement") or
pursuant to Rule 144 (the "Expiration Date"), without regard to volume
limitation, the Company will (v) cause its Common Stock to continue to be
registered under Section 12(b) or 12(g) of the 1934 Act, (x) comply in all
respects with its reporting and filing obligations under the 1934 Act, (y)
comply with all reporting requirements that are applicable to an issuer with a
class of shares registered pursuant to Section 12(b) or 12(g) of the 1934 Act,
as applicable, and (z) comply with all requirements related to any registration
statement filed pursuant to the Registration Rights Agreement, including
maintaining the effectiveness of the Registration Statement. Upon the request of
any holder of Securities, the Company shall deliver to such holder a written
certification of a duly authorized officer as to whether it has complied with
the preceding sentence. The Company will use its best efforts not to take any
action or file any document (whether or not permitted by the 1933 Act or the
1934 Act or the rules thereunder) to terminate or suspend such registration or
to terminate or suspend its reporting and filing obligations under said acts
until the Expiration Date. Until the resale of the Common Stock and the Warrant
Shares by each Subscriber, the Company will use its best efforts to continue the
listing or quotation of the Common Stock on the Principal Market or other market
with the reasonable consent of Subscribers holding a majority of the Shares and
Warrant Shares, and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Principal Market.
The Company agrees to file a Form D with respect to the Securities as required
under Regulation D and to provide a copy thereof to each Subscriber promptly
after such filing.
(e) Use of Proceeds. The Company undertakes to use the
proceeds of the Subscribers' funds for working capital including use in
strategic acquisitions and shall not use such proceeds for the satisfaction of
any portion of the Company's debt (other than payment of trade payables in the
ordinary course of the Company's business and prior practices), to redeem any
Company equity or equity-equivalent securities or to settle any outstanding
litigation.
(f) Reservation. As of the date hereof, the Company has
reserved and undertakes to reserve, pro rata on behalf of each Subscriber and
holder of a Warrant, from its authorized but unissued common stock, a number of
common shares equal to the amount of Shares and Warrant Shares issuable upon
exercise of the Warrants, free of preemptive rights; provided however, that such
number of shares of Common Stock so reserved shall be adjusted, as appropriate,
in the event that the Company shall combine the outstanding shares of Common
Stock into a lesser number of shares, subdivide the shares of Common Stock into
a greater number of shares or issue additional shares of Common Stock as a
dividend or other distribution.
(g) Taxes. From the date of this Agreement and until all the
Shares and Warrant Shares have been resold or transferred by all the Subscribers
pursuant to the Registration Statement or pursuant to Rule 144, without regard
to volume limitations, the Company will promptly pay and discharge, or cause to
be paid and discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall have
set
12
aside on its books adequate reserves with respect thereto, and provided,
further, that the Company will pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefore.
(h) Insurance. From the date of this Agreement until all the
Shares and Warrant Shares have been resold or transferred by all the Subscribers
pursuant to the Registration Statement or pursuant to Rule 144, without regard
to volume limitations, the Company will keep its assets which are of an
insurable character insured by financially sound and reputable insurers against
loss or damage by fire, explosion and other risks customarily insured against by
companies in the Company's line of business, in amounts sufficient to prevent
the Company from becoming a co-insurer, that are prudent and customary in the
businesses in which the Company and its subsidiaries are engaged and not in any
event less than 100% of the insurable value of the property insured; and the
Company will maintain, with financially sound and reputable insurers, insurance
against other hazards and risks and liability to persons and property to the
extent and in the manner customary for companies in similar businesses similarly
situated and to the extent available on commercially reasonable terms.
(i) Books and Records. From the date of this Agreement until
all the Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company will keep true records and
books of account in which full, true and correct entries will be made of all
dealings or transactions in relation to its business and affairs in accordance
with generally accepted accounting principles applied on a consistent basis.
(j) Governmental Authorities. From the date of this Agreement
until all the Shares and Warrant Shares have been resold or transferred by all
the Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company shall duly observe and conform
in all material respects to all valid requirements of governmental authorities
relating to the conduct of its business or to its properties or assets.
(k) Intellectual Property. From the date of this Agreement
until all the Shares and Warrant Shares have been resold or transferred by all
the Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company shall maintain in full force
and effect its corporate existence, rights and franchises and all licenses and
other rights to use intellectual property owned or possessed by it and
reasonably deemed to be necessary to the conduct of its business.
