Exhibit 10.4
SecureCare Technologies, Inc.
$1,000,000 Series B Convertible
Preferred Stock Offering
Subscription Package
Gryphon Financial Securities Corp.
Placement Agent
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT made as of this _____ day of _______ 2004
between SecureCare Technologies, Inc., a corporation organized under the laws of
the State of Nevada with offices at 0000 Xxx Xxxxx Xxxx, Xxxxx 000, Xxxxxx,
Xxxxx 00000 (the "Company"), and the undersigned (the "Subscriber" and together
with each of the other subscribers in the Offering (defined below), the
"Subscribers").
WHEREAS, the Company desires to offer and sell on a "best efforts"
basis, up to ten (10) units (a "Unit" and collectively, the "Units"), in a
private placement (the "Offering"), at a purchase price of $100,000 per Unit;
WHEREAS, each Unit consists of (i) ninety thousand nine hundred nine
(90,909) shares of the Company's Series B Convertible Preferred Stock (the "B
Shares"), each B Share being initially convertible into one (1) share (the
"Conversion Shares") of the Company's common stock, par value $.001 per share
(the "Common Stock"), and (ii) a common stock purchase warrant in the form set
forth on EXHIBIT A hereto (a "Warrant" and, collectively, the "Warrants"), to
purchase at an exercise price of $1.25 per share, eighteen thousand one hundred
eighty two (18,182) shares of Common Stock (the "Warrant Shares");
WHEREAS, the B Shares shall have the rights and be subject to
limitations as set forth in the Company's Certificate of Designation annexed
hereto as EXHIBIT B;
WHEREAS, Gryphon Financial Securities Corp. is acting as placement
agent (the "Placement Agent") in the Offering on a "reasonable efforts" basis
and will receive the compensation set forth in Section 3.2 of this Agreement;
and
WHEREAS, the Conversion Shares and the Warrant Shares are entitled to
the registration rights as set forth in the Registration Rights Agreement (the
"Registration Rights Agreement"), attached hereto as EXHIBIT C; and
WHEREAS, the Subscriber is delivering simultaneously herewith a
completed confidential investor questionnaire (the "Questionnaire").
NOW, THEREFORE, for and in consideration of the promises and the mutual
covenants hereinafter set forth, the parties hereto do hereby agree as follows:
I. SUBSCRIPTION FOR UNITS AND REPRESENTATIONS BY AND COVENANTS OF
SUBSCRIBER
1.1. Subscription for Units. Subject to the terms and conditions
hereinafter set forth, the Subscriber hereby subscribes for and agrees to
purchase from the Company such aggregate amount of Units as is set forth upon
the signature page hereof; and the Company agrees to sell such Units to the
Subscriber for said purchase price subject to the Company's right to sell to the
Subscriber such lesser number of Units as the Company may, in its sole
discretion, deem necessary or desirable. The purchase price is payable by
certified or bank check made payable to "Xxxxx X. Xxxxxxx, Esq. as Escrow Agent
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for SecureCare Technologies, Inc." or by wire transfer of funds,
contemporaneously with the execution and delivery of this Subscription
Agreement. Wire transfers should be made to Xxxxx X. Xxxxxxx, Esq. - XXXX
Account, Account Number 291-500-155-865, Chase Manhattan Bank, Routing Number
000000000, Branch 291, 000 Xxx Xxxx Xxxxx Xxxx, Xxxxxxx, Xxx Xxxx 00000. The
Units, the B Shares, the Conversion Shares and the Warrant Shares (shall
collectively be referred to hereunder as the "Securities"). The Warrants and
certificates for the B Shares shall be delivered by the Company no later than
the later of (i) ten (10) days after the Closing.
1.2. Reliance on Exemptions. The Subscriber acknowledges that this
Offering has not been reviewed by the United States Securities and Exchange
Commission ("SEC") or any state agency because of the Company's representations
that this is intended to be a nonpublic offering exempt from the registration
requirements of the Securities Act of 1933, as amended (the "1933 Act") and
state securities laws. The Subscriber understands that the Company is relying in
part upon the truth and accuracy of, and the Subscriber's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Subscriber set forth herein in order to determine the availability of such
exemptions and the eligibility of the Subscriber to acquire the Units.
1.3. Investment Purpose. The Subscriber represents that the
Securities are being purchased for its own account, for investment purposes only
and not for distribution or resale to others in contravention of the
registration requirements of the 1933 Act. The Subscriber agrees that it will
not sell or otherwise transfer the Securities unless they are registered under
the 1933 Act or unless an exemption from such registration is available.
1.4. Accredited Investor. The Subscriber represents and warrants
that it is an "accredited investor" as such term is defined in Rule 501 of
Regulation D promulgated under the 1933 Act, as indicated by its responses to
the Questionnaire, and that it is able to bear the economic risk of any
investment in the Units. The Subscriber further represents and warrants that the
information furnished in the Questionnaire is accurate and complete in all
material respects.
1.5. Description of the Company:
The Company believes it is the leading developer of proprietary
internet-based document exchange and e-signature technology solutions. Its
technology can be applied to any document requiring authentication, verification
and document process flow. The Company is marketing its products to a growing
network of U.S. based industries including the in-home patient industry. The
network, consisting of Home Healthcare Agencies ("HHAs"), Durable Medical
Equipment Agencies ("DMEs"), Hospices and their referring physician base, is
highly regulated. In-home patient services are extremely paper intensive to
provider and physician staffs. Numerous reviews and signatures are required from
various personnel such as doctors, nurses and administrators. The Company
believes healthcare has lagged behind other industries as it relates to
technology and workflow efficiencies resulting in increased cost structure,
delayed reimbursements and reduced cash flows. Additionally, the industry is
exposed to regulatory issues for mishandling of patient records and
reimbursement claims procedures as well as subsequent Medicare fraud and abuse
or allegations thereof.
Home healthcare providers are served by practice management software
offered to each segment of the industry by numerous vendors including various
home-grown systems. The Company believes these vendors offer some but not all of
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the functionality needed by the providers' offices. The Company believes the
dominant solutions providers to this industry are:
McKesson Siemens
Patient Care Technologies, Inc Xxxxx
Misys Healthcare Systems Beyond Now (Cerner)
Infosys Computer Unlimited
Fastrack CareCentric
Internally developed solutions are utilized by larger organizations
such as:
Gentiva Health Services Amedisys Inc.
Interim/Spherion Apria Healthcare
Rotech Healthcare, Inc. Lincare
The Company believes that Practice Management Software is a mature
market and offers homecare providers a range of solutions with various
functionalities including documenting patient records required by the Center for
Medicare and Medicaid Services ("CMS"), billing and scheduling. Because of the
maturation of the industry, the Company believes there is little differentiation
or competitive advantage among solution providers.
The Company believes it offers one of the only solutions addressing the
problem of efficient handling and transferring of an endless number of forms and
documents used by the targeted industry. Without SecureCare, documents such as
verbal orders, plan of care 485s, 486s and 487s, letters of medical necessity,
physician orders, physician prescriptions, hospital admission forms, discharge
forms and authorization forms are processed and delivered from healthcare
provider to referring physicians for review and signatures. The documents are
returned to the provider by hand delivery, fax or mail. If there is missing
information, the documents must be returned again and the cycle continues; a
common problem for providers' and physicians' offices. When completed, the
documents are used to record reimbursement claims sent to Medicare, Medicaid and
other third party payors. This process must be performed in compliance with the
Health Insurance Portability and Accountability Act ("HIPAA") passed by
Congress. The Company believes this existing paper environment has fostered
significant inefficiencies, particularly in the area of Medicare billing,
resulting in subsequent increased costs to tax payers and healthcare overall.
Medicare regulations are driving the need for additional technology solutions
that will support the providers and physicians by speeding the administration of
care documentation and reducing operations costs in the industry. The Company
believes that SecureCare is at the forefront of this move toward technology
enabled efficiencies.
