Exhibit 10.2
SECURED DIGITAL APPLICATIONS, INC.
SECURITIES PURCHASE AGREEMENT
May 28, 2004
Table of Contents Page
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1. Agreement to Sell and Purchase........................................1
2. Fees and Warrant......................................................1
3. Closing, Delivery and Payment.........................................2
3.1 Closing....................................................2
3.2 Delivery...................................................2
4. Representations and Warranties of the Company.........................3
4.1 Organization, Good Standing and Qualification..............3
4.2 Subsidiaries...............................................3
4.3 Capitalization; Voting Rights..............................3
4.4 Authorization; Binding Obligations.........................4
4.5 Liabilities................................................5
4.6 Agreements; Action.........................................5
4.7 Obligations to Related Parties.............................6
4.8 Changes....................................................6
4.9 Title to Properties and Assets; Liens, Etc.................7
4.10 Intellectual Property......................................8
4.11 Compliance with Other Instruments..........................8
4.12 Litigation.................................................9
4.13 Tax Returns and Payments...................................9
4.14 Employees..................................................9
4.15 Registration Rights and Voting Rights.....................10
4.16 Compliance with Laws; Permits.............................10
4.17 Environmental and Safety Laws.............................11
4.18 Valid Offering............................................11
4.19 Full Disclosure...........................................11
4.20 Insurance.................................................11
4.21 SEC Reports...............................................11
4.22 Listing...................................................12
4.23 No Integrated Offering....................................12
4.24 Stop Transfer.............................................12
4.25 Dilution..................................................12
4.26 Patriot Act...............................................12
5. Representations and Warranties of the Purchaser......................13
5.1 No Shorting...............................................13
5.2 Requisite Power and Authority.............................13
5.3 Investment Representations................................13
5.4 Purchaser Bears Economic Risk.............................14
5.5 Acquisition for Own Account...............................14
5.6 Purchaser Can Protect Its Interest........................14
5.7 Accredited Investor.......................................14
5.8 Legends...................................................14
5.9 Patriot Act...............................................14
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6. Covenants of the Company.............................................16
6.1 Stop-Orders...............................................16
6.2 Listing...................................................16
6.3 Market Regulations........................................16
6.4 Reporting Requirements....................................17
6.5 Use of Funds..............................................17
6.6 Access to Facilities......................................17
6.7 Taxes.....................................................17
6.8 Insurance.................................................17
6.9 Intellectual Property.....................................19
6.10 Properties................................................19
6.11 Confidentiality...........................................19
6.12 Required Approvals........................................19
6.13 Reissuance of Securities..................................20
6.14 Opinion...................................................20
6.15 Margin Stock..............................................20
6.16 Foreign Security and Guarantees...........................21
6.17 Reservation of Common Stock...............................21
7. Covenants of the Purchaser...........................................21
7.1 Confidentiality...........................................21
7.2 Non-Public Information....................................21
8. Covenants of the Company and Purchaser Regarding Indemnification.....21
8.1 Company Indemnification...................................21
8.2 Purchaser's Indemnification...............................22
9. Conversion of Convertible Note.......................................22
9.1 Mechanics of Conversion...................................22
10. Registration Rights..................................................23
10.1 Registration Rights Granted...............................23
10.2 Offering Restrictions.....................................23
11. Miscellaneous........................................................24
11.1 Governing Law.............................................24
11.2 Survival..................................................24
11.3 Successors................................................24
11.4 Entire Agreement..........................................24
11.5 Severability..............................................25
11.6 Amendment and Waiver......................................25
11.7 Delays or Omissions.......................................25
11.8 Notices...................................................25
11.9 Attorneys' Fees...........................................26
11.10 Titles and Subtitles......................................26
11.11 Facsimile Signatures; Counterparts........................26
11.12 Broker's Fees.............................................26
11.13 Construction..............................................27
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LIST OF EXHIBITS
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Form of Convertible Term Note......................................... Exhibit A
Form of Warrant....................................................... Exhibit B
Form of Opinion....................................................... Exhibit C
Form of Escrow Agreement.............................................. Exhibit D
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SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of May 28, 2004, by and between Secured Digital Applications,
Inc., a Delaware corporation (the "Company"), and Laurus Master Fund, Ltd., a
Cayman Islands company (the "Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale to the Purchaser of a
Convertible Term Note in the aggregate principal amount of Five Hundred Thousand
Dollars ($500,000) (the "Note"), which Note is convertible into shares of the
Company's common stock, $0.00001 par value per share (the "Common Stock") at an
initial fixed conversion price of $0.35 per share of Common Stock ("Fixed
Conversion Price");
WHEREAS, the Company wishes to issue a warrant to the Purchaser to
purchase up to 300,000 shares of the Company's Common Stock (subject to
adjustment as set forth therein) in connection with Purchaser's purchase of the
Note;
WHEREAS, Purchaser desires to purchase the Note and the Warrant (as
defined in Section 2) on the terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Note and Warrant to
Purchaser on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises, representations, warranties and covenants hereinafter set forth
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Agreement to Sell and Purchase. Pursuant to the terms and
conditions set forth in this Agreement, on the Closing Date (as defined in
Section 3), the Company agrees to sell to the Purchaser, and the Purchaser
hereby agrees to purchase from the Company, a Note in the aggregate principal
amount of $500,000 convertible in accordance with the terms thereof into shares
of the Company's Common Stock in accordance with the terms of the Note and this
Agreement. The Note purchased on the Closing Date shall be known as the
"Offering." A form of the Note is annexed hereto as Exhibit A. The Note will
mature on the Maturity Date (as defined in the Note). Collectively, the Note and
Warrant and Common Stock issuable in payment of the Note, upon conversion of the
Note and upon exercise of the Warrant are referred to as the "Securities."
2. Fees and Warrant. On the Closing Date:
(a) The Company will issue and deliver to the Purchaser a
Warrant to purchase up to 300,000 shares of Common Stock in connection
with the Offering (the "Warrant") pursuant to Section 1 hereof. The
Warrant must be delivered on the Closing Date. A form of Warrant is
annexed hereto as Exhibit B. All the representations, covenants,
warranties, undertakings, and indemnification, and other rights made
or granted to or for the benefit of the Purchaser by the Company are
hereby also made and granted in respect of the Warrant and shares of
the Company's Common Stock issuable upon exercise of the Warrant (the
"Warrant Shares").
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(b) Subject to the terms of Section 2(d) below, the Company
shall pay to Laurus Capital Management, LLC, the manager of the
Purchaser, a closing payment in an amount equal to three and one-half
percent (3.50%) of the aggregate principal amount of the Note. The
foregoing fee is referred to herein as the "Closing Payment."
(c) The Company shall reimburse the Purchaser for its reasonable
expenses including legal fees and expenses) incurred in connection
with the preparation and negotiation of this Agreement, the Related
Agreements (as hereinafter defined), that certain Securities Purchase
Agreement, dated as of the date hereof, among the Company, SDA
AMERICA, INC. and the Purchaser relating to the issuance of the Series
A Preferred and the Warrants referred to therein (as amended,
restated, modified or supplemented from time to time, the "Series A
Securities Purchase Agreement"), and the Related Agreements referred
to in the Series A Securities Purchase Agreement, and expenses
incurred in connection with the Purchaser's due diligence review of
the Company and its Subsidiaries (as defined in Section 6.8) and all
related matters. Amounts required to be paid under this Section 2(c),
together with the amounts required to be paid under Section 2(c) of
the Series A Securities Purchase Agreement, will be paid on the
Closing Date and shall be $39,500 for such expenses (net of the
deposit previously paid by the Company).
(d) The Closing Payment and the expenses referred to in the
preceding clause (c) (net of deposits previously paid by the Company)
shall be paid at closing out of funds held pursuant to a Funds Escrow
Agreement of even date herewith among the Company, Purchaser, and an
Escrow Agent (the "Funds Escrow Agreement") and a disbursement letter
(the "Disbursement Letter").
3. Closing, Delivery and Payment.
3.1 Closing. Subject to the terms and conditions herein, the closing
of the transactions contemplated hereby (the "Closing"), shall take place on the
date hereof, at such time or place as the Company and Purchaser may mutually
agree (such date is hereinafter referred to as the "Closing Date").
3.2 Delivery. Pursuant to the Funds Escrow Agreement in the form
attached hereto as Exhibit D, at the Closing on the Closing Date, the Company
will deliver to the Purchaser, among other things, a Note in the form attached
as Exhibit A representing the aggregate principal amount of $500,000 and a
Warrant in the form attached as Exhibit B in the Purchaser's name representing
300,000 Warrant Shares and the Purchaser will deliver to the Company, among
other things, the amounts set forth in the Disbursement Letter by certified
funds or wire transfer.
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4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchaser as follows (which representations and
warranties are supplemented by the Company's filings under the Securities
Exchange Act of 1934 (collectively, the "Exchange Act Filings"), copies of which
have been provided to the Purchaser):
4.1 Organization, Good Standing and Qualification. Each of the
Company and each of its Subsidiaries is a corporation, partnership or limited
liability company, as the case may be, duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization. Each of the
Company and each of its Subsidiaries has the corporate power and authority to
own and operate its properties and assets, to execute and deliver (i) this
Agreement, (ii) the Note and the Warrant to be issued in connection with this
Agreement, (iii) the Master Security Agreement dated as of the date hereof
between the Company, certain Subsidiaries of the Company and the Purchaser (as
amended, modified or supplemented from time to time, the "Master Security
Agreement"), (iv) the Registration Rights Agreement relating to the Securities
dated as of the date hereof between the Company and the Purchaser, (v) the
Guaranty dated as of the date hereof made by the Company and certain
Subsidiaries of the Company (as amended, modified or supplemented from time to
time, the "Guaranty"), (vi) the Stock Pledge Agreement dated as of the date
hereof among the Company and the Purchaser (as amended, modified or supplemented
from time to time, the "Stock Pledge Agreement"), (vii) the Escrow Agreement
dated as of the date hereof among the Company, the Purchaser and the escrow
agent referred to therein and (viii) all other agreements related to this
Agreement and the Note and referred to herein (the preceding clauses (ii)
through (viii), collectively, the "Related Agreements"), to issue and sell the
Note and the shares of Common Stock issuable upon conversion of the Note (the
"Note Shares"), to issue and sell the Warrant and the Warrant Shares, and to
carry out the provisions of this Agreement and the Related Agreements and to
carry on its business as presently conducted. Each of the Company and each of
its Subsidiaries is duly qualified and is authorized to do business and is in
good standing as a foreign corporation, partnership or limited liability
company, as the case may be, in all jurisdictions in which the nature of its
activities and of its properties (both owned and leased) makes such
qualification necessary, except for those jurisdictions in which failure to do
so has not, or could not reasonably be expected to have, individually or in the
aggregate, a material adverse effect on the business, assets, liabilities,
condition (financial or otherwise), properties, operations or prospects of the
Company and it Subsidiaries, taken individually and as a whole (a "Material
Adverse Effect").