(l) Properties. From the date of this Agreement until all the
Shares and Warrant Shares have been resold or transferred by all the Subscribers
pursuant to the Registration Statement or pursuant to Rule 144, without regard
to volume limitation, the Company will keep its properties in good repair,
working order and condition, reasonable wear and tear excepted, and from time to
time make all necessary and proper repairs, renewals, replacements, additions
and improvements thereto; and the Company will at all times comply with each
provision of all leases to which it is a party or under which it occupies
property if the breach of such provision could reasonably be expected to have a
material adverse effect.
(m) Blackout. The Company undertakes and covenants that until
the first to occur of (i) the Registration Statement having been effective for
ninety (90) business days, or (ii) until all the Shares and Warrant Shares have
been resold pursuant to said registration statement, the Company will not enter
into any acquisition, merger, exchange or sale or other transaction, that could
have the effect of
13
delaying the effectiveness of the pending Registration Statement or causing an
already effective registration statement to no longer be effective or current.
(n) Integration. The Company shall not 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) 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 to the Subscribers or
that would be integrated with the offer or sale of the Securities for purposes
of the rules and regulations of the Principal Market.
(o) Securities Laws Disclosure; Publicity. The Company shall,
by 8:30 a.m. Eastern time on the business day following the Closing Date, issue
a press release or file a Current Report on Form 8-K, in each case reasonably
acceptable to each Subscriber disclosing the transactions contemplated hereby
and make such other filings and notices in the manner and time required by the
Commission. The Company and 033 Asset Management, LLC shall consult with each
other in issuing any press releases with respect to the transactions
contemplated hereby, and neither the Company nor any Subscriber shall issue any
such press release or otherwise make any such public statement without the prior
consent of the Company, with respect to any press release of any Subscriber, or
without the prior consent of each Subscriber, with respect to any press release
of the Company, which consent shall not unreasonably be withheld, except if such
disclosure is required by law, in which case the disclosing party shall promptly
provide the other party with prior notice of such public statement or
communication. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Subscriber, or include the name of any Subscriber in
any filing with the Commission or any regulatory agency or trading exchange or
market, without the prior written consent of such Subscriber, except (i) as
required by federal securities law in connection with the registration statement
contemplated by the Registration Rights Agreement and (ii) to the extent such
disclosure is required by law or the Principal Market's regulations, in which
case the Company shall provide the Subscribers with prior notice of such
disclosure permitted under subclause (i) or (ii).
(p) Shareholders Rights Plan. No claim will be made or
enforced by the Company or any other Person that any Subscriber is an "Acquiring
Person" under any shareholders rights plan or similar plan or arrangement in
effect or hereafter adopted by the Company, or that any Subscriber could be
deemed to trigger the provisions of any such plan or arrangement, by virtue of
receiving Securities under the Transaction Documents or under any other
agreement between the Company and the Subscribers.
(q) Non-Public Information. The Company covenants and agrees
that neither it nor any other person acting on its behalf will provide any
Subscriber or its agents or counsel with any information that the Company
believes constitutes material non-public information, unless prior thereto such
Subscriber shall have executed a written agreement regarding the confidentiality
and use of such information. The Company understands and confirms that each
Subscriber shall be relying on the foregoing covenant in effecting transactions
in securities of the Company in accordance with the terms of this Agreement.
(r) Subsequent Equity Sales. From the date hereof until 90
days after the effective date of the Registration Statement, neither the Company
nor any subsidiary shall issue additional shares of Common Stock or any other
securities of the Company or its subsidiaries which would entitle the holder
thereof to acquire at any time shares of Common Stock. Notwithstanding anything
to the contrary herein, this Section 8(r) shall not apply to the following (a)
the granting of options to employees, officers and directors of the Company
pursuant to any stock option plan duly adopted by a majority of the non-employee
members of the Board of Directors of the Company or a majority of the members of
a committee
14
of non-employee directors established for such purpose, or (b) the exercise of
any security issued by the Company in connection with the offer and sale of the
Company's securities pursuant to this Agreement, or (c) the exercise of or
conversion of any convertible securities, options or warrants issued and
outstanding on the date hereof or issued pursuant to clause (a) above, provided
such securities have not been amended since the date hereof, or (d)
acquisitions.