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RISK FACTORS
RISK OF INVESTMENT. THE SUBSCRIBER RECOGNIZES THAT THE PURCHASE OF THE
UNITS INVOLVES A HIGH DEGREE OF RISK, INCLUDING, BUT NOT LIMITED TO THE RISKS
SET FORTH IN THIS SECTION.
ALL SHARE AND PER SHARE INFORMATION IN THIS SUBSCRIPTION AGREEMENT
REFLECTS A 1.5 FOR 1 FORWARD STOCK SPLIT OF THE COMMON STOCK THAT OCCURED IN
FEBRUARY 2004.
Relationship to and influence and control by the Placement Agent; Conflict of
Interest.
As of the date of this Subscription Agreement, Gryphon Opportunities
Fund I, LLC (the "Fund"), owns in the aggregate 13,980,638 shares of Common
Stock (approximately 70% of the Company's issued and outstanding Common Stock).
In addition, the Fund has approximately $544,000 aggregate principal amount of
loans due from the Company on various dates through and until October 2010. Such
stock ownership, indebtedness of the Company to the Placement Agent and its
affiliates and certain additional rights and compensation to be received by the
Placement Agent in this Offering creates a conflict of interest for the
Placement Agent in acting in the best interests of itself as opposed to the
interest of investors in this Offering and provides the Placement Agent with
control over the Company both before and following this Offering.
Chapter 11 Reorganization.
On May 13, 2003 (the "Commencement Date"), the Company filed a
voluntary petition under Chapter 11 of Title 11 of the United States Bankruptcy
Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the
Western District of Texas (the "Bankruptcy Court"), Case No. 03-12387 as a part
of its financial strategy to ease the company's debt service associated with
years of high cost technology development. During the course of its Chapter 11
proceeding, the Company operated its business and managed its assets as a
debtor-in-possession pursuant to sections 1107(a) and 1108 of the Bankruptcy
Code.
On August 6, 2003, the Company filed a proposed Disclosure Statement
and Joint Plan of Reorganization, dated August 5, 2003, (the "Plan") with the
Bankruptcy Court. On October 23, 2003, after notice and a hearing, the
Bankruptcy Court signed the Disclosure Statement Order, approving the Company's
Disclosure Statement. On October 24, 2003, the Debtors commenced the
solicitation of holders of claims entitled to vote to accept or reject the Plan.
On December 2, 2003, after notice and a hearing, the Bankruptcy Court entered
its Findings of Fact, Conclusions of Law and Order confirming the Debtor's Joint
Plan of Reorganization dated as of August 5, 2003 (the "Confirmation Order").
The Plan became final and non-appealable on December 13, 2003. The Effective
Date of the Plan is December 15, 2003. A copy of the Plan (as amended by the
Confirmation Order dated December 2, 2003) is included in Exhibit D hereto. On
April 22, 2004, the Company submitted a motion to modify the Plan after its
confirmation. The motion to modify the Plan consisted of immaterial changes to
the original Plan. A copy of the Motion to Modify the Plan is also included in
Exhibit D hereto. The Company's reorganization under the Bankruptcy Code may
adversely affect its ability to attract and maintain customers, which would have
a material adverse effect on the Company's operations.
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Qualified opinion by independent public accountants.
The Company has generated limited revenue, has incurred substantial
losses since its inception and currently is experiencing a substantial cash flow
deficiency from operations. The Company incurred net losses of approximately
$3.9 million during 2001 and approximately $2.7 million during 2002. The Company
incurred net income of approximately $1.9 million during 2003 (including $3.3
million in income resulting from non-recurring reorganization items). The
Company incurred a net loss of approximately $1.4 million during the nine months
ended September 30, 2004. Every report issued by the Company's independent
public accountants on the Company's financial statements has expressed
substantial doubt about the Company's ability to continue as a going concern.
Limited operating history; Net losses; Accumulated deficit; No assurance of
profitability.
To date the Company has not generated any material income. The Company
has incurred substantial losses since its inception and expects to incur
substantial additional losses for the foreseeable future. The Company incurred
net losses of $3.9 million during 2001 and $2.7 million during 2002. The Company
incurred a net loss in year 2003 of $1.4 million (excluding $3.3 million in
income resulting from non-recurring reorganization items). Based upon the
unaudited final statements of the Company, the Company incurred a net loss of
$1.4 million during the nine months ended September 30, 2004. The Company's
ability to generate significant revenue is uncertain, and it may never achieve
profitability.
Dependence on net proceeds; No minimum amount of Units.
The Company does not have sufficient revenues and cash to fund its
proposed operations and is wholly dependent upon the net proceeds of this
Offering to fund its current and proposed operations. However, there is no
minimum number of Units that must be sold before the Company can sell Units and
apply the net proceeds there from in the manner set forth in this Memorandum.
Moreover, there is no commitment to purchase Units and there can be no assurance
that the Company will sell all ten (10) Units offered hereby or any Units.
Furthermore, there can be no assurance that the amount of net proceeds received
by the Company from the ale of less than all ten (10) Units will be adequate to
enable the Company to pursue its intended operations in the matter or to the
extent it contemplates herein. As a result, investors will have a greater risk
of loss in the event the Company is unable to sell a sufficient number of Units
in this Offering on a timely basis in order to adequately fund its current and
proposed operations.
Need for additional capital.
The Company believes that if it sells all ten (10) Units in this
Offering the net proceeds therefrom will satisfy its operating capital needs for
at least six (6) months based upon its currently anticipated business
activities. The Company anticipates incurring substantial losses in the future
and will likely require significant additional financing following this
Offering, regardless of the net proceeds received, in order to satisfy its cash
requirements. The Company's need for additional capital to finance its
operations and growth will be greater should, among other things, its revenue or
expense estimates prove to be incorrect, particularly if the Company does not
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sell a sufficient number of Units in this Offering. If less than such ten (10)
Units are sold in the Offering are completed, the Company may be required to
reduce the scope of its business activities until other financing can be
obtained. The Company cannot predict the timing or amount of its capital
requirements at this time. The Company may not be able to obtain additional
financing in sufficient amounts or on acceptable terms when needed, which could
adversely affect its operating results and prospects.
The Company will not become profitable unless it achieves sufficient levels of
physician penetration and market acceptance of its services.
The Company's business model depends upon usage by a large number of
physicians with a high volume of home healthcare transactions and the sale of
home healthcare e-commerce services to payers and other healthcare constituents.
The acceptance by physicians and other healthcare providers of the Company's
solutions will require adoption of new methods of conducting business and
exchanging information. The Company cannot assure you that physicians or other
health care providers will integrate its services into their office workflow, or
that the healthcare market will accept the Company's services as a replacement
for traditional methods of conducting home healthcare transactions. The
healthcare industry uses existing computer systems that may be unable to access
our web-based solutions. Customers using existing systems may refuse to adopt
new systems when they have made extensive investment in hardware, software and
training for existing systems or if they perceive that the Company's products or
services will not adequately protect proprietary information. Failure to achieve
broad physician or health care organization penetration or successfully
contracting with healthcare participants would have a material adverse effect on
the Company's business.
Achieving market acceptance for the Company's products and services
will require substantial marketing efforts and expenditure of significant funds
to create awareness and demand by participants in the healthcare industry. The
Company's management believes that it must gain significant market share with
its services before the Company's competitors introduce alternative services
with features similar to its services. There can be no assurance that the
Company will be able to succeed in positioning its services as a preferred
method for healthcare e-commerce, or that any pricing strategy the Company
develops will be economically viable or acceptable to the market. Failure to
successfully market the Company's products and services would have a material
adverse effect on its business, financial condition and operating results.
The Company's business prospects will suffer if it is not able to quickly and
successfully deploy its systems and products.