4.2 Subsidiaries. Each direct and indirect Subsidiary of the Company,
the direct owner of such Subsidiary and its percentage ownership thereof, is set
forth on Schedule 4.2. For the purpose of this Agreement, a "Subsidiary" of any
person or entity means (i) a corporation or other entity whose shares of stock
or other ownership interests having ordinary voting power (other than stock or
other ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the directors of such corporation, or other
persons or entities performing similar functions for such person or entity, are
owned, directly or indirectly, by such person or entity or (ii) a corporation or
other entity in which such person or entity owns, directly or indirectly, more
than 50% of the equity interests at such time.
4.3 Capitalization; Voting Rights.
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(a) The authorized capital stock of the Company, as of the date
hereof consists of 101,000,000 shares, of which 100,000,000 are shares of
Common Stock, par value $0.00001 per share, 98,983,899 shares of which are
issued, 97,928,899 shares of which are outstanding, and 1,000,000 are
shares of preferred stock, par value $0.10 per share of which 100,000
shares of preferred stock are issued and outstanding. The authorized
capital stock of each Subsidiary of the Company is set forth on Schedule
4.3.
(b) Except as disclosed on Schedule 4.3, other than: (i) the shares
reserved for issuance under the Company's stock option plans; and (ii)
shares which may be granted pursuant to this Agreement and the Related
Agreements, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal), proxy or
stockholder agreements, or arrangements or agreements of any kind for the
purchase or acquisition from the Company of any of its securities. Except
as disclosed on Schedule 4.3, neither the offer, issuance or sale of any of
the Note or the Warrant, or the issuance of any of the Note Shares or
Warrant Shares, nor the consummation of any transaction contemplated hereby
will result in a change in the price or number of any securities of the
Company outstanding, under anti-dilution or other similar provisions
contained in or affecting any such securities.
(c) All issued and outstanding shares of the Company's Common Stock:
(i) have been duly authorized and validly issued and are fully paid and
nonassessable, except as set forth with regard to a certain dispute with a
former consultant as more fully described on Schedule 4.3; and (ii) were
issued in compliance with all applicable state and federal laws concerning
the issuance of securities.
(d) The rights, preferences, privileges and restrictions of the
shares of the Common Stock are as stated in the Company's Certificate of
Incorporation (the "Charter"). Subject to shareholder approval to increase
the Company's authorized common stock, which will occur no later than
August 28, 2004, the Note Shares and Warrant Shares have been duly and
validly reserved for issuance. When issued in compliance with the
provisions of this Agreement and the Company's Charter, the Securities will
be validly issued, fully paid and nonassessable, and will be free of any
liens or encumbrances; provided, however, that the Securities may be
subject to restrictions on transfer under state and/or federal securities
laws as set forth herein or as otherwise required by such laws at the time
a transfer is proposed.
4.4 Authorization; Binding Obligations. All corporate, partnership or
limited liability company, as the case may be, action on the part of the Company
and each of its Subsidiaries (including the respective officers and directors)
necessary for the authorization of this Agreement and the Related Agreements,
the performance of all obligations of the Company and its Subsidiaries hereunder
and under the other Related Agreements at the Closing and, the authorization,
sale, issuance and delivery of the Note and Warrant has been taken or will be
taken prior to the Closing. This Agreement and the Related Agreements, when
executed and delivered and to the extent it is a party thereto, will be valid
and binding obligations of each of the Company and each of its Subsidiaries,
enforceable against each such person in accordance with their terms, except:
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(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; and
(b) general principles of equity that restrict the availability of
equitable or legal remedies.
The sale of the Note and the subsequent conversion of the Note into Note Shares
are not and will not be subject to any preemptive rights or rights of first
refusal that have not been properly waived or complied with. The issuance of the
Warrant and the subsequent exercise of the Warrant for Warrant Shares are not
and will not be subject to any preemptive rights or rights of first refusal that
have not been properly waived or complied with.
4.5 Liabilities. Neither the Company nor any of its Subsidiaries has
any contingent liabilities, except current liabilities incurred in the ordinary
course of business and liabilities disclosed in any Exchange Act Filings.
4.6 Agreements; Action. Except as set forth on Schedule 4.6 or as
disclosed in any Exchange Act Filings:
(a) there are no agreements, understandings, instruments, contracts,
proposed transactions, judgments, orders, writs or decrees to which the
Company or any of its Subsidiaries is a party or by which it is bound which
may involve: (i) obligations (contingent or otherwise) of, or payments to,
the Company in excess of $50,000 (other than obligations of, or payments
to, the Company arising from purchase or sale agreements entered into in
the ordinary course of business); or (ii) the transfer or license of any
patent, copyright, trade secret or other proprietary right to or from the
Company (other than licenses arising from the purchase of "off the shelf"
or other standard products); or (iii) provisions restricting the
development, manufacture or distribution of the Company's products or
services; or (iv) indemnification by the Company with respect to
infringements of proprietary rights.
(b) Since December 31, 2003, neither the Company nor any of its
Subsidiaries has: (i) declared or paid any dividends, or authorized or made
any distribution upon or with respect to any class or series of its capital
stock; (ii) incurred any indebtedness for money borrowed or any other
liabilities (other than ordinary course obligations) individually in excess
of $50,000 or, in the case of indebtedness and/or liabilities individually
less than $50,000, in excess of $100,000 in the aggregate; (iii) made any
loans or advances to any person not in excess, individually or in the
aggregate, of $100,000, other than ordinary course advances for travel
expenses; or (iv) sold, exchanged or otherwise disposed of any of its
assets or rights, other than the sale of its inventory in the ordinary
course of business.
(c) For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same person or entity
(including persons or entities the Company has reason to believe are
affiliated therewith) shall be aggregated for the purpose of meeting the
individual minimum dollar amounts of such subsections.
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4.7 Obligations to Related Parties. Except as set forth on Schedule
4.7, there are no obligations of the Company or any of its Subsidiaries to
officers, directors, stockholders or employees of the Company or any of its
Subsidiaries other than:
(a) for payment of salary for services rendered and for bonus
payments;
(b) reimbursement for reasonable expenses incurred on behalf of the
Company and its Subsidiaries;
(c) for other standard employee benefits made generally available to
all employees (including stock option agreements outstanding under any
stock option plan approved by the Board of Directors of the Company); and
(d) obligations listed in the Company's financial statements or
disclosed in any of its Exchange Act Filings.
Except as described above or set forth on Schedule 4.7, none of the officers,
directors or, to the best of the Company's knowledge, key employees or
stockholders of the Company or any members of their immediate families, are
indebted to the Company, individually or in the aggregate, in excess of $50,000
or have any direct or indirect ownership interest in any firm or corporation
with which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation which competes with the Company, other
than passive investments in publicly traded companies (representing less than
one percent (1%) of such company) which may compete with the Company. Except as
described above, no officer, director or stockholder, or any member of their
immediate families, is, directly or indirectly, interested in any material
contract with the Company and no agreements, understandings or proposed
transactions are contemplated between the Company and any such person. Except as
set forth on Schedule 4.7, the Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
4.8 Changes. Since December 31, 2003, except as disclosed in any
Exchange Act Filing or in any Schedule to this Agreement or to any of the
Related Agreements, there has not been:
(a) any change in the business, assets, liabilities, condition
(financial or otherwise), properties, operations or prospects of the
Company or any of its Subsidiaries, which individually or in the aggregate
has had, or could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect;
(b) any resignation or termination of any officer, key employee or
group of employees of the Company or any of its Subsidiaries;
(c) any material change, except in the ordinary course of business,
in the contingent obligations of the Company or any of its Subsidiaries by
way of guaranty, endorsement, indemnity, warranty or otherwise;
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(d) any damage, destruction or loss, whether or not covered by
insurance, has had, or could reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect;
(e) any waiver by the Company or any of its Subsidiaries of a
valuable right or of a material debt owed to it;
(f) any direct or indirect loans made by the Company or any of its
Subsidiaries to any stockholder, employee, officer or director of the
Company or any of its Subsidiaries, other than advances made in the
ordinary course of business;
(g) any material change in any compensation arrangement or agreement
with any employee, officer, director or stockholder of the Company or any
of its Subsidiaries;
(h) any declaration or payment of any dividend or other distribution
of the assets of the Company or any of its Subsidiaries;
(i) any labor organization activity related to the Company or any of
its Subsidiaries;
(j) any debt, obligation or liability incurred, assumed or guaranteed
by the Company or any of its Subsidiaries, except those for immaterial
amounts and for current liabilities incurred in the ordinary course of
business;
(k) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets owned by the Company
or any of its Subsidiaries;
(l) any change in any material agreement to which the Company or any
of its Subsidiaries is a party or by which either the Company or any of its
Subsidiaries is bound which either individually or in the aggregate has
had, or could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect;
(m) any other event or condition of any character that, either
individually or in the aggregate, has had, or could reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect; or
(n) any arrangement or commitment by the Company or any of its
Subsidiaries to do any of the acts described in subsection (a) through (m)
above.
4.9 Title to Properties and Assets; Liens, Etc. Except as set forth
on Schedule 4.9, each of the Company and each of its Subsidiaries has good and
marketable title to its properties and assets, and good title to its leasehold
estates, in each case subject to no mortgage, pledge, lien, lease, encumbrance
or charge, other than:
(a) those resulting from taxes which have not yet become delinquent;
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(b) minor liens and encumbrances which do not materially detract from
the value of the property subject thereto or materially impair the
operations of the Company or any of its Subsidiaries; and
(c) those that have otherwise arisen in the ordinary course of
business.
All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company and its Subsidiaries are in good operating
condition and repair and are reasonably fit and usable for the purposes for
which they are being used. Except as set forth on Schedule 4.9, the Company and
its Subsidiaries are in compliance with all material terms of each lease to
which it is a party or is otherwise bound.