(s) Reimbursement. If any Subscriber becomes involved in any
capacity in any action, claim, suit, investigation or proceeding by or against
any person who is a stockholder of the Company (except as a result of sales,
pledges, margin sales and similar transactions by such Subscriber to or with any
current stockholder), in connection with such Subscriber's acquisition of the
Securities under this Agreement, as a result of any act, action or non-action by
the Company, and not as a result of any bad act on the part of the Subscriber,
the Company will reimburse such Subscriber for its reasonable legal and other
expenses (including the cost of any investigation preparation and travel in
connection therewith) incurred in connection therewith, as such expenses are
incurred. The reimbursement obligations of the Company under this paragraph
shall be in addition to any liability which the Company may otherwise have,
shall extend upon the same terms and conditions to any Affiliates of the
Subscribers who are actually named in such action, proceeding or investigation,
and partners, directors, agents, employees and controlling persons (if any), as
the case may be, of the Subscribers and any such Affiliate, and shall be binding
upon and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Subscribers and any such Affiliate and any
such person. The Company also agrees that neither the Subscribers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any person asserting claims on behalf of or
in right of the Company solely as a result of acquiring the Securities under
this Agreement.
9. Covenants of the Company and Subscriber Regarding
Indemnification.
(a) The Company agrees to indemnify, hold harmless, reimburse
and defend the Subscribers, the Subscribers' officers, directors, agents,
affiliates, control persons, and shareholders (each a "Subscriber Party"),
against any claim, contingency, cost, expense, liability, obligation, loss or
damage (including all judgments, amounts paid in settlements, court costs and
reasonable legal fees and costs of investigation) of any nature, incurred by or
imposed upon a Subscriber Party which results, arises out of or is based upon
(i) any misrepresentation by Company or breach or inaccuracy, or any allegation
by a third party that, if true, would constitute a breach or inaccuracy, of any
representation or warranty by Company in this Agreement, the Schedules attached
hereto or any other Transaction Document; (ii) any breach or default in
performance by the Company of any covenant, agreement or undertaking to be
performed by the Company hereunder or pursuant to any other Transaction
Document; or (iii) any cause of action, suit or claim brought or made against
such Subscriber Party and arising solely out of or solely resulting from the
execution, delivery, performance or enforcement of this Agreement or any other
Transaction Document, which does not directly result from the negligence,
misconduct or other bad act of the Subscribers. The Company will reimburse such
Subscriber for its reasonable legal and other expenses (including the cost of
any investigation, preparation and travel in connection therewith) incurred in
connection therewith, as such expenses are incurred.
(b) Each Subscriber agrees to indemnify, hold harmless,
reimburse and defend the Company and each of the Company's officers, directors,
agents, affiliates, control persons against any claim, cost, expense, liability,
obligation, loss or damage (including all judgments, amounts paid in
settlements, court costs, reasonable legal fees and costs of investigation) of
any nature, incurred by or imposed upon the Company or any such person which
results, arises out of or is based upon (i) any material misrepresentation by
such Subscriber in this Agreement or Schedules attached hereto; or (ii) after
15
any applicable notice and/or cure periods, any breach or default in performance
by such Subscriber of any covenant or undertaking to be performed by such
Subscriber hereunder.
(c) Promptly after receipt by a party entitled to claim
indemnification hereunder (an "Indemnified Party") of notice of the commencement
of any action, such Indemnified Party shall, if a claim for indemnification in
respect thereof is to be made against a party hereto obligated to indemnify such
Indemnified Party (an "Indemnifying Party"), notify the Indemnifying Party in
writing thereof, but the omission so to notify the Indemnifying Party shall not
relieve it from any liability which it may have to such Indemnified Party other
than under this Section 9(c) and shall only relieve it from any liability which
it may have to such Indemnified Party under this Section 9(c) if and to the
extent the Indemnifying Party is prejudiced by such omission. In case any such
action shall be brought against any Indemnified Party and it shall notify the
Indemnifying Party of the commencement thereof, the Indemnifying Party shall be
entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel reasonably satisfactory to such
Indemnified Party, and, after notice from the Indemnifying Party to such
Indemnified Party of its election so to assume and undertake the defense
thereof, the Indemnifying Party shall not be liable to such Indemnified Party
under this Section 9(c) for any legal expenses subsequently incurred by such
Indemnified Party in connection with the defense thereof; if the Indemnified
Party retains its own counsel, then the Indemnified Party shall pay all fees,
costs and expenses of such counsel, provided, however, that, if the parties in
any such action (including any impleaded parties) include both the indemnified
party and the Indemnifying Party and the Indemnified Party shall have reasonably
concluded that there may be reasonable defenses available to it which are
different from or additional to those available to the Indemnifying Party or if
the interests of the Indemnified Party reasonably may be deemed to conflict with
the interests of the Indemnifying Party, the Indemnified Party shall have the
right to select one separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the reasonable
expenses and fees of such separate counsel and other expenses related to such
participation to be reimbursed by the Indemnifying Party as incurred. The
Indemnifying Party shall not be liable for any settlement of any such action
effected without its written consent, which consent shall not be unreasonably
withheld. No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any pending action in respect of
which any Indemnified Party is a party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability on claims
that are the subject matter of such action.