The Company believes its business prospects will suffer if it does not
deploy its services quickly. The Company began allowing access to its web-based
EMR system in November of 2000 and intends to expand deployment of access to its
web-based EMR services during the year 2004, although there can be no assurance
that the Company will be able to continue to do so during this time, or at all.
In order to deploy the Company's services, it must integrate their architecture
with physicians', payors' and suppliers' systems. The Company will need to
expend resources to integrate its systems with the existing computer systems of
large healthcare organizations, home health care organizations and physicians.
The Company has limited or no experience in doing so, and may experience delays
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in the integration process. These delays would, in turn, delay the Company's
ability to generate revenue from its services and may have a material adverse
effect on its business, financial condition and operating results.
Once the Company has deployed its EMR system, it may need to expand and
adapt it to accommodate additional users, increased transaction volumes and
changing customer requirements. This expansion and adaptation could be costly.
The Company may be unable to expand or adapt our network infrastructure to meet
additional demand or their customers' changing needs on a timely basis and at a
commercially reasonable cost, or at all. Any failure to deploy, expand or adapt
the Company's system quickly could have a material adverse effect on the
Company's business, financial condition and operating results.
The Company does not currently have a substantial customer base.
The Company currently does not have a substantial customer base. In
addition, the Company currently generates a significant portion of its revenue
from providing its products and services in Texas, Louisiana, North Carolina,
Pennsylvania, Florida, Minnesota, Wisconsin, Michigan, Oklahoma, Missouri,
Indiana, Ohio, Alabama, California, Illinois and Mississippi. If the Company
does not generate as much revenue in these markets or from these payers as
expected or expand to additional markets and payers as expected, its revenue
could be significantly reduced, which would have a material adverse effect on
its business, financial condition and operating results.
Competition.
The Company's business operates in a highly competitive environment.
Many healthcare industry participants are consolidating to create integrated
healthcare delivery systems with greater market power. As the healthcare
industry consolidates, competition to provide products and services to industry
participants will become more intense and the importance of establishing a
relationship with each industry participant will become greater. These industry
participants may try to use their market power to negotiate price reductions for
the Company's products and services. If forced to reduce the Company's prices,
its operating results could suffer if it cannot achieve corresponding reductions
in the Company's expenses.
The Company may experience significant delays in generating revenues from its
services because potential customers could take a long time to evaluate the
purchase of its services.
A key element of the Company's strategy is to market its services
directly to large healthcare organizations, including home health care
organizations and nursing home facilities. The Company does not control many of
the factors that will influence physicians' and suppliers' buying decisions. The
Company expects that the sales and implementation process will be lengthy and
will involve some technical evaluation and commitment of capital and other
resources by home health agencies, nursing homes, physicians and suppliers. The
sale and implementation of the Company's services are subject to delays due to
such organizations' internal budgets and procedures for approving expenditures
and deploying new technologies within their networks.
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The Company's business will suffer if the integrity and security of its systems
are inadequate.
If the Company is successful in delivering its web-based healthcare
e-commerce services, its business could be harmed if the Company or its present
or future customers were to experience any system delays failures or loss of
data. Although the Company intends to have safeguards for emergencies, the
occurrence of a catastrophic event or other system failure at its facilities
could interrupt the Company's operations or result in the loss of stored data.
In addition, the Company will depend on the efficient operation of Internet
connections from customers to its systems. These connections, in turn, depend on
the efficient operation of web browsers, Internet service providers and Internet
backbone service providers. In the past, Internet users have occasionally
experienced difficulties with Internet and online services due to system
failures. Any disruption in Internet access provided by third parties could have
a material adverse effect on the Company's business, financial condition and
operating results. Furthermore, the Company will be dependent on hardware
suppliers for prompt delivery, installation and services of equipment used to
deliver the Company's services.
Despite the implementation of security measures, the Company's infrastructure
may be vulnerable to damage from physical break-ins, computer viruses,
programming errors, attacks by hackers or similar disruptive problems.
A material security breach could damage the Company's reputation or
result in liability to the Company. The Company retains confidential customer
information in its processing center and on its servers. An experienced computer
user who is able to access the Company's computer systems could gain access to
confidential company information. Furthermore, the Company may not have a timely
remedy to secure its system against any hacker who has been able to penetrate
the Company's system. Therefore, it is critical that the Company's facilities
and infrastructure remain and are perceived by the marketplace to be secure. The
occurrence of any of these events could result in the interruption, delay or
cessation of service, which could have a material adverse effect on the
Company's business, financial condition and operating results.
A significant barrier to e-commerce and communications are the issues
presented by the secure transmission of confidential information over public
networks. The Company intend to rely on encryption and authentication technology
licensed from third parties to secure Internet transmission of and access to
confidential information. There can be no assurance that advances in computer
capabilities, new discoveries in the field of cryptography, or other events or
developments will not result in a compromise or breach of the methods used to
protect customer data. A party who is able to circumvent security measures could
misappropriate or alter proprietary information or cause interruptions in
operations. If any such compromise of the Company's security or misappropriation
of proprietary information were to occur, it could have a material adverse
effect on the Company's business, financial condition and operating results.
The Company may be required to expend significant capital and other
resources to protect against such security breaches or to alleviate problems
caused by security breaches. The Company may also be required to spend
significant resources and encounter significant delays in upgrading the
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Company's systems to incorporate more advanced encryption and authentication
technology as it becomes available. Concerns over the security of the Internet
and other online transactions and the privacy of users may also inhibit the
growth of the Internet and other online services generally, and the Company's
services in particular, especially as a means of conducting commercial and/or
healthcare-related transactions. There can be no assurance that the Company's
security measures will prevent security breaches or that failure to prevent such
breaches will not have a material adverse effect on the Company's business,
financial condition and operating results.
The Company's operations will also be dependent on the development and
maintenance of software.
Although the Company intend to use all necessary means to ensure the
efficient and effective development and maintenance of software, both activities
are extremely complex and thus frequently characterized by unexpected problems
and delays.
Uncertainties in realizing benefits from a combination.
Even if the Company is able to integrate the operations of an acquired
company or business into the company successfully, there can be no assurance
that such integration will result in the realization of the full benefits the
Company expects to result from such integration or that such benefits will be
achieved within the time frame that the Company expect.
o Revenue enhancements from cross-selling complementary services
may not materialize as expected.
o The benefits from the combination may be offset by costs
incurred in integrating the companies.
o The benefits from the transaction may also be offset by
increases in other expenses, by operating losses or by
problems in the business unrelated to the transaction.
Rapidly changing technology may adversely affect the Company's business.
All businesses which rely on technology, including the healthcare
work-flow solutions business that the Company is developing, are subject to,
among other risks and uncertainties:
o rapid technological change,
o changing customer needs,
o frequent new product introductions and
o evolving industry standards.
Internet technologies are evolving rapidly, and the technology used by
any web-based business is subject to rapid change and obsolescence. These market
characteristics are exacerbated by the emerging nature of the market and the
fact that many companies are expected to introduce new Internet products and
services in the near future. In addition, use of the Internet may decrease if
alternative protocols are developed or if problems associated with increased
Internet use are not resolved. As the communications, computer and software
industries continue to experience rapid technological change, the Company must
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be able to quickly and successfully modify its services so that we adapt to such
changes. There can be no assurance that the Company will not experience
difficulties that could delay or prevent the successful development and
introduction of the Company's healthcare work-flow solutions services or that
the Company will be able to respond to technological changes in a timely and
cost-effective manner. Moreover, technologically superior products and services
could be developed by competitors. These factors could have a material adverse
effect upon the Company's business, financial condition and operating results.
Dependence on Proprietary Technology.
