GVI SECURITY SOLUTIONS, INC. SUBSCRIPTION AGREEMENT
Exhibit 10.2
GVI
SECURITY SOLUTIONS,
INC.
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT
SUBSCRIPTION
AGREEMENT made as
of this 5th day of
May, 2005 between GVI Security Solutions, Inc., a Delaware corporation (“GVI”)
and E&S International Enterprises, Inc., a California corporation
(“ESI”).
WHEREAS,
pursuant to that certain Alliance Agreement, dated as of the date hereof (the
“Alliance Agreement”), by and between GVI, SSC, Inc. (“SSC”) and ESI, the parent
company of SSC, GVI, SSC and ESI have entered into an arrangement relating to
the sale and distribution by SSC of consumer security products to the Retail
Channel (as such term is defined in the Alliance Agreement); and
WHEREAS,
in consideration for ESI and SSC entering into the Alliance Agreement, ESI
desires to subscribe for, and GVI desires to issue, on and subject to the terms
and conditions of this Agreement (i) up to 2,850,000 shares of Common Stock,
$.001 par value of GVI (the “Common Stock”), and (ii) a Warrant (the “Warrant”)
to purchase 3,000,000 shares of Common Stock of GVI in the form of Exhibit A
hereto;
NOW,
THEREFORE, in consideration of the premises and the mutual covenants set forth
herein, ESI and GVI agree as follows:
| I. |
SUBSCRIPTION
FOR SECURITIES |
1.1 Subject
to the terms and conditions hereinafter set forth, ESI hereby subscribes for,
and GVI agrees to issue to ESI (i) up to 2,850,000 shares of Common Stock (the
“Shares”), as set forth in Section 1.2 below, and (ii) the Warrant to purchase
3,000,000 shares of Common Stock.
1.2 (a)
Provided that the Alliance Agreement has not been terminated by SSC prior to
January 2, 2006, ESI shall be entitled to receive 712,500 Shares (subject to
equitable adjustment in the event of any stock dividend, stock distribution,
stock split or other similar event) on January 2, 2006.
(b) In
addition to the Shares issuable under Section 1.2(a) above, ESI shall be
entitled to receive 712,500 additional Shares (subject to equitable adjustment
in the event of any stock dividend, stock distribution, stock split or other
similar event) for every $15 million of Products (as defined in the Alliance
Agreement) purchased by SSC (and/or its affiliates) from GVI pursuant to the
Alliance Agreement after the date hereof, provided that (i) the Alliance
Agreement has not been terminated prior to January 2, 2006, by SSC, (ii) ESI
shall not be entitled to receive any such Shares until on or after January 2,
2006, and (iii) in no event shall the total number of Shares issuable under this
Section 1.2(b) exceed 2,137,500. By way of example, if SSC purchases $45 million
of Products from GVI between the date hereof and January 2, 2006, and the
Alliance Agreement has not been terminated by SSC, on January 2, 2006, ESI shall
be issued 100% of the 2,850,000 Shares (subject to equitable adjustment in the
event of any stock dividend, stock distribution, stock split, or other similar
event). By way of further example, if (i) SSC purchases $17 million of Products
from GVI between the date hereof and January 2, 2006, (ii) SSC purchases an
additional $13 million of Products from GVI between January 2, 2006, and June
30, 2006, (iii) SSC purchases an additional $15 million of Products from GVI
between June 30, 2006 and November 30, 2006, and (iv) the Alliance Agreement has
not been terminated by SSC, then (A) on January 2, 2006, ESI shall be issued
1,425,000 Shares (subject to equitable adjustment in the event of any stock
dividend, stock distribution, stock split, or other similar event), consisting
of 712,500 Shares vested under Section 1.2(a) and 712,500 vested under Section
1.2(b), (B) on June 30, 2006, ESI shall be issued 712,500 Shares, and (C) on
November 30, 2006, ESI shall be issued 712,500 Shares.
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(c) ESI shall
be issued the Shares it is entitled to receive hereunder no later than fifteen
(15) days following the achievement of the event requiring such Shares to be
issued and upon the delivery by ESI to GVI of a certificate signed by an
authorized officer of ESI certifying that the representations and warranties of
ESI contained in Sections 1.4 and 1.5 hereof are true and correct in all
material respects on the date of issuance of such Shares.
1.3 Concurrently
with the execution of this Agreement, GVI shall issue to ESI the Warrant to
purchase 3,000,000 shares of Common Stock at a price of $1.50 per
share.