(d) The Company covenants to enter into the Registration
Rights Agreement in the form attached hereto as Exhibit B, with Subscribers on
or before the Closing Date.
10. Transfer Restrictions.
(a) Transfers. The Securities may only be disposed of in
compliance with state and federal securities laws. In connection with any
transfer of Securities other than pursuant to an effective registration
statement, to the Company, to an Affiliate of a Subscriber or in connection with
a pledge as contemplated in this Section 10, the Company may require the
transferor thereof to provide to the Company an opinion of counsel selected by
the transferor, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not require
registration of such transferred Securities under the 1933 Act. As a condition
of transfer, any such transferee shall agree in writing to be bound by the terms
of this Agreement and shall have the rights of a Subscriber under this Agreement
and the Registration Rights Agreement.
16
(b) Shares Legend. The Subscribers agree to the imprinting, so
long as is required by this Section 10(b), of a legend on the Shares and the
Warrant Shares, in substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR ANY
APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED,
EXCEPT THAT THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT OF THE HOLDER WITH A REGISTERED
BROKER-DEALER OR OTHER LOAN OF THE HOLDER WITH A FINANCIAL
INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE
501(a) UNDER THE SECURITIES ACT."
(c) Warrants Legend. The Subscribers agree to the imprinting,
so long as is required by this Section 10, of a legend on the Warrants, in
substantially the following form:
"THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THIS WARRANT AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR ANY
APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED,
EXCEPT THAT THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT OF THE HOLDER WITH A REGISTERED
BROKER-DEALER OR OTHER LOAN OF THE HOLDER WITH A FINANCIAL
INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE
501(a) UNDER THE SECURITIES ACT"
(d) Margin Agreement. The Company acknowledges and agrees that
a Subscriber may from time to time pledge pursuant to a bona fide margin
agreement with a registered broker-dealer or grant a security interest in some
or all of the Securities to a financial institution that is an "accredited
investor" as defined in Rule 501(a) under the 1933 Act and, if required under
the terms of such arrangement, such Subscriber may transfer pledged or secured
Securities to the pledgees or secured parties. Such a pledge or transfer would
not be subject to approval of the Company and no legal opinion of legal counsel
of the pledgee, secured party or pledgor shall be required in connection
therewith. Further, no notice shall be required of such pledge. At the
appropriate Subscriber's expense, the Company will execute and deliver such
reasonable documentation as a pledgee or secured party of Securities may
reasonably request in connection with a pledge
17
or transfer of the Securities, including the preparation and filing of any
required prospectus supplement under Rule 424(b)(3) under the 1933 Act or other
applicable provision of the 1933 Act to appropriately amend the list of Selling
Stockholders thereunder.
(e) Certificates. Certificates evidencing the Shares and
Warrant Shares shall not contain any legend (including the legend set forth in
Sections 10(b) and (c)), (i) while a registration statement (including the
Registration Statement) covering the resale of such security is effective under
the 1933 Act, or (ii) following any sale of such Shares or Warrant Shares
pursuant to Rule 144, or (iii) if such Shares or Warrant Shares are eligible for
sale under Rule 144(k), or (iv) if such legend is not required under applicable
requirements of the 1933 Act (including judicial interpretations and
pronouncements issued by the Staff of the Commission). The Company shall cause
its counsel to issue a legal opinion to the Company's transfer agent promptly
after the effective date of the Registration Statement if required by the
Company's transfer agent to effect the removal of the legend hereunder as and
when any Subscriber so requests. If all or any portion of a Warrant is exercised
at a time when there is an effective registration statement to cover the resale
of the Warrant Shares, such Warrant Shares shall be issued free of all legends.