4.10 Intellectual Property.
(a) Each of the Company and each of its Subsidiaries owns or
possesses sufficient legal rights to all patents, trademarks, service
marks, trade names, copyrights, trade secrets, licenses, information and
other proprietary rights and processes necessary for its business as now
conducted and to the Company's knowledge, as presently proposed to be
conducted (the "Intellectual Property"), without any known infringement of
the rights of others. There are no outstanding options, licenses or
agreements of any kind relating to the foregoing proprietary rights, nor is
the Company or any of its Subsidiaries bound by or a party to any options,
licenses or agreements of any kind with respect to the patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses,
information and other proprietary rights and processes of any other person
or entity other than such licenses or agreements arising from the purchase
of "off the shelf" or standard products.
(b) Neither the Company nor any of its Subsidiaries has received any
communications alleging that the Company or any of its Subsidiaries has
violated any of the patents, trademarks, service marks, trade names,
copyrights or trade secrets or other proprietary rights of any other person
or entity, nor is the Company or any of its Subsidiaries aware of any basis
therefor.
(c) The Company does not believe it is or will be necessary to
utilize any inventions, trade secrets or proprietary information of any of
its employees made prior to their employment by the Company or any of its
Subsidiaries, except for inventions, trade secrets or proprietary
information that have been rightfully assigned to the Company or any of its
Subsidiaries.
4.11 Compliance with Other Instruments. Subject to shareholder
approval in order to increase the Company's authorized common stock, which will
occur no later than 90 days after the Closing Date, neither the Company nor any
of its Subsidiaries is in violation or default of (x) any term of its xxxxxx or
Bylaws, or (y) of any provision of any indebtedness, mortgage, indenture,
contract, agreement or instrument to which it is party or by which it is bound
or of any judgment, decree, order or writ, which violation or default, in the
case of this clause (y), has had, or could reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect. The
execution, delivery and performance of and compliance with this Agreement and
the Related Agreements to which it is a party, and the issuance and sale of the
Note by the Company and the other Securities by the Company each pursuant hereto
and thereto, will not, with or without the passage of time or giving of notice,
result in any such material violation, or be in conflict with or constitute a
default under any such term or provision, or result in the creation of any
mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company or any of its Subsidiaries or the suspension, revocation,
impairment, forfeiture or nonrenewal of any permit, license, authorization or
approval applicable to the Company, its business or operations or any of its
assets or properties.
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4.12 Litigation. Except as set forth on Schedule 4.12 hereto, there is
no action, suit, proceeding or investigation pending or, to the Company's
knowledge, currently threatened against the Company or any of its Subsidiaries
that prevents the Company or any of its Subsidiaries from entering into this
Agreement or the other Related Agreements, or from consummating the transactions
contemplated hereby or thereby, or which has had, or could reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect or any change in the current equity ownership of the Company or any of
its Subsidiaries, nor is the Company aware that there is any basis to assert any
of the foregoing. Neither the Company nor any of its Subsidiaries is a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company or any of its Subsidiaries currently
pending or which the Company or any of its Subsidiaries intends to initiate.
4.13 Tax Returns and Payments. Each of the Company and each of its
Subsidiaries has timely filed all tax returns (federal, state and local)
required to be filed by it. All taxes shown to be due and payable on such
returns, any assessments imposed, and all other taxes due and payable by the
Company or any of its Subsidiaries on or before the Closing, have been paid or
will be paid prior to the time they become delinquent. Except as set forth on
Schedule 4.13, neither the Company nor any of its Subsidiaries has been advised:
(a) that any of its returns, federal, state or other, have been or
are being audited as of the date hereof; or
(b) of any deficiency in assessment or proposed judgment to its
federal, state or other taxes.
The Company has no knowledge of any liability of any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for.
4.14 Employees. Except as set forth on Schedule 4.14, neither the
Company nor any of its Subsidiaries has any collective bargaining agreements
with any of its employees. There is no labor union organizing activity pending
or, to the Company's knowledge, threatened with respect to the Company or any of
its Subsidiaries. Except as disclosed in the Exchange Act Filings or on Schedule
4.14, neither the Company nor any of its Subsidiaries is a party to or bound by
any currently effective employment contract, deferred compensation arrangement,
bonus plan, incentive plan, profit sharing plan, retirement agreement or other
employee compensation plan or agreement. To the Company's knowledge, no employee
of the Company or any of its Subsidiaries, nor any consultant with whom the
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Company or any of its Subsidiaries has contracted, is in violation of any term
of any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or to
contract with, the Company or any of its Subsidiaries because of the nature of
the business to be conducted by the Company or any of its Subsidiaries; and to
the Company's knowledge the continued employment by the Company or any of its
Subsidiaries of its present employees, and the performance of the Company's and
its Subsidiaries' contracts with its independent contractors, will not result in
any such violation. Neither the Company nor any of its Subsidiaries is aware
that any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with their duties to the Company or any of its Subsidiaries. Neither
the Company nor any of its Subsidiaries has received any notice alleging that
any such violation has occurred. Except for employees who have a current
effective employment agreement with the Company or any of its Subsidiaries, no
employee of the Company or any of its Subsidiaries has been granted the right to
continued employment by the Company or any of its Subsidiaries or to any
material compensation following termination of employment with the Company or
any of its Subsidiaries. Except as set forth on Schedule 4.14, the Company is
not aware that any officer, key employee or group of employees intends to
terminate his, her or their employment with the Company or any of its
Subsidiaries, nor does the Company or any of its Subsidiaries have a present
intention to terminate the employment of any officer, key employee or group of
employees.
4.15 Registration Rights and Voting Rights. Except as set forth on
Schedule 4.15 and except as disclosed in Exchange Act Filings, neither the
Company nor any of its Subsidiaries is presently under any obligation, and
neither the Company nor any of its Subsidiaries has granted any rights, to
register any of the Company's or its Subsidiaries' presently outstanding
securities or any of its securities that may hereafter be issued. Except as set
forth on Schedule 4.15 and except as disclosed in Exchange Act Filings, to the
Company's knowledge, no stockholder of the Company or any of its Subsidiaries
has entered into any agreement with respect to the voting of equity securities
of the Company or any of its Subsidiaries.
4.16 Compliance with Laws; Permits. Neither the Company nor any of its
Subsidiaries is in violation of any applicable statute, rule, regulation, order
or restriction of any domestic or foreign government or any instrumentality or
agency thereof in respect of the conduct of its business or the ownership of its
properties which has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. No governmental
orders, permissions, consents, approvals or authorizations are required to be
obtained and no registrations or declarations are required to be filed in
connection with the execution and delivery of this Agreement or any other
Related Agreement and the issuance of any of the Securities, except such as has
been duly and validly obtained or filed, or with respect to any filings that
must be made after the Closing, as will be filed in a timely manner. Each of the
Company and its Subsidiaries has all material franchises, permits, licenses and
any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
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4.17 Environmental and Safety Laws. Neither the Company nor any of its
Subsidiaries is in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to its
knowledge, no material expenditures are or will be required in order to comply
with any such existing statute, law or regulation. Except as set forth on
Schedule 4.17, no Hazardous Materials (as defined below) are used or have been
used, stored, or disposed of by the Company or any of its Subsidiaries or, to
the Company's knowledge, by any other person or entity on any property owned,
leased or used by the Company or any of its Subsidiaries. For the purposes of
the preceding sentence, "Hazardous Materials" shall mean:
(a) materials which are listed or otherwise defined as "hazardous" or
"toxic" under any applicable local, state, federal and/or foreign laws and
regulations that govern the existence and/or remedy of contamination on
property, the protection of the environment from contamination, the control
of hazardous wastes, or other activities involving hazardous substances,
including building materials; or
(b) any petroleum products or nuclear materials.
4.18 Valid Offering. Assuming the accuracy of the representations and
warranties of the Purchaser contained in this Agreement, the offer, sale and
issuance of the Securities will be exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"), and will have
been registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws.
4.19 Full Disclosure. Each of the Company and each of its Subsidiaries
has provided the Purchaser with all information requested by the Purchaser in
connection with its decision to purchase the Note and Warrant, including all
information the Company and its Subsidiaries believe is reasonably necessary to
make such investment decision. Neither this Agreement, the Related Agreements,
the exhibits and schedules hereto and thereto nor any other document delivered
by the Company or any of its Subsidiaries to Purchaser or its attorneys or
agents in connection herewith or therewith or with the transactions contemplated
hereby or thereby, contain any untrue statement of a material fact nor omit to
state a material fact necessary in order to make the statements contained herein
or therein, in light of the circumstances in which they are made, not
misleading. Any financial projections and other estimates provided to the
Purchaser by the Company or any of its Subsidiaries were based on the Company's
and its Subsidiaries' experience in the industry and on assumptions of fact and
opinion as to future events which the Company or any of its Subsidiaries, at the
date of the issuance of such projections or estimates, believed to be
reasonable.
4.20 Insurance. Each of the Company and each of its Subsidiaries has
general commercial, product liability, fire and casualty insurance policies with
coverages which the Company believes are customary for companies similarly
situated to the Company and its Subsidiaries in the same or similar business.
11
4.21 SEC Reports. Except as set forth on Schedule 4.21, the Company
has filed all proxy statements, reports and other documents required to be filed
by it under the Securities Xxxxxxxx Xxx 0000, as amended (the "Exchange Act").
The Company has furnished the Purchaser with copies of: (i) its Annual Reports
on Form 10-KSB for its fiscal year ended December 31, 2003, (ii) its Quarterly
Reports on Form 10-QSB for its fiscal quarter ended March 31, 2004, and (iii)
the Form 8-K filings which it has made during the fiscal year 2004 to date
(collectively, the "SEC Reports"). Except as set forth on Schedule 4.21, each
SEC Report was, at the time of its filing, in substantial compliance with the
requirements of its respective form and none of the SEC Reports, nor the
financial statements (and the notes thereto) included in the SEC Reports, as of
their respective filing dates, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
4.22 Listing. On the date hereof, the Company's Common Stock is listed
for trading on the National Association of Securities Dealers Over the Counter
Bulletin Board ("NASD OTCBB") and satisfies all requirements for the
continuation of such trading. The Company has not received any notice that its
Common Stock will not be eligible to be traded on the NASD OTCBB or that its
Common Stock does not meet all requirements for such trading.
4.23 No Integrated Offering. Neither the Company, nor any of its
Subsidiaries or affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales of any security or solicited any
offers to buy any security under circumstances that would cause the offering of
the Securities pursuant to this Agreement or any of the Related Agreements to be
integrated with prior offerings by the Company for purposes of the Securities
Act which would prevent the Company from selling the Securities pursuant to Rule
506 under the Securities Act, or any applicable exchange-related stockholder
approval provisions, nor will the Company or any of its affiliates or
Subsidiaries take any action or steps that would cause the offering of the
Securities to be integrated with other offerings.