1.4 ESI
represents and warrants to GVI that as of the date of this Agreement and as of
the date any Shares or Warrants are issued to ESI, that ESI is acquiring the
Shares and Warrants for its own account for investment and not with a view to
any sale or distribution thereof within the meaning of the Securities Act of
1933, as amended (the “Securities Act”). ESI understands that the Shares and
Warrants and the shares of Common Stock underlying the Warrants (the “Warrant
Shares”) have not been registered under the Securities Act, by reason of their
issuance by GVI in a transaction exempt from the registration requirements of
the Securities Act, and that any such unregistered securities must be held by
ESI indefinitely unless a subsequent disposition thereof is registered under the
Securities Act (including, without limitation, registration pursuant to this
Agreement) and any applicable state securities or blue sky laws or unless an
exemption from registration is available. ESI is knowledgeable, sophisticated
and experienced in making investments, and is qualified to make decisions with
respect to investment in the securities, it has been afforded the opportunity
during the course of negotiating the transactions contemplated by this Agreement
to ask questions of and secure such information from GVI and its officers and
directors as it deems necessary to evaluate the merits of entering into this
Agreement. ESI represents that it has assets in excess of $5,000,000 and has not
been formed for the specific purpose of acquiring the Shares and Warrants.
1.5 ESI
consents to the placement of a legend on any certificate or other document
evidencing the Shares, the Warrants and the Warrant Shares, when issued, stating
that such securities have not been registered under the Securities Act and
setting forth or referring to the restrictions on transferability and sale
thereof.
| II. |
REPRESENTATIONS
BY GVI |
2.1 GVI
represents and warrants to ESI that as of the date of this
Agreement:
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(a) GVI is a
corporation duly organized, existing and in good standing under the laws of the
State of Delaware and has the corporate power to conduct the business which it
conducts and proposes to conduct.
(b) The
execution, delivery and performance of this Agreement by GVI has been duly
approved by the Board of Directors of GVI and all other actions required to
authorize and effect the issuance of the Shares and Warrants and the Warrant
Shares upon the exercise of the Warrants will have been duly taken and
approved.
(c) The
Shares and Warrants have been duly and validly authorized, and when issued in
accordance with the terms hereof, shall be validly issued, fully paid and
non-assessable, free and clear from all taxes, liens, claims and encumbrances,
restrictions, other than those imposed by applicable securities laws, and free
of preemptive rights and not subject to any voting or trust agreements.
(d) The
issuance of the Warrant Shares issued or issuable from time to time upon the
exercise of the Warrants will be, and at all times prior to such exercise, will
have been, duly authorized, duly reserved for issuance upon such exercise and
payment of the exercise price of the Warrants, and will be upon such exercise
and payment, validly issued, fully paid and non-assessable, free and clear from
all taxes, liens, claims and encumbrances and restrictions, other than those
imposed by applicable securities laws.
| III. |
REGISTRATION
RIGHTS |
3.1 GVI
grants to ESI the following registration rights with respect to the Shares and
Warrant Shares (collectively, the “Registrable
Securities”). As to
any particular Registrable Securities, such securities shall cease to constitute
Registrable Securities when (a) a registration statement with respect to the
sale of such securities shall have been declared effective under the Securities
Act and such securities shall have been disposed of in accordance with a method
of disposition contemplated by the registration statement, (b) such securities
shall have been sold in satisfaction of all applicable conditions to the resale
provisions of Rule 144 under the Securities Act (or any successor provision
thereto), (c) such securities shall have been transferred, new certificates
evidencing such securities without legends restricting further transfer shall
have been delivered by GVI , and subsequent public distribution of such
securities shall neither require registration under the Securities Act nor
qualification (or any similar filing) under any state securities or “blue sky”
law then in effect, or (d) such securities shall have ceased to be
outstanding.
3.2 GVI, at
its sole cost and expense, has effected the registration of the Registrable
Securities under the Securities Act under a registration statement (the
“Registration
Statement”) filed
with the Securities and Exchange Commission (the “Commission”) and
declared effective prior to the date hereof.
3.3 Subject
to Section 3.4, GVI shall use commercially reasonable best efforts to keep the
Registration Statement continuously effective, supplemented and amended to the
extent necessary to ensure that it is available for resales of Registrable
Securities, and to ensure that it conforms with the requirements of the
Securities Act and the policies, rules and regulations of the Commission as
announced from time to time, for a period expiring on the earlier to occur of
(i) the date when all Shares and Warrant Shares no longer constitute Registrable
Securities and (ii) December 31, 2006, provided,
however, that
such period shall be extended for the duration of any Suspension Period and any
other period during which the sale of Registrable Securities may not be effected
under the Registration Statement as a result of any stop order, injunction, or
other order or requirement of the Commission.