The Company agrees that following the effective date of the Registration
statement or at such time as such legend is no longer required under this
Section 10, it will, no later than five business days following the delivery by
a Subscriber to the Company or the Company's transfer agent of a certificate
representing Shares or Warrant Shares, as the case may be, issued with a
restrictive legend, deliver or cause to be delivered to such Subscriber a
certificate representing such Securities that is free from all restrictive and
other legends. The Company may not make any notation on its records or give
instructions to any transfer agent of the Company that enlarge the restrictions
on transfer set forth in this Section. In addition to such Subscriber's other
available remedies, the Company shall pay to a Subscriber, in cash, as
liquidated damages and not as a penalty, for each $1,000 of Shares or Warrant
Shares (based on the last reported closing bid price per share of Common Stock
on the date such Securities are submitted to the Company's transfer agent, or if
there is no such price on such date, then the closing bid price on the date
nearest preceding such date) subject to this Section 10, $10 per business day
(increasing to $20 per business day five (5) business days after such damages
have begun to accrue) for each business day after such fifth business day until
such certificate is delivered. Nothing herein shall limit such Subscriber's
right to pursue actual damages for the Company's failure to deliver certificates
representing any Securities, and such Subscriber shall have the right to pursue
all remedies available to it at law or in equity including, without limitation,
a decree of specific performance and/or injunctive relief.
(f) Acknowledgement. Each Subscriber severally and not jointly
agrees that the removal of the restrictive legend from certificates representing
Securities as set forth in this Section 10 is predicated upon the Company's
reliance that the Subscriber will sell any Securities pursuant to either the
registration requirements of the 1933 Act, including any applicable prospectus
delivery requirements, or an exemption therefrom.
11. Conditions Precedent to Obligations of the Company. The
obligations of the Company are subject to the fulfillment prior to or on the
Closing Date of the following conditions any of which may be waived by the
Company in writing:
(a) the Registration Rights Agreement shall be duly executed
by the Subscribers and delivered to the Company;
(b) all representations and warranties of the Subscribers
contained in this Agreement shall be true and correct in all respects as of the
Closing Date with the same effect as though such representations and warranties
had been made on or as of such date; and
18
(c) all agreements and covenants of the Subscribers to be
performed or complied with on or prior to the Closing Date have in all material
respects been so performed or complied with.
12. Conditions Precedent to Obligations of the Subscribers. The
obligations of the Subscribers are subject to the fulfillment prior to or on the
Closing Date of the following conditions any of which may be waived by the
Subscribers in writing:
(a) this Agreement shall be duly executed by the Company and
delivered to the Subscribers;
(b) the Company shall have instructed its transfer agent to
issue stock certificates for the number of Shares equal to the number of such
Shares set forth opposite each Subscriber's name on the signature page hereto,
and such certificates shall be delivered to each Subscriber within three
business days of the Closing Date and registered in the name of such Subscriber;
(c) a Warrant, registered in the name of each Subscriber,
pursuant to which each Subscriber shall have the right to acquire up to the
number of shares of Common Stock equal to the number of such shares of Common
Stock set forth opposite each such Subscriber's name on the signature page
hereto under the heading "Warrants;"
(d) the Registration Rights Agreement shall be duly executed
by the Company and delivered to the Subscribers;
(e) a legal opinion of legal counsel to the Company
substantially in the form of Exhibit C attached hereto shall be delivered to the
Subscribers;
(f) all representations and warranties of the Company
contained in this Agreement shall be true and correct in all respects as of the
Closing Date with the same effect as though such representations and warranties
had been made on or as of such date;
(g) all obligations, agreements and covenants of the Company
to be performed or complied with on or prior to the Closing Date shall have, in
all respects been so performed or complied with;
(h) as of the Closing Date, there shall have been no Material
Adverse Effect with respect to the Company since the date hereof; and
(i) From the date hereof to the Closing Date, trading in the
Common Stock shall not have been suspended by the Commission.
13. Miscellaneous.
(a) Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be
19
received), or the first business day following such delivery (if delivered other
than on a business day during normal business hours where such notice is to be
received) or (b) on the second business day following the date of mailing by
express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be: (i) if to the Company, to: Secured Services, Inc.,
000 Xxxxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, Attention: King Xxxxx,
telecopier: (000) 000-0000, with a copy to: Morse, Zelnick, Rose & Lander, LLP,
000 Xxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000, Attention: Xxxxxxx
Xxxxxxx, telecopier: (000) 000-0000, (ii) if to the Subscribers, to: the one or
more addresses and telecopier numbers indicated on the signature pages hereto,
with an additional copy by telecopier only to: Xxxxxxx X. Xxxxx, telecopier:
(000) 000-0000, and (iii) if to the Placement Agent, to: Xxxxxxxx Curhan Ford &
Co., 000 Xxxxxxxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxxxxxxx, XX 00000, telecopier:
(000) 000-0000.