The success of the Company's business is dependent to a significant
extent on its ability to protect the proprietary and confidential aspects of its
technology. Although the Company has filed multiple provisional patent
applications on some of its processes, the Company's technology is not patented
and existing copyright laws offer only limited practical protection. The Company
relies on a combination of trade secret, copyright and trademark laws, license
agreements, non-disclosure and other contractual provisions and technical
measures to establish and protect its proprietary rights. There can be no
assurance that the legal protections afforded to the Company or the steps taken
will be adequate to prevent misappropriation of the Company's technology. In
addition, these protections do not prevent independent third-party development
of competitive products or services. The Company's management believes that its
products, services, trademarks and other proprietary rights do not infringe upon
the proprietary rights of third parties. There can be no assurance, however,
that third parties will not assert infringement claims against the Company or
that any such assertion will not require the Company to enter into a license
agreement or royalty arrangement with the party asserting the claim. As
competing healthcare information systems increase in complexity and overall
capabilities or the functionality of these systems further overlap, providers of
such systems may become increasingly subject to infringement claims. Responding
to and defending any such claims may distract the attention of the Company's
management and otherwise have a material adverse effect on the Company's
business, financial condition and operating results.
The desirability of the Company's services is contingent on its ability to
continue to comply with present and future government regulations.
The Company's services are subject to extensive and frequently changing
regulation at federal, state and local levels. The Internet and its associated
technologies are also subject to government regulation. Many existing laws and
regulations, when enacted, did not anticipate the methods of healthcare
solutions the Company is developing. The Company believes, however, that these
laws and regulations may nonetheless be applied to our healthcare solutions
business. It may take years to determine the extent to which existing laws and
regulations governing general issues of property ownership, sales and other
taxes, libel, negligence and personal privacy are applicable to the Internet.
Laws and regulations may also be adopted in the future that address
Internet-related issues, including security, privacy and encryption, pricing,
content, copyrights and other intellectual property; contracting and selling
over the Internet; and distribution of products and services over the Internet.
Accordingly, the Company's healthcare solutions business may be affected by
current regulations as well as future regulations specifically targeted to this
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new segment of the healthcare industry. While the Company's products are
designed to aid the Company's customers' compliance with certain government
regulations, changes in these regulations or their repeal could reduce the need
for the Company's products.
Dependence on Management.
The Company's success depends to a large degree upon the skills of its
senior management team and current key employees and upon its ability to
identify, hire, and retain additional sales, marketing, technical and financial
personnel. The Company may be unable to retain its existing key personnel or
attract and retain additional key personnel. The Company depends particularly
upon the following key executives:
o Xx. Xxxxxxx Xxxxxx, Chairman of the Board
o Xxxxxx Xxxxxxx, President and Chief Executive Officer
o Xxxxxxx X'Xxxxxxxx, Executive Vice-President and Chief
Operating Officer
o Xxxx Xxxxxx, Vice-President and Chief Financial Officer
o Xxxxxx Xxxxx, Senior Vice-President of Sales and Marketing
o Xxxxxx Xxx, Vice-President of Product Development and
Technology.
The Company does not have any employment contracts with these officers
and key employees. The Company does not maintain key person life insurance for
any of its officers or key employees. The Company also does not require its
executives or its employees to enter non-competition agreements with the
Company. However, the Company does seek to protect its confidential information
through confidentiality agreements and patents. The loss of any of its key
officers and employees or the failure to attract, integrate, motivate and retain
additional key employees could have a material adverse effect on the Company's
business. Additionally, the company must attract additional, qualified sales
staff.
Immediate and substantial dilution.
Investors in this Offering will incur immediate and substantial
dilution of their ownership interest as a result of this Offering.
Shares eligible for future sale.
Sales of substantial amounts of Common Stock by shareholders in the
public market, or even the potential for such sales, are likely to adversely
affect the market price of the Common Stock and could impair the Company's
ability to raise capital by selling equity securities. As of the date of this
Subscription Agreement, the Company believes approximately 15,000,000 of the
approximately 19,954,000 shares of Common Stock currently outstanding were
freely transferable without restriction or further registration under the
securities laws, unless held by "affiliates" of the Company, as that term is
defined under the securities laws. In addition, in the Proposed Offering, the
Company intends to offer for sale its equity securities (which includes
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1,955,000 shares of Common Stock issuable upon conversion of the issued and
outstanding A Shares).
Determination of offering price of the Units and the rights of the Units.
The offering price of the Units and the rights, preferences, privileges
and limitations of the Series B Preferred Shares were determined by negotiation
between the Company and the Placement Agent. Accordingly, the offering price of
the Units and the terms of the Series B Preferred Shares may not accurately
reflect the actual value of the Series B Preferred Shares or the price that may
be realized upon disposition of the underlying shares of Common Stock. Investors
in the Series B Preferred Shares should particularly note that the Placement
Agent is a controlling stockholder of the Company.
No independent determination of fairness of Offering Terms.
If the Series B Preferred Shares were being sold by the Placement Agent
in a public offering registered under the 1933 Act, the Placement Agent would be
deemed to be a control person of the Company and under National Association of
Securities Dealers, Inc. ("NASD") guidelines would be required to retain the
services of a "Qualified Independent Underwriter" to evaluate the fairness of
the Offering's terms. Investors in this Offering, which is not subject to NASD
guidelines, do not have the benefit of a Qualified Independent Underwriter's
participation in the Offering.
Significant discretion over use of net proceeds.
The Company will have significant flexibility in applying the net
proceeds of this Offering. The actual amounts and timing of these expenditures
may vary significantly depending on a number of factors, including the amount of
cash generated by the Company's operations and the market response to the
introduction of new product or service offerings. If the Company does not use
the proceeds in a manner beneficial to it, the Company's business could suffer
and its stock price could decline.
No intention to pay dividends on Common Stock.
For the foreseeable future, the Company intends to retain any remaining
future earnings, if any, to finance its operations and does not anticipate
paying any cash dividends with respect to its Common Stock.
Volatility of Common Stock.
The Company believes that if the Common Stock is ever permitted to
trade on the OTCBB, of which no assurances can be given, the trading volume of
the Common Stock will be limited and sporadic, and the stock price will be
volatile as a result of a number of factors, including, but not limited to, the
following:
-13-
o quarterly variations in the Company's operating results;
o large purchases or sales of Common Stock;
o actual or anticipated announcements of new products or
services by the Company, other business partners, or
competitors;
o investor perception of the Company's business prospects or the
Internet industry in general;
o general conditions in the markets in which the Company
competes; and
o worldwide economic and financial conditions.
Subsequent Offering.
The Company, through the Placement Agent, currently intends to conduct
a private placement of its securities following this Offering (the "Proposed
Offering"). Although the definitive terms of such Proposed Offering have not
been agreed to, it is currently anticipated that in the Proposed Offering, the
Company will offer for sale to investors convertible securities (debt and/or
preferred stock) and warrants. No assurances can be given as to the final terms
and/or securities, to be offered in the Proposed Offering or that the Company
will be able to sell any of its securities in the Proposed Offering.
The Company's proposed expansion through acquisitions may be difficult to
implement and may expose the Company to additional risk.
Although to date the Company has not effectuated any acquisitions, the
Company in the future may seek to acquire businesses that are complementary to
its core businesses. Such emphasis is not, however, intended to limit in any
manner the Company's ability to pursue acquisition opportunities in other
related businesses or in other industries. The Company may enter into
acquisitions, joint ventures, strategic alliances or other business
combinations. These transactions may materially change the nature and scope of
the Company's business. Although the Company's management will endeavor to
evaluate the risks inherent in any particular transaction, there can be no
assurance that the Company will properly ascertain all such risks. In addition,
no assurances can be given that the Company will succeed in consummating any
such transactions, that such transactions will ultimately provide the Company
with the ability to offer the services described or that the Company will be
able to successfully manage or integrate any resulting business.
The success of the Company's acquisition program will depend on, among other
things:
o the availability of suitable candidates;
o the availability of funds to finance transactions; and
o the availability of management resources to oversee the
operation of resulting businesses;
Financing for such transactions may come from several sources, including,
without limitation:
o cash and cash equivalents on hand;
o the proceeds from new indebtedness; or
o proceeds from the issuance of additional common stock,
preferred stock, convertible debt or other securities.