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3.4 GVI may
suspend the effectiveness of the Registration Statement, or, without suspending
such effectiveness, instruct ESI that no sales of Registrable Securities
included in the Registration Statement may be made if, in GVI’s reasonable
judgment, GVI would be required to disclose any actions taken or proposed to be
taken by GVI, which disclosure would have a material adverse effect on GVI or on
such actions (a “Suspension
Period”) by
providing ESI with written notice of such Suspension Period and the reasons
therefor. GVI shall use its reasonable efforts to provide such notice a
reasonable number of days prior to the commencement of a Suspension Period,
provided that in any event GVI shall provide such notice no later than the
commencement of such Suspension Period. The Suspension Period shall not exceed
90 days in any calendar year. In addition, GVI shall not be required to keep the
Registration Statement effective, or may without suspending such effectiveness
instruct the holders of Registrable Securities included in the Registration
Statement not to sell such Registrable Securities, during any period during
which GVI is instructed, directed, ordered or otherwise requested by any
governmental agency or self-regulatory organization to stop or suspend such
trading or sales (“Supplemental Suspension Period”) and such Supplemental
Suspension Period shall not be included in the calculation of the Suspension
Period referred to above. GVI shall give prompt written notice to ESI of the
termination of any Suspension Period or Supplemental Suspension
Period.
3.5 ESI shall
furnish to GVI in writing, as soon as practicable after a written request
therefor by GVI, any information or documentation reasonably requested by GVI,
in each case, for use in connection with the Registration Statement or
prospectus or preliminary prospectus included therein. ESI agrees to furnish
promptly to GVI, for so long as any registration statement which includes any of
ESI’s Registrable Securities is effective, all information required to be
disclosed in order to make the information previously furnished to GVI by ESI
not materially misleading.
3.6 GVI and
ESI, as applicable, further warrant, covenant and agree as follows:
(a) GVI will,
at its sole cost and expense, prepare and file with the Commission such
amendments and supplements to the Registration Statement and the prospectus used
in connection therewith as may be necessary to keep the Registration Statement
effective and to comply with the provisions of the Securities Act with respect
to the disposition of all Registrable Securities covered by such Registration
Statement for the time period specified in Section 3.3.
(b) Following
the effective date of the Registration Statement, GVI shall furnish ESI such
number of prospectuses as ESI shall reasonably request.
(c) GVI shall
pay all costs, fees and expenses in connection with the preparation and filing
of the Registration Statement, including, without limitation, GVI’s legal and
accounting fees and printing expenses. ESI shall pay its own legal
expenses.
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(d) GVI will
use commercially reasonable best efforts to qualify or register the Registrable
Securities included in the Registration Statement for offering and sale under
the securities or blue sky laws as are requested by ESI; provided, that
GVI shall not be obligated to execute or file any general consent to service of
process or to qualify as a foreign corporation to do business under the laws of
any such jurisdiction.
3.7 GVI will
indemnify and hold harmless each holder of Registrable Securities which are
included in a registration statement pursuant to the provisions of Section 3.1
hereof, its directors and officers, and any underwriter (as defined in the
Securities Act) for such holder and each person, if any, who controls such
holder or such underwriter within the meaning of the Securities Act, from and
against, and will reimburse such holder and each such underwriter and
controlling person with respect to, any and all loss, damage, liability, cost
and expense to which such holder or any such underwriter or controlling person
may become subject under the Securities Act or otherwise, insofar as such
losses, damages, liabilities, costs or expenses are caused by any untrue
statement or alleged untrue statement of any material fact contained in such
registration statement, any prospectus contained therein or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading; provided, however, that GVI will not be liable
in any such case to the extent that any such loss, damage, liability, cost or
expenses arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with information
furnished by such holder, such underwriter or such controlling person in writing
specifically for use in the preparation thereof.
3.8 Each
holder of Registrable Securities included in a registration pursuant to the
provisions of Section 3.1 hereof will indemnify and hold harmless GVI, its
directors and officers, any controlling person and any underwriter from and
against, and will reimburse GVI, its directors and officers, any controlling
person and any underwriter with respect to, any and all loss, damage, liability,
cost or expense to which GVI or any controlling person and/or any underwriter
may become subject under the Securities Act or otherwise, insofar as such
losses, damages, liabilities, costs or expenses are caused by any untrue
statement or alleged untrue statement of any material fact contained in such
registration statement, any prospectus contained therein or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was so made in reliance upon and in strict conformity with
written information furnished by or on behalf of such holder specifically for
use in the preparation thereof.