4.24 Stop Transfer. The Securities are restricted securities as of the
date of this Agreement. Neither the Company nor any of its Subsidiaries will
issue any stop transfer order or other order impeding the sale and delivery of
any of the Securities at such time as the Securities are registered for public
sale or an exemption from registration is available, except as required by state
and federal securities laws.
4.25 Dilution. The Company specifically acknowledges that its
obligation to issue the shares of Common Stock upon conversion of the Note and
exercise of the Warrant is binding upon the Company and enforceable regardless
of the dilution such issuance may have on the ownership interests of other
shareholders of the Company.
4.26 Patriot Act. The Company certifies that, to the best of Company's
knowledge, neither the Company nor any of its Subsidiaries has been designated,
and is not owned or controlled, by a "suspected terrorist" as defined in
Executive Order 13224. The Company hereby acknowledges that the Purchaser seeks
to comply with all applicable laws concerning money laundering and related
activities. In furtherance of those efforts, the Company hereby represents,
warrants and agrees that: (i) none of the cash or property that the Company or
12
any of its Subsidiaries will pay or will contribute to the Purchaser has been or
shall be derived from, or related to, any activity that is deemed criminal under
United States law; and (ii) no contribution or payment by the Company or any of
its Subsidiaries to the Purchaser, to the extent that they are within the
Company's and/or its Subsidiaries' control shall cause the Purchaser to be in
violation of the United States Bank Secrecy Act, the United States International
Money Laundering Control Act of 1986 or the United States International Money
Laundering Abatement and Anti-Terrorist Financing Act of 2001. The Company shall
promptly notify the Purchaser if any of these representations ceases to be true
and accurate regarding the Company or any of its Subsidiaries. The Company
agrees to provide the Purchaser any additional information regarding the Company
or any of its Subsidiaries that the Purchaser deems necessary or convenient to
ensure compliance with all applicable laws concerning money laundering and
similar activities. The Company understands and agrees that if at any time it is
discovered that any of the foregoing representations are incorrect, or if
otherwise required by applicable law or regulation related to money laundering
similar activities, the Purchaser may undertake appropriate actions to ensure
compliance with applicable law or regulation, including but not limited to
segregation and/or redemption of the Purchaser's investment in the Company. The
Company further understands that the Purchaser may release confidential
information about the Company and its Subsidiaries and, if applicable, any
underlying beneficial owners, to proper authorities if the Purchaser, in its
sole discretion, determines that it is in the best interests of the Purchaser in
light of relevant rules and regulations under the laws set forth in subsection
(ii) above.
5. Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants to the Company as follows (such representations and
warranties do not lessen or obviate the representations and warranties of the
Company set forth in this Agreement):
5.1 No Shorting. The Purchaser or any of its affiliates and investment
partners has not, will not and will not cause any person or entity, directly or
indirectly, to engage in "short sales" of the Company's Common Stock as long as
the Note shall be outstanding.
5.2 Requisite Power and Authority. The Purchaser has all necessary power
and authority under all applicable provisions of law to execute and deliver this
Agreement and the Related Agreements and to carry out their provisions. All
corporate action on Purchaser's part required for the lawful execution and
delivery of this Agreement and the Related Agreements have been or will be
effectively taken prior to the Closing. Upon their execution and delivery, this
Agreement and the Related Agreements will be valid and binding obligations of
Purchaser, enforceable in accordance with their terms, except:
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; and
(b) as limited by general principles of equity that restrict the
availability of equitable and legal remedies.
5.3 Investment Representations. Purchaser understands that the Securities
are being offered and sold pursuant to an exemption from registration contained
in the Securities Act based in part upon Purchaser's representations contained
in the Agreement, including, without limitation, that the Purchaser is an
"accredited investor" within the meaning of Regulation D under the Securities
Act of 1933, as amended (the "Securities Act"). The Purchaser confirms that it
13
has received or has had full access to all the information it considers
necessary or appropriate to make an informed investment decision with respect to
the Note and the Warrant to be purchased by it under this Agreement and the Note
Shares and the Warrant Shares acquired by it upon the conversion of the Note and
the exercise of the Warrant, respectively. The Purchaser further confirms that
it has had an opportunity to ask questions and receive answers from the Company
regarding the Company's and its Subsidiaries' business, management and financial
affairs and the terms and conditions of the Offering, the Note, the Warrant and
the Securities and to obtain additional information (to the extent the Company
possessed such information or could acquire it without unreasonable effort or
expense) necessary to verify any information furnished to the Purchaser or to
which the Purchaser had access.
5.4 Purchaser Bears Economic Risk. The Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. The Purchaser must bear the economic risk
of this investment until the Securities are sold pursuant to: (i) an effective
registration statement under the Securities Act; or (ii) an exemption from
registration is available with respect to such sale.
5.5 Acquisition for Own Account. The Purchaser is acquiring the Note and
Warrant and the Note Shares and the Warrant Shares for the Purchaser's own
account for investment only, and not as a nominee or agent and not with a view
towards or for resale in connection with their distribution.
5.6 Purchaser Can Protect Its Interest. The Purchaser represents that by
reason of its, or of its management's, business and financial experience, the
Purchaser has the capacity to evaluate the merits and risks of its investment in
the Note, the Warrant and the Securities and to protect its own interests in
connection with the transactions contemplated in this Agreement and the Related
Agreements. Further, Purchaser is aware of no publication of any advertisement
in connection with the transactions contemplated in the Agreement or the Related
Agreements.
5.7 Accredited Investor. Purchaser represents that it is an accredited
investor within the meaning of Regulation D under the Securities Act.
5.8 Legends.
(a) The Note shall bear substantially the following legend:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY APPLICABLE, STATE SECURITIES LAWS. THIS NOTE AND THE COMMON
STOCK 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 OR SUCH SHARES UNDER SAID ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO SECURED DIGITAL APPLICATIONS, INC. THAT
SUCH REGISTRATION IS NOT REQUIRED."
14
(b) The Note Shares and the Warrant Shares, if not issued by DWAC
system (as hereinafter defined), shall bear a legend which shall be in
substantially the following form until such shares are covered by an effective
registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT AND APPLICABLE STATE LAWS OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO SECURED DIGITAL
APPLICATIONS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) The Warrant shall bear substantially the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE
COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR THE UNDERLYING
SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO SECURED
DIGITAL APPLICATIONS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
5.9 Patriot Act. Purchaser certifies that, to the best of
Purchaser's knowledge, the Purchaser has not been designated, and is not owned
or controlled, by a "suspected terrorist" as defined in Executive Order 13224.
The Purchaser hereby acknowledges that the Purchaser seeks to comply with all
applicable laws concerning money laundering and related activities. In
furtherance of those efforts, the Purchaser hereby represents, warrants and
agrees that: (i) none of the cash or property that the Purchaser will pay or
will contribute to the Company has been or shall be derived from, or related to,
any activity that is deemed criminal under United States law; and (ii) no
contribution or payment by the Purchaser to the Company to the extent that they
are within the Purchaser's control shall cause the Purchaser or the Company to
be in violation of the United States Bank Secrecy Act, the United States
International Money Laundering Control Act of 1986 or the United States
15
International Money Laundering Abatement and Anti-Terrorist Financing Act of
2001. The Purchaser shall promptly notify the Company if any of these
representations ceases to be true and accurate. The Purchaser agrees to provide
the Company any additional information regarding the Purchaser that is
reasonably necessary to ensure compliance with all applicable laws concerning
money laundering and similar activities. The Purchaser understands and agrees
that if at any time it is discovered that any of the foregoing representations
are incorrect, or if otherwise required by applicable law or regulation related
to money laundering similar activities, the Company may undertake appropriate
actions to ensure compliance with applicable law or regulation, including but
not limited to segregation and/or redemption of the Purchaser's investment in
the Company. The Purchaser further understands that the Company may, pursuant to
a court order, release confidential information about the Purchaser and, if
applicable, any underlying beneficial owners, to proper authorities if the
Company, in its sole discretion, determines that it is required under relevant
rules and regulations under the laws set forth in clause (ii) of this Section
5.9 provided that the Company shall first provide the Purchaser with notice of
such court order and an opportunity to seek a protective order.
6. Covenants of the Company. The Company covenants and agrees with the
Purchaser as follows:
6.1 Stop-Orders. The Company will advise the Purchaser, promptly
after it receives notice of issuance by the Securities and Exchange Commission
(the "SEC"), any state securities commission or any other regulatory authority
of any stop order or of any order preventing or suspending any offering of any
securities of the Company, or of the suspension of the qualification of the
Common Stock of the Company for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.
6.2 Listing. The Company shall promptly secure the listing of the
shares of Common Stock issuable upon conversion of the Note and upon the
exercise of the Warrant on the NASD OTCBB (the "Principal Market") upon which
shares of Common Stock are listed (subject to official notice of issuance) and
shall maintain such listing so long as any other shares of Common Stock shall be
so listed. The Company will maintain the listing of its Common Stock on the
Principal Market, and will comply in all material respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
National Association of Securities Dealers ("NASD") and such exchanges, as
applicable.
6.3 Market Regulations. The Company shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to the
Purchaser and promptly provide copies thereof to the Purchaser.
16
6.4 Reporting Requirements. The Company will timely file with the SEC
all reports required to be filed pursuant to the Exchange Act and refrain from
terminating its status as an issuer required by the Exchange Act to file reports
thereunder even if the Exchange Act or the rules or regulations thereunder would
permit such termination.
6.5 Use of Funds. The Company agrees that it will use the proceeds of
the sale of the Note and the Warrant for general working capital purposes only.
6.6 Access to Facilities. Each of the Company and each of its
Subsidiaries will permit any representatives designated by the Purchaser (or any
successor of the Purchaser), upon reasonable notice and during normal business
hours, at such person's expense and accompanied by a representative of the
Company, to:
(a) visit and inspect any of the properties of the Company or any of
its Subsidiaries;
(b) examine the corporate and financial records of the Company or any
of its Subsidiaries (unless such examination is not permitted by federal,
state or local law or by contract) and make copies thereof or extracts
therefrom; and
(c) discuss the affairs, finances and accounts of the Company or any
of its Subsidiaries with the directors, officers and independent
accountants of the Company or any of its Subsidiaries.