-14-
The issuance of additional securities, including common stock, or other
convertible securities could result in:
o substantial dilution of the percentage ownership of the
Company's stockholders at the time of any such issuance; and
o substantial dilution of our earnings per share.
The proceeds from any financing may be used for costs associated with
identifying and evaluating prospective candidates, and for structuring,
negotiating, financing and consummating any such transactions and for other
general corporate purposes. The Company does not intend to seek stockholder
approval for any such transaction or security issuance unless required by
applicable law or regulation.
Integrating the Company's business operations with businesses the Company may
acquire in the future, may be difficult and may have a negative impact on the
Company's business.
The Company may acquire additional businesses in the future. The
integration of companies or businesses that the Company may acquire in the
future involves the integration of separate companies that have previously
operated independently and have different corporate cultures. The process of
combining such companies may be disruptive to their businesses and may cause an
interruption of, or a loss of momentum in, such businesses as a result of the
following difficulties, among others:
o loss of key employees or customers;
o possible inconsistencies in standards, controls, procedures
and policies among the companies being combined and the need
to implement and harmonize company-wide financials,
accounting, information and other systems;
o failure to maintain the quality of services that such
companies have historically provided;
o the need to coordinate geographically diverse organizations;
and
o the diversion of management's attention from the Company's
day-to-day business and that of any company or business that
we may acquire, as a result of the need to deal with the above
disruptions and difficulties and/or the possible need to add
management resources to do so.
Such disruptions and difficulties, if they occur, may cause the Company to fail
to realize the benefits that the Company currently expect to result from such
integration and may cause material adverse short- and long-term effects on the
Company's operating results and financial condition.
Uncertainties in realizing benefits from a combination.
Even if the Company is able to integrate the operations of an acquired
company or business into the company successfully, there can be no assurance
that such integration will result in the realization of the full benefits that
-15-
the Company expects to result from such integration or that such benefits will
be achieved within the time frame that the Company expects.
o Revenue enhancements from cross-selling complementary services
may not materialize as expected.
o The benefits from the combination may be offset by costs
incurred in integrating the companies.
o The benefits from the transaction may also be offset by
increases in other expenses, by operating losses or by
problems in the business unrelated to the transaction.
No Current Trading Market and No Assurance of Trading Market for Common Stock;
No Market for Warrants or Series B Shares; Xxxxx Stock.
Prior to the Company's filing of its Chapter 11 reorganization, the
Company's then outstanding common stock was eligible for quotation on the Nasdaq
Over the Counter Bulletin Board ("OTCBB") and traded under the symbol "ECMD."
Because under the Plan all of the previously issued and outstanding shares of
common stock were cancelled, there is no trading market for the Common Stock
issued under the Plan. Although the Company believes that a market maker will
file with the NASD a Form 15(c)2-11 to make a market in the new Common Stock, no
assurances can be given when, if ever, any market maker will make such filing,
that the NASD will permit a market to be made in the Common Stock or any trading
market will ever develop. In addition, there will never be a trading market for
the B Shares or the Warrants.
The Common Stock is deemed to be "xxxxx stock" as that term is defined
in Rule 3a51-1 promulgated under the Securities Exchange Act of 0000 (xxx
"Xxxxxxxx Xxx"). Xxxxx stocks are stocks:
o with a price of less than $5.00 per share;
o that are not traded on a "recognized" national exchange;
o whose prices are not quoted on the Nasdaq automated quotation
system (Nasdaq listed stock must still have a price of not
less than $5.00 per share); or
o issued by companies with net tangible assets less than $2.0
million (if the issuer has been in continuous operation for at
least three years) or $5.0 million (if in continuous operation
for less than three years), or with average revenues of less
than $6.0 million for the last three years.
Section 15(g) of the Exchange Act and Rule 15g-2 promulgated under the
Securities Act require broker/dealers dealing in xxxxx stocks to provide
potential investors with a document disclosing the risks of xxxxx stocks and to
obtain manually signed and dated written receipt of the document before
effecting a transaction in a xxxxx stock for the investor's account. Compliance
with such requirements may make it more difficult for holders of the Common
Stock to resell their shares to third parties or otherwise which could have a
material adverse affect on the liquidity and market price of the Common Stock.
-16-
1.6 Information. The Subscriber acknowledges receipt and full and
careful review and understanding of: (a) the Current Report of Form 8-K filed by
the Company with the SEC on December 15, 2003; (b) "The Order Confirming Plan"
by the United States Bankruptcy Court for the Western District of Texas, Austin
Division, dated December 2, 2003, approving the Joint Plan under Chapter 11 of
the United States Bankruptcy Code filed by the Company and Gryphon Opportunities
Fund, L.P., dated August 3, 2003; (c) the Joint Plan of Reorganization dated
August 5, 2003, and amended by the Bankruptcy Court's Confirmation Order dated
December 2, 2003; (d) this Subscription Agreement, (e) the Annual Report of the
Company for the fiscal year ended December 31, 2003 filed with the SEC on Form
00-XXX xx Xxxxx 00, 0000, (x) the Quarterly Report of the Company for the
quarter ended March 31, 2004, filed with the SEC on June 10, 2004; (g) the
Quarterly Report of the Company for the quarter ended June 30, 2004, filed with
the SEC on August 19, 2004; (h) the Current Report of Form 8-K filed by the
Company with the SEC on September 15, 2004; (i) the Current Report of Form 8-K
filed by the Company with the SEC on October 15, 2004; (j) the Current Report of
Form 8-K filed by the Company with the SEC on October 15, 2004; (k) the
Quarterly Report of the Company for the quarter ended September 30, 2004, filed
with the SEC on November 16, 2004; (l) the Certificate of Designation; (m) the
Warrant, (n) the Registration Rights Agreement, (o) all exhibits, schedules and
appendices which are part of the aforementioned documents (collectively, the
"Offering Documents"), and (p) the Company's Certificate of Designation for the
Series A Shares, annexed hereto as Exhibit E; and hereby represents that: (i) it
has been furnished by the Company during the course of this transaction with all
information regarding the Company which it has requested; and (ii) that it has
been afforded the opportunity to ask questions of and receive answers from duly
authorized officers of the Company concerning the terms and conditions of the
Offering, and any additional information which it has requested.
1.7 No Representations. The Subscriber hereby represents that,
except as expressly set forth in the Offering Documents, no representations or
warranties have been made to the Subscriber by the Company or any agent,
employee or affiliate of the Company, including the Placement Agent, and in
entering into this transaction the Subscriber is not relying on any information
other than that contained in the Offering Documents and the results of
independent investigation by the Subscriber.
1.8 Tax Consequences. The Subscriber acknowledges that this
offering of the Units may involve tax consequences and that the contents of the
Offering Documents do not contain tax advice or information. The Subscriber
acknowledges that he must retain his own professional advisors to evaluate the
tax and other consequences of an investment in the Units.
1.9 Transfer or Resale. The Subscriber understands that, except as
expressly set forth in the Registration Rights Agreement: (a) none of the
Securities have been and are not being registered under the 1933 Act or any
state securities laws; (b) the Securities may not be offered for sale, sold,
assigned, pledged, transferred or otherwise disposed of (each a "Disposition")
unless, prior to effecting any such Disposition (other than any transfer not
involving a change in beneficial ownership) (i) there is in effect a
registration statement under the 1933 Act covering the Disposition and the
Disposition is made in accordance with such registration statement, or (ii) the
Subscriber gives written notice to the Company of such Subscriber's intention to
effect a Disposition and such notice shall describe the manner and circumstances
of the proposed Disposition, and shall be accompanied by either (A) a written
opinion of a legal counsel that a Disposition of the Securities may be made
pursuant to an exemption from such registration, or (B) any other evidence
-17-
reasonably satisfactory to counsel to the Company; and (C) the Company is under
no obligation to register the Securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any registration
exemption thereunder.