3.9 Promptly
after receipt by an indemnified party pursuant to the provisions of Sections 3.7
or 3.8 of notice of the commencement of any action involving the subject matter
of the foregoing indemnity provisions such indemnified party will, if a claim
thereof is to be made against the indemnifying party pursuant to the provisions
of said Sections 3.7 or 3.8, promptly notify the indemnifying party of the
commencement thereof; but the omission to so notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than hereunder. In case such action is brought against any indemnified
party and it notifies the indemnifying party of the commencement thereof, the
indemnifying party shall have the right to participate in, and, to the extent
that it may wish, jointly with any other indemnifying party similarly notified,
to assume the defense thereof, with counsel satisfactory to such indemnified
party, provided, however, if counsel for the indemnifying party concludes that a
single counsel cannot under applicable legal and ethical considerations,
represent both the indemnifying party and the indemnified party, the indemnified
party or parties have the right to select separate counsel to participate in the
defense of such action on behalf of such indemnified party or parties. After
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party will not be liable to such
indemnified party pursuant to the provisions of said Sections 3.7 or 3.8 for any
legal or other expense subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation, unless (i) the indemnified party shall have employed counsel in
accordance with the provisions of the preceding sentence, (ii) the indemnifying
party shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after the notice of the
commencement of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party.
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| IV. |
MISCELLANEOUS |
4.1 Any
notice or other communication given hereunder shall be deemed sufficient if in
writing and sent by registered or certified mail, return receipt requested,
addressed to GVI, at 0000 Xxxxx Xxxxxx Xxxxx, Xxxxx 000, Xxxxxxxxx, Xxxxx 00000,
Attn: Xxxxxxxxx X. Xxxxxxxx, and to ESI at its address indicated on the
signature page of this Subscription Agreement. Notices shall be deemed to have
been given on the date of mailing, except notices of change of address, which
shall be deemed to have been given when received.
4.2 This
Subscription Agreement shall not be changed, modified or amended except by a
writing signed by the parties to be charged, and this Subscription Agreement may
not be discharged except by performance in accordance with its terms or by a
writing signed by the party to be charged.
4.3 This
Subscription Agreement shall be binding upon and inure to the benefit of the
parties hereto and to their respective heirs, legal representatives, successors
and assigns. This Subscription Agreement sets forth the entire agreement and
understanding between the parties as to the subject matter thereof and merges
and supersedes all prior discussions, agreements and understandings of any and
every nature among them.
4.4 Notwithstanding
the place where this Subscription Agreement may be executed by any of the
parties hereto, the parties expressly agree that all the terms and provisions
hereof shall be construed in accordance with and governed by the laws of the
State of New York. The parties hereby agree that any dispute which may arise
between them arising out of or in connection with this Subscription Agreement
shall be adjudicated before a court located in New York City and they hereby
submit to the exclusive jurisdiction of the courts of the State of New York
located in New York, New York and of the federal courts in the Southern District
of New York with respect to any action or legal proceeding commenced by any
party, and irrevocably waive any objection they now or hereafter may have
respecting the venue of any such action or proceeding brought in such a court or
respecting the fact that such court is an inconvenient forum, relating to or
arising out of this Subscription Agreement or any acts or omissions relating to
the sale of the securities hereunder, and consent to the service of process in
any such action or legal proceeding by means of registered or certified mail,
return receipt requested, in care of the address set forth below or such other
address as the undersigned shall furnish in writing to the other.
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4.5 This
Subscription Agreement may be executed in counterparts, each of which will be
deemed an original, but all of which together will constitute one and the same
instrument.
4.6 The
holding of any provision of this Subscription Agreement to be invalid or
unenforceable by a court of competent jurisdiction shall not affect any other
provision of this Subscription Agreement, which shall remain in full force and
effect.
4.7 The
parties agree to execute and deliver all such further documents, agreements and
instruments and take such other and further action as may be necessary or
appropriate to carry out the purposes and intent of this Subscription
Agreement.
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IN
WITNESS WHEREOF, the parties have executed this Subscription Agreement as of the
day and year first written above.
E&S
INTERNATIONAL ENTERPRISES, INC.
By:______________________________
Name:
Title:
Title:
____________________________________
Address
Address
GVI
SECURITY SOLUTIONS, INC.
By:______________________________
Name: Xxxxxxxxx X. Xxxxxxxx
Title: Chief Executive Officer and
Chief Financial Officer
EXHIBIT
A
FORM
OF WARRANT