(b) Closing. The consummation of the transactions contemplated
herein shall take place at the offices of Xxxxx, Xxxxxxx & Xxxxxxxxx, LLP, on or
before May 17, 2004 upon the satisfaction of all conditions to Closing set forth
in this Agreement. The Closing Date is sometimes referred to herein as "Closing
Date."
(c) Entire Agreement; Assignment. This Agreement and the other
Transaction Documents represent the entire agreement between the parties hereto
with respect to the subject matter hereof and may be amended only by a writing
executed by the Company and each Subscriber. Neither the Company nor the
Subscribers have relied on any representations not contained or referred to in
this Agreement and the documents delivered herewith. No right or obligation of
the Company shall be assigned without prior notice to and the written consent of
the Subscribers. Any Subscriber may assign any or all of its rights hereunder to
any person in connection with a transfer of any Security to such person,
provided such transferee agrees in writing to be bound, with respect to the
transferred Securities, by the provisions hereof that apply to the Subscribers.
(d) Counterparts/Execution. This Agreement may be executed in
any number of counterparts and by the different signatories hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument. This
Agreement may be executed by facsimile signature and delivered by facsimile
transmission.
(e) Law Governing this Agreement. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
without regard to principles of conflicts of laws. Any action brought by either
party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. The parties and the individuals
executing this Agreement and other agreements referred to herein or delivered in
connection herewith on behalf of the Company agree to submit to the jurisdiction
of such courts and waive trial by jury. The prevailing party shall be entitled
to recover from the other party its reasonable attorney's fees and costs. In the
event that any provision of this Agreement or any other agreement delivered in
connection herewith is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision of any agreement.
(f) Independent Nature of Subscribers' Obligations and Rights.
The obligations of each Subscriber hereunder are several and not joint with the
obligations of any other
20
Subscriber hereunder, and no such Subscriber shall be responsible in any way for
the performance of the obligations of any other hereunder.
(g) Equitable Adjustment. The Securities and the purchase
prices of Securities being purchased hereunder shall be equitably adjusted to
offset the effect of stock splits, stock dividends, and distributions of
property or equity interests of the Company to its shareholders occurring
between the date of this Agreement and the Closing Date.
[THIS SPACE INTENTIONALLY LEFT BLANK]
21
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
SECURED SERVICES, INC.
a Delaware corporation
By:_________________________________
Name:
Title:
Dated: May _____, 2004
--------------------------------------------------------------------------------
SUBSCRIBER'S NAME AND ADDRESS PURCHASE SHARES WARRANTS
PRICE
--------------------------------------------------------------------------------
033 GROWTH PARTNERS I, L.P.
By: 033 Asset Management, LLC,
its Investment Manager
By: _____________________________
Xxxxxxxx X. Xxxxx
Chief Operating Officer
Address for Notice:
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Attn: Xxxxxxxx X. Xxxxx,
Chief Operating Officer
Tel: (000) 000-0000
Fax: (000) 000-0000
033 GROWTH PARTNERS II, L.P.
By: 033 Asset Management, LLC,
its Investment Manager
By: _____________________________
Xxxxxxxx X. Xxxxx
Chief Operating Officer
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Address for Notice:
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Attn: Xxxxxxxx X. Xxxxx,
Chief Operating Officer
Tel: (000) 000-0000
Fax: (000) 000-0000
OYSTER POND PARTNERS, L.P.
By: 033 Asset Management, LLC,
its Investment Manager
By: _____________________________
Xxxxxxxx X. Xxxxx
Chief Operating Officer
Address for Notice:
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Attn: Xxxxxxxx X. Xxxxx,
Chief Operating Officer
Tel: (000) 000-0000
Fax: (000) 000-0000
033 GROWTH INTERNATIONAL FUND, LTD.
By: 033 Asset Management, LLC,
its Investment Manager
By: _____________________________
Xxxxxxxx X. Xxxxx
Chief Operating Officer
Address for Notice:
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Attn: Xxxxxxxx X. Xxxxx,
Chief Operating Officer
Tel: (000) 000-0000
Fax: (000) 000-0000
_________________________________
--------------------------------------------------------------------------------
LIST OF EXHIBITS AND SCHEDULES
Exhibit A Form of Warrant
Exhibit B Registration Rights Agreement
Exhibit C Form of Legal Opinion
Schedule 4(d) Additional Issuances
Schedule 4(q) Undisclosed Liabilities
Schedule 4(s) Capitalization
Schedule 4(ae) Registration Rights
Schedule 7 Placement Agent