1.10 Placement Agent. The Subscriber agrees that neither the
Placement Agent nor any of its directors, officers, employees or agents shall be
liable to any Subscriber for any action taken or omitted to be taken by it in
connection therewith.
1.11 Legends. The Subscriber understands that the certificates or
other instruments representing the Securities, until such time as they have been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement, shall bear a restrictive legend in substantially the following form
(and a stop-transfer order may be placed against transfer of such certificates
or other instruments):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR (B) AN OPINION OF
COUNSEL, IN A REASONABLY ACCEPTABLE FORM, THAT REGISTRATION
IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES
LAWS.
The legend set forth above shall be removed and the Company shall issue a
certificate or other instrument without such legend to the holder of the
Securities upon which it is stamped, if (a) there is in effect a registration
statement under the 1933 Act covering the Disposition and the Disposition is
made in accordance with such registration statement or (b) if the Disposition of
the Securities is completed in satisfaction of the requirements of Rule 144 of
the 1933 Act.
1.12 Validity; Enforcement. If the Subscriber is a corporation,
partnership, trust or other entity, the Subscriber represents and warrants that:
(a) it is authorized and otherwise duly qualified to purchase and hold the
Units; and (b) that this Subscription Agreement has been duly and validly
authorized, executed and delivered and constitutes the legal, binding and
enforceable obligation of the undersigned.
1.13 Residency. The Subscriber represents that its principal
address is furnished at the end of this Subscription Agreement.
1.14 Foreign Subscriber. If the Subscriber is not a United States
person, such Subscriber hereby represents that it has satisfied itself as to the
full observance of the laws of its jurisdiction in connection with any
invitation to subscribe for the Units or any use of this Subscription Agreement,
including: (a) the legal requirements within its jurisdiction for the purchase
of the Units; (b) any foreign exchange restrictions applicable to such purchase;
(c) any governmental or other consents that may need to be obtained; and (d) the
income tax and other tax consequences, if any, that may be relevant to the
purchase, holding, redemption, sale or transfer of the securities comprising the
Units. Such Subscriber's subscription and payment for, and his or her continued
-18-
beneficial ownership of the Units, will not violate any applicable securities or
other laws of the Subscriber's jurisdiction.
1.15 NASD Member. The Subscriber acknowledges that if it is a
Registered Representative of an NASD member firm, the Subscriber must give such
firm notice required by the NASD's Rules of Fair Practice, receipt of which must
be acknowledged by such firm on the signature page hereof.
1.16 Escrow Agent; Escrow Agreement. Pursuant to the terms of an
escrow agreement (the "Escrow Agreement") by and between the Company, the
Placement Agent and Xxxxx X. Xxxxxxx, Esq., as escrow agent (the "Escrow Agent")
for the Offering, all proceeds from the sale of the Units shall be sent directly
to and held in escrow by the Escrow Agent pending each Closing (as defined
below).
1.17 Certain Supplemental Information Regarding the Company.
Strategy. The Company's strategy is to market to the community of
physician and provider networks that influence each other's business practices.
The Company markets to both entities and relies on the natural occurring viral
marketing affects influencing both the physician and provider referral
relationships. The community includes not only the physicians and providers, but
also the associations representing their specialties such as HHA, DME and
Hospice. By becoming an integral part of this community, the Company believes it
will position itself as the preferred solution for electronic document exchange.
The Company commits considerable time and resources to market directly
to physician and provider relationships on a national, regional and specialty
level. The Company believes these relationships provide a unique opportunity by
being in a position to market the SecureCare solution. For instance, some
provider groups have marketing staffs trained by SecureCare. Those staffs market
the SecureCare services; essentially becoming an extension of the SecureCare
team. Further, medical billing practices, professional physician groups,
associations, multiple provider groups large and small, independent physician
associations, integrated delivery networks, third party payors and partners such
as Computers Unlimited and Computers Application Unlimited market the SecureCare
services to their customers.
The Company would require providers to pay the Company a fixed
recurring monthly fee. The entire targeted network of providers has an incentive
for buy in as they concurrently achieve significant administrative and economic
efficiencies lowering their cost of operations and improving cash flow,
optimizing efficiencies and enhancing compliance. The Company believes the
proposed monthly fees, relative to the proposed gains associated with the
program, are not significant.
The Company has paying pilots and contracted customers with numerous
local and national providers like the Visiting Nurses Associations of America
(VNAA), US Oncology, Medical Edge, Gentiva, Interim, Amedisys, Home Health
Professionals, Home Health Corporation of America, Bon Secours, Vitas and
numerous other independent physicians and providers nationwide. As of the end of
September, the SecureCare solution is used at over 110 provider locations.
-19-
The Company also is pursuing relationships with large national
organizations with specific specialty interests. The Company believes the
service and medical equipment supply providers will be able to streamline
business operations with the use of the SecureCare products. Creating formal
relationships and alliances with these organizations is a significant
contributor to penetration within the specialty. For instance, the Van X. Xxxxxx
Group (VGM) represents more than half of the nation's independent DMEs, further
facilitating the process of closing the network and generating revenue for
SecureCare. On average, the Company believes DMEs process over 16 million
certificates of medical necessities (CMNs) a year. The Company believes this
volume will only grow as the Centers for Medicare (CMS) continues to add more
requirements such as designating CMNs to be reprocessed every quarter versus
once a year.
To achieve these sales goals, the Company currently has in place five
direct employees focused on sales and 40 independent representatives who market
their products as well as utilizing the marketing staffs of current providers
were applicable. Assuming financing is available, the Company plans to add 25
more direct representatives over the next 12 months.
Strategic Partnerships and Relationships. As described, a significant
part of SecureCare's strategy is to build a community by establishing
relationships with physician and provider networks that influence each other's
business practices. The Company believes that by including dominant players in
the DME, HHA and hospice business, the SecureCare community of providers will be
positioned to ensure a continuum of office efficiencies.
In accordance with that strategy, the management team has achieved
specific milestones:
American Medical Group Association
SecureCare is an Executive Corporate Partner of the American Medical
Group Association ("AMGA") as designated by the AMGA. Additionally, the AMGA
designated SecureCare as the preferred provider of web-based electronic document
exchange technology for its members.
The AMGA represents medical groups, including some of the nation's
largest integrated healthcare delivery systems representing 68,000 physicians.
AMGA advocates for the multi-specialty medical group model of healthcare
delivery and for patients served by medical groups through innovation and
information sharing, benchmarking, leadership development and continuously
improving patient care. The members of AMGA deliver health care to more than 50
million patients in 42 states. Headquartered in Alexandria, Virginia, AMGA is
the strategic partner for medical groups providing a package of benefits,
including political advocacy, educational and networking programs and
publications, benchmarking data services, and financial and operations
assistance.
-20-
Visiting Nurses Association of America
SecureCare has closed a co-marketing agreement with the Visiting Nurses
Associations of America (VNAA). The VNAA has agreed to market the SecureCare
solution to their membership on a consistent basis while providing SecureCare
full access to all modalities of communication. The VNAA is a respected name in
the HHA and hospice community and as such is a critical component of
SecureCare's strategy to form a comprehensive community focused on improved
office efficiencies and more time for quality care. There are approximately 160
VNAA's with over 300 total locations.
The VNAA is the official national association for not-for-profit,
community based home health organizations known as Visiting Nurse Associations
(VNAs). Visiting Nurse Associations created the profession of home health care
more than 100 years ago. Their mission is to bring compassionate, high-quality
and cost-effective home care to individuals in their respective communities.
Today, VNAs care for nearly 4 million people annually.
The VGM Group
SecureCare signed a marketing agreement with the Van X. Xxxxxx Group
(VGM), the Company believes one of the largest industry group purchasing
organization in the home medical equipment market with over 6,000 member
locations (50% of all the DME locations nationally).