Notwithstanding the foregoing, neither the Company nor any of its Subsidiaries
will provide any material, non-public information to the Purchaser unless the
Purchaser signs a confidentiality agreement and otherwise complies with
Regulation FD, under the federal securities laws.
6.7 Taxes. Each of the Company and each of its Subsidiaries will
promptly pay and discharge, or cause to be paid and discharged, when due and
payable, all lawful taxes, assessments and governmental charges or levies
imposed upon the income, profits, property or business of the Company and its
Subsidiaries; provided, however, that any such tax, assessment, charge or levy
need not be paid if the validity thereof shall currently be contested in good
faith by appropriate proceedings and if the Company and/or such Subsidiary shall
have set aside on its books adequate reserves with respect thereto, and
provided, further, that the Company and its Subsidiaries will pay all such
taxes, assessments, charges or levies forthwith upon the commencement of
proceedings to foreclose any lien which may have attached as security therefor.
6.8 Insurance. Each of the Company and its Subsidiaries will keep its
assets which are of an insurable character insured by financially sound and
reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in similar business similarly situated
as the Company and its Subsidiaries; and the Company and its Subsidiaries will
maintain, with financially sound and reputable insurers, insurance against other
hazards and risks and liability to persons and property to the extent and in the
manner which the Company reasonably believes is customary for companies in
similar business similarly situated as the Company and its Subsidiaries and to
the extent available on commercially reasonable terms. The Company, and each of
its Subsidiaries will jointly and severally bear the full risk of loss from any
loss of any nature whatsoever with respect to the assets pledged to the
17
Purchaser as security for its obligations hereunder and under the Related
Agreements. At the Company's and each of its Subsidiaries' joint and several
cost and expense in amounts and with carriers reasonably acceptable to
Purchaser, the Company and each of its Subsidiaries shall (i) keep all its
insurable properties and properties in which it has an interest insured against
the hazards of fire, flood, sprinkler leakage, those hazards covered by extended
coverage insurance and such other hazards, and for such amounts, as is customary
in the case of companies engaged in businesses similar to the Company's or the
respective Subsidiary's including business interruption insurance; (ii) maintain
a bond in such amounts as is customary in the case of companies engaged in
businesses similar to the Company's or the respective Subsidiary's insuring
against larceny, embezzlement or other criminal misappropriation of insured's
officers and employees who may either singly or jointly with others at any time
have access to the assets or funds of the Company or any of its Subsidiaries
either directly or through governmental authority to draw upon such funds or to
direct generally the disposition of such assets; (iii) maintain public and
product liability insurance against claims for personal injury, death or
property damage suffered by others; (iv) maintain all such worker's compensation
or similar insurance as may be required under the laws of any state or
jurisdiction in which the Company or the respective Subsidiary is engaged in
business; and (v) furnish Purchaser with (x) copies of all policies and evidence
of the maintenance of such policies at least thirty (30) days before any
expiration date, (y) excepting the Company's workers' compensation policy, to
the extent that the Company or such Subsidiary maintains any business operations
(other than immaterial operations), endorsements to such policies naming
Purchaser as "co-insured" or "additional insured" and appropriate loss payable
endorsements in form and substance satisfactory to Purchaser, naming Purchaser
as loss payee (provided that, with respect to the Company's Foreign Subsidiaries
(as defined below), such Foreign Subsidiaries shall only be required to
designate the Purchaser as "co-insured" or "additional insured" and make
appropriate loss payee endorsements on and after 30 days following the Closing
Date, and solely to the extent that such designations and/or endorsements are
permitted under the applicable law of such Foreign Subsidiaries' jurisdiction of
organization), and (z) evidence that as to Purchaser the insurance coverage
shall not be impaired or invalidated by any act or neglect of the Company or any
Subsidiary and the insurer will provide Purchaser with at least thirty (30) days
notice prior to cancellation. The Company and each Subsidiary shall instruct the
insurance carriers that in the event of any loss thereunder, the carriers shall
make payment for such loss to the Company and/or the Subsidiary and Purchaser
jointly. In the event that as of the date of receipt of each loss recovery upon
any such insurance, the Purchaser has not declared an event of default with
respect to this Agreement or any of the Related Agreements, then the Company
and/or such Subsidiary shall be permitted to direct the application of such loss
recovery proceeds toward investment in property, plant and equipment that would
comprise "Collateral" secured by Purchaser's security interest pursuant to its
security agreement, with any surplus funds to be applied toward payment of the
obligations of the Company to Purchaser. In the event that Purchaser has
properly declared an event of default with respect to this Agreement or any of
the Related Agreements, then all loss recoveries received by Purchaser upon any
such insurance thereafter may be applied to the obligations of the Company
hereunder and under the Related Agreements, in such order as the Purchaser may
determine. Any surplus (following satisfaction of all Company obligations to
Purchaser) shall be paid by Purchaser to the Company or applied as may be
otherwise required by law. Any deficiency thereon shall be paid by the Company
or the Subsidiary, as applicable, to Purchaser, on demand.
18
6.9 Intellectual Property. Each of the Company and each of its
Subsidiaries shall maintain in full force and effect its existence, rights and
franchises and all licenses and other rights to use Intellectual Property owned
or possessed by it and reasonably deemed to be necessary to the conduct of its
business.
6.10 Properties. Each of the Company and each of its Subsidiaries will
keep its properties in good repair, working order and condition, reasonable wear
and tear excepted, and from time to time make all needful and proper repairs,
renewals, replacements, additions and improvements thereto; and each of the
Company and each of its Subsidiaries will at all times comply with each
provision of all leases to which it is a party or under which it occupies
property if the breach of such provision could, either individually or in the
aggregate, reasonably be expected tohave a Material Adverse Effect.
6.11 Confidentiality. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Purchaser,
unless expressly agreed to by the Purchaser or unless and until such disclosure
is required by law or applicable regulation, and then only to the extent of such
requirement. Notwithstanding the foregoing, the Company may disclose Purchaser's
identity and the terms of this Agreement to its current and prospective debt and
equity financing sources.
6.12 Required Approvals. For so long as twenty-five percent (25%) of
the principal amount of the Note is outstanding, the Company, without the prior
written consent of the Purchaser, shall not, and shall not permit any of its
Subsidiaries to:
(a) (i) directly or indirectly declare or pay any dividends, other
than (x) dividends paid to the Company or any of its wholly-owned
Subsidiaries; (y) dividends paid to the Purchaser with respect to the
Series A Preferred (as defined in the Series A Securities Purchase
Agreement, (ii) issue any preferred stock that is manditorily redeemable
prior to May 28, 2008 or (iii) redeem any of its preferred stock or other
equity interests; and (z) dividends payable in Common Stock of the Company
with respect to preferred stock of the Company that is outstanding on the
date hereof;
(b) liquidate, dissolve or effect a material reorganization (it being
understood that in no event shall the Company dissolve, liquidate or merge
with any other person or entity (unless the Company is the surviving
entity);
(c) become subject to (including, without limitation, by way of
amendment to or modification of) any agreement or instrument which by its
terms would (under any circumstances) restrict the Company's or any of its
Subsidiaries right to perform the provisions of this Agreement, any Related
Agreement or any of the agreements contemplated hereby or thereby;
(d) materially alter or change the scope of the business of the
Company and its Subsidiaries taken as a whole;
19
(e) (i) create, incur, assume or suffer to exist any indebtedness
(exclusive of trade debt and debt incurred to finance the purchase of
equipment (not in excess of ten percent (10%) per annum of the fair market
value of the Company's assets) whether secured or unsecured other than (w)
capitalized lease obligations of the Company and its Subsidiaries in an
aggregate amount less than or equal to $600,000 at any time outstanding,
(x) the Company's and its Subsidiaries' indebtedness to Laurus, (y)
indebtedness set forth on Schedule 6.12(e) attached hereto and made a part
hereof and any refinancings or replacements thereof on terms no less
favorable to the Purchaser than the indebtedness being refinanced or
replaced, and (z) any debt incurred in connection with the purchase of
assets in the ordinary course of business, or any refinancings or
replacements thereof on terms no less favorable to the Purchaser than the
indebtedness being refinanced or replaced; (ii) cancel any debt owing to it
in excess of $50,000 in the aggregate during any 12 month period; (iii)
assume, guarantee, endorse or otherwise become directly or contingently
liable in connection with any obligations of any other Person, except the
endorsement of negotiable instruments by the Company for deposit or
collection or similar transactions in the ordinary course of business or
guarantees of indebtedness otherwise permitted to be outstanding pursuant
to this clause (e); and
(f) create or acquire any Subsidiary organized in the United States
of America (a "Domestic Subsidiary") after the date hereof unless (i) such
Subsidiary is a wholly-owned Subsidiary of the Company and (ii) such
Subsidiary becomes party to the Master Security Agreement, the Stock Pledge
Agreement and the Subsidiary Guaranty (either by executing a counterpart
thereof or an assumption or joinder agreement in respect thereof) and, to
the extent required by the Purchaser, satisfies each condition of this
Agreement and the Related Agreements as if such Subsidiary were a Domestic
Subsidiary on the Closing Date.
6.13 Reissuance of Securities. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Section 5.8 above at such time as:
(a) the holder thereof is permitted to dispose of such Securities
pursuant to Rule 144(k) under the Securities Act; or
(b) upon resale subject to an effective registration statement after
such Securities are registered under the Securities Act. The Company agrees
to cooperate with the Purchaser in connection with all resales pursuant to
Rule 144(d) and Rule 144(k) and provide legal opinions necessary to allow
such resales provided the Company and its counsel receive reasonably
requested representations from the selling Purchaser and broker, if any.
6.14 Opinion. On the Closing Date, the Company will deliver to the
Purchaser an opinion acceptable to the Purchaser from the Company's external
legal counsel. The Company will provide, at the Company's expense, such other
legal opinions in the future as are deemed reasonably necessary by the Purchaser
(and acceptable to the Purchaser) in connection with the conversion of the Note
and exercise of the Warrant.
6.15 Margin Stock. The Company will not permit any of the proceeds of
the Note or the Warrant to be used directly or indirectly to "purchase" or
"carry" "margin stock" or to repay indebtedness incurred to "purchase" or
"carry" "margin stock" within the respective meanings of each of the quoted
terms under Regulation U of the Board of Governors of the Federal Reserve System
as now and from time to time hereafter in effect.