From its headquarters in Waterloo, Iowa, The VGM Group provides
services and administers what are believed to be innovative programs to help
independent business people improve financial success. From its beginning in
1986 when HME was its primary focus, The VGM Group has evolved into a company
that offers ancillary business services and purchasing contracts to HME
providers in the U.S. and Canada, high-tech rehabilitation professionals and
orthotic and prosthetic practitioners.
Products. The Company is scheduled to release an ASP web-based
(browser) version of its product in November 2004. This version of the product
is common to all current lines of business.
o SecureCare 4.0i offers healthcare providers and physicians a
web-based ASP model that is fully integrated with any existing
practice management software, the ability to create any form
or customized documents including confirmation of verbal
orders, and instantly exchange them with referring physicians
to securely obtain their e-signatures in a preset field within
the document for certification and re-certification of care
and Certificates of Medical Necessity ("CMN"). SecureCare 4.0i
also provides highly scalable platforms for mid-to-large-sized
enterprise platforms that permit connections to medical
equipment companies, pharmacies, nursing homes, hospices,
hospitals, research communities, lab companies and insurance
payors, among others.
The Company believes the move to Microsoft(TM) ".Net" platform, will be
more scalable for the future while allowing for easier implementations, higher
adoption and faster integration. This strategic move will position the Company
-21-
to meet the vast demand for the SecureCare solution. The Company believes it is
setting the standard for home health care provider workflow solutions.
The solution is currently tailored to the needs of physicians, clinics
and home healthcare, hospice and durable medical equipment providers. It
provides a highly secure, HIPAA-ready tracking and reporting environment for
accessing information and managing forms and authorizations.
Currently, the Company offers for sale an ASP Client/Server product
that focuses on two lines of business:
o SecureCare offers healthcare providers, within an internet
based ASP model fully integrated with any existing practice
management software, the ability to create any form or
customized documents including confirmation of verbal orders,
and instantly exchange them with referring physicians to
securely obtain their e-signatures in a preset field within
the document for certification and re-certification of care
and Certificates of Medical Necessity ("CMN"). SecureCare also
provides highly scalable platforms for mid-to-large-sized
enterprise platforms that permit connections to medical
equipment companies, pharmacies, nursing homes, hospices,
hospitals, research communities, lab companies and insurance
payors, among others.
o SecureMD(TM) enables referring physicians to receive in an
"email-like" formatted page, instant secure patient related
electronic forms and documents from the health providers into
a centralized inbox on their desktop. Physicians can review
patient status on-line, authorize the care of plan with a
stored e-Signature and electronically return it to providers.
SecureMD(TM) also provides a Medicare accepted tracking
component which physicians may use as backup to reimburse for
time spent on Certification, Re-certification and reviewing
other Care Plan Oversight ("CPO") documents.
Product Functionality.
----------------------
New Release
The new release of SecureCare 4.0i, scheduled to be available by the
end of the year, has all the same features and functionality that the current
system has. Additionally,
o The new release no longer requires a download of the client
Win32 application. This will allow for quick access to
SecureCare and easy portability into newer designed web portal
systems most common in physician offices today.
o A URL is typed in any browser which connects to the SecureCare
servers and displays the appropriate screen.
o New status icons have been added to indicate which state the
documents are in.
o The system layout is even more similar to the look and feel
common to all of today's web e-mail systems.
-22-
o All documents are saved, displayed and printed in PDF
(Portable Document Format) format. PDF is a recognized and
highly used document type and is being utilized in most
healthcare document image systems.
o A draft mode feature has been added to accommodate the times
when documents need to be completed later.
o With SecureCare 4.0i, forms can be designed by SecureCare
personnel in hours versus months. The current system forms
designer was limited to how the forms looked on the system; in
the new release a form can in most cases look exactly like the
healthcare providers form thus being accepted by the physician
immediately.
The SecureCare 4.0i system tracks, audits and provides history related
to the status of the documents and the complete history of the document as it
moves thru the SecureCare 4.0i system. This audit and history trail can be used
for CMS documentation in case of audits.
Basic e-mail like functions are available for all users of SecureCare
4.0i. The e-mail functionality is secure since the documents never leave the
SecureCare 4.0i servers.
Reports give SecureCare 4.0i users information to track the status of a
patient's document; where the document is and if the document has been signed by
the physician or the nurse. Turnaround time is monitored for the healthcare
provider to better understand which physicians are prompt in returning
documents. Patient activity is reported to show a complete history of documents
for each patient. All reports are saved, printed and displayed in the PDF
format.
Current Release
SecureCare Release 3.0 offers healthcare providers and physicians a
client Win32 application to send forms to a physician office for signature over
the Internet. This is accomplished several different ways in SecureCare:
o Manually completing forms to send to a physician for
signature.
o A scan feature a user can use to create an image that can be
associated with a document template within SecureCare. The
user identifies the exact area on the image where a physician
signature/date would be placed on the image. These templates
can be designed permanently and reused along as the signature
and date is always in the same place.
o An import feature parses the data from the healthcare
providers practice management software and places the data in
the same form that can be manually used on the system.
o The SecureCare system tracks, audits and provides history
related to the status of the documents and the complete
history of the document as it moves through the SecureCare
system. This audit and history trail can be used for CMS
documentation in case of audits.
Basic e-mail like functions are available for all users of SecureCare.
The e-mail functionality is secure since the documents never leave the
SecureCare servers.
-23-
Basic reports give SecureCare users information to track the status of
a patient's document, where the document is and who has signed it. Turnaround
time is monitored for the healthcare provider to better understand which
physicians are prompt in returning documents. Patient activity is reported to
show a complete history of documents for each patient.
Technology
----------
New Release
The Company is preparing to release the next generation of the product.
This version, SecureCare 4.0i, is being tested and scheduled to be available by
the end of the year. The primary differences in the technology platforms between
version 3.0 and 4.0 are:
o Release 4.0 is a web based solution using Xxxxxxxxx.xxx
browser technologies to communicate.
o Release 4.0 has a home grown form builder utility, written in
C sharp, is used to create forms resembling documents.
o Data in the 4.0 database is distributed amongst many tables.
o Architecture for release 4.0 is distributed with multiple web
servers; application servers, database servers and a storage
area network (SAN) co-located in a third party facility.
Like release 3.0, release 4.0 was built according to existing software
standards per healthcare regulations specific to internet use.
The Company believes the technology platform of release 4.0 will
provide for certain opportunities. A client download is not necessary allowing
for easy set up and less maintenance. As browser based, access is unlimited
provided access to the internet exists. With the form builder utility, a form
can be added to the system for any provider group in under an hour. Data is
distributed allowing for faster and broader scalability. The new multiple server
and SAN configuration provides for robust fail-over and scalability.
Current Release
The current SecureCare Release 3.0 platform is a client/server solution
using the internet as a communication vehicle and is an application service
provider (ASP) model. Release 3.0 was built according to software standards
currently in place per healthcare regulations specific to using the internet.
The Release 3.0 platform uses:
o XML, SOAP, HTTP, HL7, HIPAA transaction sets
o ANSI X12N
o Microsoft development solutions for front-end client and
backend server applications
All database information is stored in Microsoft SQL Server 2000 using
encrypted XML data. CryptoAPI is the encryption tool. Two web servers and one
database server are co-located in a third party facility that meets internet
requirements and federal regulations for storing healthcare data. The
-24-
application uses open standards allowing for integration of other software as
well as exchange of data with both new and older systems alike.
Pricing. It is contemplated that client providers will pay a
contractual fixed monthly fee per location based on their patient census as well
as a transaction fee if their census exceeds the contractual amount. The Company
believes our pricing will reflect an easy "buy-in" decision given our customers'
expected cost savings and increased cash flow relative to the low transaction
fee.
The pricing model currently includes three components:
1. recurring monthly fees by provider by location,
2. one time training and setup fees and
3. integration and customization charges per contract.