20
6.16 Foreign Security Agreements and Guarantees. No later than 60 days
following a request by the Purchaser , the Company shall cause each Subsidiary
of the Company requested by the Purchaser and organized in a jurisdiction
outside of the United States (collectively, the "Foreign Subsidiaries") to, to
the extent permitted by applicable law, execute such documentation as the
Purchaser deems necessary or desirable to (x) grant in favor of the Purchaser a
security interest in all of such Foreign Subsidiary's assets, (y) cause the
equity interests of any such Foreign Subsidiary to be pledged to the Purchaser
and (y) cause such Foreign Subsidiary to guaranty the obligations of the Company
set forth in this Agreement and the Related Agreements, in each case pursuant to
documentation governed by the jurisdiction of organization of such Foreign
Subsidiary (the preceding clauses (x) and (y), collectively, the "Foreign
Documentation"). All such Foreign Documentation shall be in form and substance
satisfactory to the Purchaser, and the Company agrees to cause the respective
Foreign Subsidiary to deliver all such other documentation as is requested by
the Purchaser in connection with the execution and delivery of such Foreign
Documentation (including, without limitation, an opinion of counsel satisfactory
to the Purchaser).
6.17 Reservation of Common Stock. At all times on and after August 28,
2004, the Company shall reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the issuance of Common Stock upon the
full conversion of the Note (including all principal, interest and fees related
thereto) and the Warrant.
7. Covenants of the Purchaser. The Purchaser covenants and agrees with
the Company as follows:
7.1 Confidentiality. The Purchaser agrees that it will not disclose,
and will not include in any public announcement, the name of the Company, unless
expressly agreed to by the Company or unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement.
7.2 Non-Public Information. The Purchaser agrees not to effect any
sales in the shares of the Company's Common Stock while in possession of
material, non-public information regarding the Company if such sales would
violate applicable securities law.
8. Covenants of the Company and Purchaser Regarding Indemnification.
8.1 Company Indemnification. The Company agrees to indemnify, hold
harmless, reimburse and defend the Purchaser, each of the Purchaser's officers,
directors, agents, affiliates, control persons, and principal shareholders,
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Purchaser which results, arises out of or is based upon: (i) any
misrepresentation by the Company or any of its Subsidiaries or breach of any
warranty by the Company or any of its Subsidiaries in this Agreement, any other
Related Agreement or in any exhibits or schedules attached hereto or thereto; or
(ii) any breach or default in performance by Company or any of its Subsidiaries
of any covenant or undertaking to be performed by Company or any of its
Subsidiaries hereunder, under any other Related Agreement or any other agreement
entered into by the Company and/or any of its Subsidiaries and Purchaser
relating hereto or thereto.
21
8.2 Purchaser's Indemnification. Purchaser agrees to indemnify, hold
harmless, reimburse and defend the Company and each of the Company's officers,
directors, agents, affiliates, control persons and principal shareholders, at
all times against any claim, cost, expense, liability, obligation, loss or
damage (including reasonable legal fees) of any nature, incurred by or imposed
upon the Company which results, arises out of or is based upon: (i) any
misrepresentation by Purchaser or breach of any warranty by Purchaser in this
Agreement or in any exhibits or schedules attached hereto or any Related
Agreement; or (ii) any breach or default in performance by Purchaser of any
covenant or undertaking to be performed by Purchaser hereunder, or any other
agreement entered into by the Company and Purchaser relating hereto.
9. Conversion of Convertible Note.
9.1 Mechanics of Conversion.
(a) Provided the Purchaser has notified the Company of the
Purchaser's intention to sell the Note Shares and the Note Shares are
included in an effective registration statement or are otherwise exempt
from registration when sold: (i) upon the conversion of the Note or part
thereof, the Company shall, at its own cost and expense, take all necessary
action (including the issuance of an opinion of counsel reasonably
acceptable to the Purchaser following a request by the Purchaser) to assure
that the Company's transfer agent shall issue shares of the Company's
Common Stock in the name of the Purchaser (or its nominee) or such other
persons as designated by the Purchaser in accordance with Section 9.1(b)
hereof and in such denominations to be specified representing the number of
Note Shares issuable upon such conversion; and (ii) the Company warrants
that no instructions other than these instructions have been or will be
given to the transfer agent of the Company's Common Stock and that after
the Effectiveness Date (as defined in the Registration Rights Agreement)
the Note Shares issued will be freely transferable subject to the
prospectus delivery requirements of the Securities Act and the provisions
of this Agreement, and will not contain a legend restricting the resale or
transferability of the Note Shares.
(b) Purchaser will give notice of its decision to exercise its right
to convert the Note or part thereof by telecopying or otherwise delivering
an executed and completed notice of the number of shares to be converted to
the Company (the "Notice of Conversion"). The Purchaser will not be
required to surrender the Note until the Purchaser receives a credit to the
account of the Purchaser's prime broker through the DWAC system (as defined
below), representing the Note Shares or until the Note has been fully
satisfied. Each date on which a Notice of Conversion is telecopied or
delivered to the Company in accordance with the provisions hereof shall be
deemed a "Conversion Date." Pursuant to the terms of the Notice of
Conversion, the Company will issue instructions to the transfer agent
accompanied by an opinion of counsel within one (1) business day of the
date of the delivery to the Company of the Notice of Conversion and shall
cause the transfer agent to transmit the certificates representing the
Conversion Shares to the Holder by crediting the account of the Purchaser's
prime broker with the Depository Trust Company ("DTC") through its Deposit
Withdrawal Agent Commission ("DWAC") system within three (3) business days
after receipt by the Company of the Notice of Conversion (the "Delivery
Date").
22
(c) The Company understands that a delay in the delivery of the Note
Shares in the form required pursuant to Section 9 hereof beyond the
Delivery Date could result in economic loss to the Purchaser. In the event
that the Company fails to direct its transfer agent to deliver the Note
Shares to the Purchaser via the DWAC system within the time frame set forth
in Section 9.1(b) above and the Note Shares are not delivered to the
Purchaser by the Delivery Date, as compensation to the Purchaser for such
loss, the Company agrees to pay late payments to the Purchaser for late
issuance of the Note Shares in the form required pursuant to Section 9
hereof upon conversion of the Note in the amount equal to the greater of:
(i) $200 per business day after the Delivery Date; or (ii) the Purchaser's
actual damages from such delayed delivery. Notwithstanding the foregoing,
the Company will not owe the Purchaser any late payments if the delay in
the delivery of the Note Shares beyond the Delivery Date is solely out of
the control of the Company and the Company is actively trying to cure the
cause of the delay. The Company shall pay any payments incurred under this
Section in immediately available funds upon demand and, in the case of
actual damages, accompanied by reasonable documentation of the amount of
such damages. Such documentation shall show the number of shares of Common
Stock the Purchaser is forced to purchase (in an open market transaction)
which the Purchaser anticipated receiving upon such conversion, and shall
be calculated as the amount by which (A) the Purchaser's total purchase
price (including customary brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (B) the aggregate principal and/or
interest amount of the Note, for which such Conversion Notice was not
timely honored.
Nothing contained herein or in any document referred to herein or delivered
in connection herewith shall be deemed to establish or require the payment
of a rate of interest or other charges in excess of the maximum permitted
by applicable law. In the event that the rate of interest or dividends
required to be paid or other charges hereunder exceed the maximum amount
permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Company to a Purchaser and thus
refunded to the Company.
10. Registration Rights.
10.1 Registration Rights Granted. The Company hereby grants
registration rights to the Purchaser pursuant to a Registration Rights Agreement
dated as of even date herewith between the Company and the Purchaser.
10.2 Offering Restrictions. Except as previously disclosed in the SEC
Reports or in the Exchange Act Filings, or stock or stock options granted to
employees or directors of the Company (these exceptions hereinafter referred to
as the "Excepted Issuances"), neither the Company nor any of its Subsidiaries
will issue any securities with a continuously variable/floating conversion
feature which are or could be (by conversion or registration) free-trading
securities (i.e. common stock subject to a registration statement) prior to the
full repayment or conversion of the Note (together with all accrued and unpaid
interest and fees related thereto) (the "Exclusion Period").
23
11. Miscellaneous.
11.1 Governing Law. THIS AGREEMENT AND EACH RELATED AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. ANY ACTION BROUGHT BY EITHER
PARTY AGAINST THE OTHER CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT AND EACH RELATED AGREEMENT SHALL BE BROUGHT ONLY IN THE STATE COURTS
OF NEW YORK OR IN THE FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK. BOTH
PARTIES AND THE INDIVIDUALS EXECUTING THIS AGREEMENT AND THE RELATED AGREEMENTS
ON BEHALF OF THE COMPANY AGREE TO SUBMIT TO THE JURISDICTION OF SUCH COURTS AND
WAIVE TRIAL BY JURY. IN THE EVENT THAT ANY PROVISION OF THIS AGREEMENT OR ANY
RELATED AGREEMENT DELIVERED IN CONNECTION HEREWITH IS INVALID OR UNENFORCEABLE
UNDER ANY APPLICABLE STATUTE OR RULE OF LAW, THEN SUCH PROVISION SHALL BE DEEMED
INOPERATIVE TO THE EXTENT THAT IT MAY CONFLICT THEREWITH AND SHALL BE DEEMED
MODIFIED TO CONFORM WITH SUCH STATUTE OR RULE OF LAW. ANY SUCH PROVISION WHICH
MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW SHALL NOT AFFECT THE VALIDITY
OR ENFORCEABILITY OF ANY OTHER PROVISION OF THIS AGREEMENT OR ANY RELATED
AGREEMENT.
11.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Purchaser and
the closing of the transactions contemplated hereby to the extent provided
therein. All statements as to factual matters contained in any certificate or
other instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as of the date of
such certificate or instrument.
11.3 Successors. Except as otherwise expressly provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, heirs, executors and administrators of the parties hereto and shall
inure to the benefit of and be enforceable by each person who shall be a holder
of the Securities from time to time, other than the holders of Common Stock
which has been sold by the Purchaser pursuant to Rule 144 or an effective
registration statement. Purchaser may not assign its rights hereunder to a
competitor of the Company.
11.4 Entire Agreement. This Agreement, the Related Agreements, the
exhibits and schedules hereto and thereto and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and no party shall be
liable or bound to any other in any manner by any representations, warranties,
covenants and agreements except as specifically set forth herein and therein.
24
11.5 Severability. In case any provision of the Agreement shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
11.6 Amendment and Waiver.
(a) This Agreement may be amended or modified only upon the
written consent of the Company and the Purchaser.
(b) The obligations of the Company and the rights of the
Purchaser under this Agreement may be waived only with the written
consent of the Purchaser.
(c) The obligations of the Purchaser and the rights of the
Company under this Agreement may be waived only with the written
consent of the Company.
11.7 Delays or Omissions. It is agreed that no delay or omission
to exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement or the Related
Agreements, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring. All remedies, either under this Agreement or the Related
Agreements, by law or otherwise afforded to any party, shall be cumulative and
not alternative.
11.8 Notices. All notices required or permitted hereunder shall
be in writing and shall be deemed effectively given:
(a) upon personal delivery to the party to be notified;
(b) when sent by confirmed facsimile if sent during normal
business hours of the recipient, if not, then on the next business
day;
(c) three (3) business days after having been sent by registered
or certified mail, return receipt requested, postage prepaid; or
(d) one (1) day after deposit with a nationally recognized
overnight courier, specifying next day delivery, with written
verification of receipt.
All communications shall be sent as follows:
If to the Company, to: Secured Digital Applications, Inc.
00 Xxxxx 00X/000
00000 Xxxxxxxx Xxxx, Xxxxxxxx, Xxxxxxxx
Attention: Chief Financial Officer
Facsimile: 000 0000-0000
25
with a copy to: SICHENZIA XXXX XXXXXXXX
XXXXXXX LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Attention: Xxx XxXxxxxx
Facsimile: 000 000-0000
If to the Purchaser, to: Laurus Master Fund, Ltd.
c/o Ironshore Corporate Services ltd.
X.X. Xxx 0000 G.T.
Queensgate House, South Church Street
Grand Cayman, Cayman Islands
Facsimile: 000-000-0000
with a copy to:
Xxxx X. Xxxxxx, Esq.
000 Xxxxx Xxxxxx 00xx Xxxxx
Xxx Xxxx, XX 00000
Facsimile: 000-000-0000
or at such other address as the Company or the Purchaser may designate by
written notice to the other parties hereto given in accordance herewith.
11.9 Attorneys' Fees. In the event that any suit or action is
instituted to enforce any provision in this Agreement, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including, without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
11.10 Titles and Subtitles. The titles of the sections
and subsections of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
11.11 Facsimile Signatures; Counterparts. This Agreement may be
executed by facsimile signatures and in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
11.12 Broker's Fees. Except as set forth on Schedule 11.12
hereof, each party hereto represents and warrants that no agent, broker,
investment banker, person or firm acting on behalf of or under the authority of
such party hereto is or will be entitled to any broker's or finder's fee or any
other commission directly or indirectly in connection with the transactions
contemplated herein. Each party hereto further agrees to indemnify each other
party for any claims, losses or expenses incurred by such other party as a
result of the representation in this Section 11.12 being untrue.
26
11.13 Construction. Each party acknowledges that its legal counsel participated
in the preparation of this Agreement and the Related Agreements and, therefore,
stipulates that the rule of construction that ambiguities are to be resolved
against the drafting party shall not be applied in the interpretation of this
Agreement to favor any party against the other.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
27
IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
SECURED DIGITAL APPLICATIONS, INC. LAURUS MASTER FUND, LTD.
By: /s/ Xxxxxxx Soon-Xxxx Xxx By: /s/ Xxxxx Grin
Name: Xxxxxxx Soon-Xxxx Xxx Name: Xxxxx Grin
Title: Chairman Title: Director
28
Securities Purchase Agreement
SCHEDULE OF EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES
This Schedule of Exceptions is made and given pursuant to Articles 4 and 11 of
..that certain Securities Purchase Agreement dated May 28, 2004 by and among
Secured Digital Applications, Inc. and the Laurus Master Fund, Inc., as the
Purchaser listed in the Securities Purchase Agreement attached thereto (the
"Agreement"). The section numbers in this Schedule of Exceptions correspond to
the section numbers in the Agreement; however, any information disclosed herein
under any section number shall be deemed to be disclosed and incorporated into
any other section number under the Agreement where such disclosure would
otherwise be appropriate. Any terms defined in the Agreement shall have the same
meaning when used in this Schedule of Exceptions as when used in the Agreement
unless the context otherwise requires.
Nothing herein constitutes an admission of any liability or obligation on the
part of the Company nor an admission against the Company's interest. The
inclusion of any schedule herein or any exhibit hereto should not be interpreted
as indicating that the Company has determined that such an agreement or other
matter is necessarily material to the Company. The Purchaser acknowledges that
certain information contained in these schedules may constitute material
confidential information relating to the Company, which may not be used for any
purpose other than that contemplated in the Agreement. Copies of the agreements
described herein are available upon request of the Company for review by the
Purchaser.
Schedule 4.2
Subsidiaries
----------------------------- ------------------------------ ----------------
Name of Subsidiary Address No. of Shares
and Interest
----------------------------- ------------------------------ ----------------
Eystar Media Inc. 000 Xxxx Xxxxxx 00xx Xxxxx, 000 shares
Xxx Xxxx, XX 00000 100%
----------------------------- ------------------------------ ----------------
Animated Electronic 11 Jalan 51A/223, 46100 9,000,000
Industries Sdn Bhd Petaling Jaya, Selangor, shares
Malaysia 100%
----------------------------- ------------------------------ ----------------
Perwimas Telecommunications 11 Jalan 51A/223, 46100 11,478,000
Sdn Bhd Petaling Jaya, Selangor, shares
Malaysia 86.4%
----------------------------- ------------------------------ ----------------
Asiaco Multi Corporation 11 Jalan 51A/223, 46100 2 shares
Sdn Bhd Petaling Jaya, Selangor, 100%
Malaysia .
----------------------------- ------------------------------ ----------------
29
Secured Shipping Sdn Bhd 11 Xxxxx 00X/000, 00000 0 xxxxxx
Xxxxxxxx Xxxx, Xxxxxxxx, 100%
Malaysia
----------------------------- ------------------------------ ----------------
Temasya Wira Sdn Bhd 11 Jalan 51A/223, 46100 15,000 shares
Petaling Jaya, Selangor, 60%
Malaysia
----------------------------- ------------------------------ ----------------
Vista Positive Sdn Bhd 11 Xxxxx 00X/000, 00000 0 xxxxxx
Xxxxxxxx Xxxx, Xxxxxxxx, 100%
Malaysia
----------------------------- ------------------------------ ----------------
Asiaco Material Handling Lot K-9722, Taman Cukai 120,000 shares
(East Coast) Sdn Bhd Utama, 80%
Xxxxx Xxxxxx Xxxxx, 00000
Xxxxxxx, Xxxxxxxxx, Xxxxxxxx
----------------------------- ------------------------------ ----------------
Asiaco Logistic Sdn Bhd 0, Xxxxxx Xxxxxxxx 0, Xxxxx 140,000 shares
Perindustrian Saga Jaya, 67%
00000 Xxxx
Xxxxxxxx
----------------------------- ------------------------------ ----------------
Asiaco Services Sdn Bhd 00, Xxxxxx Xxxxxxxx 0, Xxxxx 450,000 shares
Perindustrian Saga Jaya, 60%
00000 Xxxx
Xxxxxxxx
----------------------------- ------------------------------ ----------------
Asiaco Taiping Sdn Bhd 73, Jalan Taiping Utara, 351,001 shares
34600 Kamunting, 62%
Perak, Malaysia
----------------------------- ------------------------------ ----------------
Schedule 4.3
4.3(a) Capitalization of Subsidiaries
----------------------------- ----------------------- -------------------------- ---------------------------
Name of Subsidiary Address Authorized Capital: Authorized
Capital: Issued
----------------------------- ----------------------- -------------------------- ---------------------------
Eystar Media Inc. 000 Xxxx Xxxxxx 00xx Xxxxxx: 000 Xxxxxx: 000
Xxxxx,
Xxx Xxxx, XX 00000 Preferred: 0 Preferred: 0
----------------------------- ----------------------- -------------------------- ---------------------------
Animated Electronic 00 Xxxxx 00X/000, Xxxxxx: 10,000,000 Common: 9,000,000
Industries Sdn Bhd 00000 Xxxxxxxx Xxxx,
Xxxxxxxx, Xxxxxxxx Preferred: 0 Preferred: 0
----------------------------- ----------------------- -------------------------- ---------------------------
Perwimas Telecommunications 00 Xxxxx 00X/000, Xxxxxx: 20,000,000 Common: 13,288,000
Sdn Bhd 00000 Xxxxxxxx Xxxx,
Xxxxxxxx, Xxxxxxxx Preferred: 0 Preferred: 0
30
----------------------------- ----------------------- -------------------------- ---------------------------
Asiaco Multi Corporation 00 Xxxxx 00X/000, Xxxxxx: 10,000,000 Common: 2
Sdn Bhd 00000 Xxxxxxxx Xxxx,
Xxxxxxxx, Xxxxxxxx . Preferred: 0 Preferred: 0
----------------------------- ----------------------- -------------------------- ---------------------------
Secured Shipping Sdn Bhd 00 Xxxxx 00X/000, Xxxxxx: 100,000 Common: 2
00000 Xxxxxxxx Xxxx,
Xxxxxxxx, Xxxxxxxx Preferred: 0 Preferred: 0
----------------------------- ----------------------- -------------------------- ---------------------------
Temasya Wira Sdn Bhd 00 Xxxxx 00X/000, Xxxxxx: 100,000 Common: 25,000
00000 Xxxxxxxx Xxxx,
Xxxxxxxx, Xxxxxxxx Preferred: 0 Preferred: 0
----------------------------- ----------------------- -------------------------- ---------------------------
Vista Positive Sdn Bhd 00 Xxxxx 00X/000, Xxxxxx: 100,000 Common: 2
00000 Xxxxxxxx Xxxx,
Xxxxxxxx, Xxxxxxxx Preferred: 0 Preferred: 0
----------------------------- ----------------------- -------------------------- ---------------------------
----------------------------- ----------------------- -------------------------- ---------------------------
Asiaco Material Xxxxxxxx Xxx X-0000, Xxxxx Xxxxxx: 500,000 Common: 150,000
(East Coast) Sdn Bhd Cukai Utama,
Jalan Kubang Kurus, Preferred: 0 Preferred: 0
24000 Kemaman,
Trengganu, Malaysia
----------------------------- ----------------------- -------------------------- ---------------------------
Asiaco Logistic Sdn Bhd 0, Xxxxxx Xxxxxxxx 0, Xxxxxx: 500,000 Common: 210,000
Taman Perindustrian
Saga Jaya, 13600 Prai Preferred: 0 Preferred: 0
Malaysia
----------------------------- ----------------------- -------------------------- ---------------------------
Asiaco Services Sdn Bhd 00, Xxxxxx Xxxxxxxx Xxxxxx: 1,000,000 Common: 750,000
4, Taman
Perindustrian Saga Preferred: 0 Xxxxxxxxx: 0
Xxxx, 00000 Xxxx
Xxxxxxxx
----------------------------- ----------------------- -------------------------- ---------------------------
Asiaco Taiping Sdn Bhd 00, Xxxxx Xxxxxxx Xxxxxx: 1,000,000 Common: 569,703
Xxxxx, 00000
Xxxxxxxxx, Xxxxxxxxx: 0 Xxxxxxxxx: 0
Xxxxx, Xxxxxxxx
----------------------------- ----------------------- -------------------------- ---------------------------
31
----------------------------- ----------------------- -------------------------- ---------------------------
Asiaco Transport Sdn Bhd 0, Xxxxxx Xxxx Xxxx Common: 500,000 Common: 173,002
2, Taman
Perindustrian Saga Preferred: 0 Xxxxxxxxx: 0
Xxxx, 00000 Xxxx
Xxxxxxxx
----------------------------- ----------------------- -------------------------- ---------------------------
Asiaco Engineering Sdn Bhd Xxxx 000, XX0 Xxxxxx Xxxxxx: 500,000 Common: 150,000
Xxxxxxxxxx 0, Xxxx
Xxxxxxxxxx Xxxxxx, Xxxxxxxxx: 0 Xxxxxxxxx: 0
00000 Xxxx, Xxxxxxxx
----------------------------- ----------------------- -------------------------- ---------------------------
4.3(b)Agreements for the Purchase or Acquisition of Shares
Options
--------------------------------------- ----------------------------------
Officers and Employees Consultants
--------------------------------------- ----------------------------------
0 Xxxxxxxx Xxxxxxx, 300,000
(Expires 6/30/04)
--------------------------------------- ----------------------------------
Common Stock
---------------------------------------- ----------------------------------
Officers and Employees Consultants
---------------------------------------- ----------------------------------
0 562,000
---------------------------------------- ----------------------------------
The Company may issue shares The Company may issue shares
from time to time as compensation for from time to time as payment
members of its board of directors for the services of consultants not
not to exceed 2,000,000 shares to exceed 2,000,000 shares
---------------------------------------- ----------------------------------
Preferred Stock
---------------------------------------- ---------------------------------------
Officers and Employees Consultants
---------------------------------------- ---------------------------------------
Xxxxxxx Xxx 100,000 Convertible Voting 0
Series A Preferred. Conversion Rate 80
Common/1 Preferred
Dividend: $2.20, accrued quarterly and
paid annually in common stock at $0.28/
share. If not earlier converted,
mandatory conversion after 10 years.
Liquidation Value: $35
---------------------------------------- ---------------------------------------
4.3(c) Assessable Shares
As of May 24, 2004, a share certificate for 1,840,000 shares of the
common stock of Kalan Gold, Inc. , a Colorado corporation, the predecessor in
interest to the Company, had been issued to a former consultant, Xxxxxxx
Xxxxxxx. The Company takes the position that such shares were issued improperly
by the former board of Kalan Gold prior to a reverse merger with Animated
Electronic Industries, Sdn Bhd, and that the services to be performed in
consideration for such shares were not in fact performed. The shares are subject
to a stop-transfer order and it is the view of management that they are not
fully paid and are assessable.
Schedule 4.6
4.6(a) Agreements
32
1. Capital Leases for video communication hardware and peripherals, Maybahn
Finance Bhd, $108,000 at March 31, 2004.
2. Income Tax Liabilities, $55,000.
3. As disclosed in prior Exchange Act filings, Secured Digital Applications is
a systems integrator that has in the ordinary course of business licensed
the technologies and/or products utilized in its services, and has from
time to time in the ordinary course of business entered into reseller
agreements for certain technologies. In providing its owns services to
customers, the ordinary course of business of the Company is to provide a
customary indemnity that the Company has the right to utilize the property
of third parties that are incorporated in the services provided to
customers of the Company.
Schedule 4.7
Sums owed to insiders or affilates. The Company is presently indebted
to Xxxxxxx Soon-Xxxx Xxx in the amount of $28,000 and to LSH Asset Holdings, a
subsidiary, in the amount of $28,000. Xx. Xxx and the subsidiary companies have
from time to time made advances or loans to the Company for the purpose of
providing operating capital, and the Company anticipates that it will continue
to obtain such funds in a manner consitent with past practices disclosed in its
Exchange Act filings.
Schedule 4.8
No applicable disclosures
Schedule 4.9
No applicable disclosures
Schedule 4.12
Litigation
1. An action arising out of certain alleged defamatory statements is pending
in the Superior Court of New Jersey, Law Division, Hunterdon County, as
disclosed in the Company's Exchange Act filings for the period ending March
31, 2004, which is incorporated by reference.
2. The Company reserves it right to issue a capital call to Xxxxxxx Xxxxxxx
for certain common stock subject to a stop order and which the company
believes is not fully paid and is assessable, and to pursue such remedies
as are permitted by Delaware law. The Company incorporates by reference the
descriptions of its dispute with Xx. Xxxxxxx made in the Company's Exchange
Act filings.
33
Schedule 4.13
No applicable disclosures.
Schedule 4.14
No applicable disclosures.
Schedule 4.15
Registration Rights
1. The Company has agreed to and may from time to time issue shares to
consultants registered on Form S-8. At present, 486,111 shares of common
stock are due and owing to Xxx X. XxXxxxxx, Esq., for legal services
performed as a member of Sichenzia Xxxx Xxxxxxxx Xxxxxxx. The Company may
issue options, restricted shares or shares registered on Form S-8 to
consultants in the future, not to exceed 2,000,000 additional shares.
Schedule 4.17
No applicable disclosures.
Schedule 4.21
No applicable disclosures.
Schedule 11.21
No applicable disclosures.
34
EXHIBIT A
FORM OF CONVERTIBLE NOTE
A-1
EXHIBIT B
FORM OF WARRANT
B-1
EXHIBIT C
FORM OF OPINION
1. Each of the Company and each of its Subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware [other jurisdiction] and has all requisite corporate power and
authority to own, operate and lease its properties and to carry on its business
as it is now being conducted.
2. Each of the Company and each of its Subsidiaries has the requisite
corporate power and authority to execute, deliver and perform its obligations
under the Agreement and the Related Agreements. All corporate action on the part
of the Company and each of its Subsidiaries and its officers, directors and
stockholders necessary has been taken for: (i) the authorization of the
Agreement and the Related Agreements and the performance of all obligations of
the Company and each of its Subsidiaries thereunder; and (ii) the authorization,
sale, issuance and delivery of the Securities pursuant to the Agreement and the
Related Agreements. The Note Shares and the Warrant Shares, when issued pursuant
to and in accordance with the terms of the Agreement and the Related Agreements
and upon delivery shall be validly issued and outstanding, fully paid and non
assessable.
3. The execution, delivery and performance by each of the Company and
each of its Subsidiaries of the Agreement and the Related Agreements to which it
is a party and the consummation of the transactions on its part contemplated by
any thereof, will not, with or without the giving of notice or the passage of
time or both:
(a) Violate the provisions of their respective Charter or bylaws; or
(b) Violate any judgment, decree, order or award of any court binding
upon the Company or any of its Subsidiaries; or
(c) Violate any [insert jurisdictions in which counsel is qualified]
or federal law
4. The Agreement and the Related Agreements will constitute, valid and
legally binding obligations of each of the Company and each of its Subsidiaries
(to the extent such person is a party thereto), and are enforceable against each
of the Company and each of its Subsidiaries in accordance with their respective
terms, except:
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; and
(b) general principles of equity that restrict the availability of
equitable or legal remedies.
5. To such counsel's knowledge, the sale of the Note and the subsequent
conversion of the Note into Note Shares are not subject to any preemptive rights
or rights of first refusal that have not been properly waived or complied with.
To such counsel's knowledge, the sale of the Warrant and the subsequent exercise
of the Warrant for Warrant Shares are not subject to any preemptive rights or,
to such counsel's knowledge, rights of first refusal that have not been properly
waived or complied with.
C-1
6. Assuming the accuracy of the representations and warranties of the
Purchaser contained in the Agreement, the offer, sale and issuance of the
Securities on the Closing Date will be exempt from the registration requirements
of the Securities Act. To such counsel's knowledge, neither the Company, nor any
of its affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy and security under circumstances that would cause the offering of the
Securities pursuant to the Agreement or any Related Agreement to be integrated
with prior offerings by the Company for purposes of the Securities Act which
would prevent the Company from selling the Securities pursuant to Rule 506 under
the Securities Act, or any applicable exchange-related stockholder approval
provisions.
7. There is no action, suit, proceeding or investigation pending or, to
such counsel's knowledge, currently threatened against the Company or any of its
Subsidiaries that prevents the right of the Company or any of its Subsidiaries
to enter into this Agreement or any of the Related Agreements, or to consummate
the transactions contemplated thereby. To such counsel's knowledge, the Company
is not a party or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality; nor is
there any action, suit, proceeding or investigation by the Company currently
pending or which the Company intends to initiate.
8. The terms and provisions of the Master Security Agreement and the
Stock Pledge Agreement create a valid security interest in favor of Laurus, in
the respective rights, title and interests of the Company and its Subsidiaries
in and to the Collateral (as defined in each of the Master Security Agreement
and the Stock Pledge Agreement). Each UCC-1 Financing Statement naming the
Company or any Subsidiary thereof as debtor and Laurus as secured party are in
proper form for filing and assuming that such UCC-1 Financing Statements have
been filed with the Secretary of State of Delaware, the security interest
created under the Master Security Agreement will constitute a perfected security
interest under the Uniform Commercial Code in favor of Laurus in respect of the
Collateral that can be perfected by filing a financing statement. After giving
effect to the delivery to Laurus of the stock certificates representing the
ownership interests of each Subsidiary of the Company (together with effective
endorsements) and assuming the continued possession by Laurus of such stock
certificates in the State of New York, the security interest created in favor of
Laurus under the Stock Pledge Agreement constitutes a valid and enforceable
first perfected security interest in such ownership interests (and the proceeds
thereof) in favor of Laurus, subject to no other security interest. No filings,
registrations or recordings are required in order to perfect (or maintain the
perfection or priority of) the security interest created under the Stock Pledge
Agreement in respect of such ownership interests.
.
C-2
' EXHIBIT D
FORM OF ESCROW AGREEMENT
D-3