Physician Advisory Board. In accordance with the Company's strategy, it
recently completed the creation of a physician advisory board to support the
Company's growth in the healthcare market. The board includes industry leaders
who will support and advise the Company on its corporate and development
activities. Xx. Xxxxxxx Xxxxxx, SecureCare's chairman and chief medical officer
and past president of the American Medical Association (AMA), is the head of the
advisory board. Xx. Xxxxxx Xxxx, president-elect of the AMA, and Dr. Xxxx
Herald, endocrinologist in private practice in New Jersey and an associate of
Columbia University, are board members.
Members of the physician advisory board work directly with the
Company's executive management team to collaborate on various facets of the
business while helping the company gain broad acceptance in the marketplace.
The Board of Directors has authorized the issuance of 2,000 shares of
Common Stock to both Xx. Xxxx and Dr. Herald as compensation for their first
year of service on the physician advisory board
Market Opportunity and Competition. The Company believes that a
significant market currently exists for its SecureCare(TM) platform, which the
Company believes consists of:
46,000 HHA, DME and Hospice Provider Locations
200,000 Referring physicians
8,500,000 Medicare patients alone that use home healthcare.
Edifecs, Inc. estimates that approximately $450 billion dollars (30%)
of the annual healthcare budget is for administration and documentation. This
inefficiency represents a marketing opportunity for the Company.
The Company believes the market for our solutions is in its infancy,
and that only a fraction of the potential adoption rate has been addressed to
date. The Company believes it is creating a new demand. The Company believes
that few, if any, other participants in our space that offer our end-to-end
comprehensive solutions. The Company believes there is an emergence of solutions
-25-
that relate to e-Signatures, such as Trac-Medical, a division of Authentidate
Holding. The Company is unaware of any other company that is successfully
transferring home health documents in the target market. Not withstanding, the
Company believes of those who are offering aspects of our solutions, no vendor
has completed and implemented the integration with the number of practice
management software systems as the Company has in HHA and DME. The Company has
thus far integrated with the following solutions that it believes cover
approximately 60% of home healthcare:
Siemens Information Systems McKesson HBOC
Amedisys Riversoft
Baycare Xxxxxx & Flippis
Computers Unlimited Computers Applications Unlimited
CareCentric(MestaMed and Omnicare
Dezine DME6)
The Company believes its competitive strengths arise from our
understanding of home healthcare workflow and our status as the first mover in
our market which once having adopted a solution, is not easily moved to another
because of the costs of conversion. Because we have integrated with the dominant
practice management solutions and believe we can easily integrate with other
solutions, we believe we possess a distinct sustainable competitive advantage
over new entrants. We believe that our solutions are comprehensive and enable
both providers and referring physicians to automate workflow at the point of
patient care management and meet regulatory compliance without a change in
workflow patterns.
The Company believes its reporting capabilities allow physicians to
track and xxxx by key billing codes for services reimbursable by Medicare. This
functionality, the Company believes, creates revenue opportunities that
approximately 97% of physicians are not using today. The Company believes no
vendor provides this capability, giving the Company the inside track to
physicians' desk-tops.
The Company has invested time and funds to build our solutions and
believe that the Company has a time advantage over competitors. The Company
believes it will not require substantial additional capital for technology
upgrades which enables the Company to focus on expanding its market, its brand
and support systems.
Future Opportunity. The Company believes it can apply its existing
workflow/e-Signature technology into other healthcare market segments which it
can help to develop a faster, more efficient workflow and lower operating costs.
Sectors that it is targeting include:
o Internal hospital document workflow such as medical chart
review and physical signatures;
o Hospital business process workflow;
o Standardization of electronic death certificate workflow
process;
Recent Events.
--------------
Chapter 11 Reorganization. As a part of its financial strategy to ease
the company's debt service associated with years of high cost technology
development, the Company filed a voluntary petition under Chapter 11 of Title 00
-00-
xx xxx Xxxxxx Xxxxxx Bankruptcy Code (the "Bankruptcy Code") in May 2003. The
Company's Plan for Reorganization (the "Plan") became effective, and it emerged
from bankruptcy on December 15, 2003 (the "Effective Date"). Among other things,
the Plan provided for the following actions, on behalf of the Company, all of
which have been effected prior to the date of this Memorandum: (i) all equity
interests and rights in the Company prior to the Effective Date were canceled,
(ii) the Company's sole secured creditor, an affiliate of the Placement Agent
(the "Creditor"), received 13,935,000 of the 15,000,000 shares of Common Stock
issued under the Plan (after the Creditor's transfer of 690,000 shares of Common
Stock to various third parties as required under the Plan by the Bankruptcy
Court's order), (iii) the Company's unsecured creditors received (a) 375,000
shares of Common Stock (2.5% of the issued and outstanding shares of Common
Stock as of the Effective Date), (b) a cash dividend equal to two and one-half
percent (2.5%) of the amount of their allowed claim, and (c) an assignment of
the Company's rights under a pre-petition judgment in the amount of
approximately $1 million, entered in favor of the Company, (iii) equity interest
holders in the Company each received 150 shares of Common Stock, regardless of
the size of their pre-petition equity interests, and (iv) post-petition secured
loans to the Company continue until August 5, 2004 in accordance with the terms
of the bankruptcy court's order. A copy of the Plan (as amended by the
bankruptcy court's confirmation order), is included in Exhibit D hereto.
On April 22, 2004, the Company submitted a "Motion to Modify Plan After
Confirmation" (the "Motion") to the Bankruptcy Court. The Motion consisted of
immaterial changes to the original Plan. A copy of the Motion is included in
Exhibit D hereto.
On October 19, 2004, the judge signed the company's order of final
decree effectively closing the case.
Bridge Financing. During February and March 2004, the Company raised an
aggregate of $520,000 from seven (7) accredited investors (as defined in Rule
503 under the 0000 Xxx) to fund the Company's operations pending the completion
of this Offering (the "Bridge Financing"). Investors in the Bridge Financing
received $1.00 principal amount of 7.5% Senior Subordinated Note ("Notes") and
one (1) share of Common Stock for each $1.00 that they purchased. The Notes are
due on their second anniversary date, but may be extended at the option of the
Company for an additional six (6) months. The Company must issue one share of
Common Stock for each $4.00 principal and accrued interest on the Notes that are
extended. The Placement Agent acted as placement agent in the Bridge Financing,
which was conducted on a $200,000 or none basis, and received (i) commissions of
$41,600, (ii) an expense allowance of $5,200, (iii) five-year warrants to
purchase 52,000 shares of Common Stock, at an exercise price of $1.00 per share,
and (iv) a consulting agreement (related to the Bridge Financing and this
Offering) that provided for the receipt of 2,000,000 shares of the Company's
common stock for a total purchase price of $2,000. In addition, a portion of an
outstanding loan to the Company in the total principal amount of $24,800 was
paid by the Company's allocation of $18,600 of the proceeds from the Bridge
Financing to an affiliate of the Placement Agent. A majority-in-interest of the
investors in the Bridge Financing have the right to demand registration of their
Common Stock commencing September 8, 2004 and the Placement Agent will have
piggy-back rights with respect to the 52,000 shares of Common Stock underlying
its warrants and the 2,000,000 shares, in any such registration statement.
-27-
Series A Offering. During the period from May through October, 2004 and
pursuant to an agreement with the Placement Agent, the Company received funds
through a Private Placement. The Company intended to issue, on a "best efforts"
basis, up to 20 units, at a purchase price of $100,000 per unit. Each unit
consisted of (1) one hundred thousand shares of the Company's 5% Series A
Preferred Stock of which each share is initially convertible into one share of
the Common Stock and (2) a five (5) year Common Stock purchase warrant to
purchase at an exercise price of $1.00 per share, 100,000 shares of Common Stock
(the ("Series A Offering").
In the Series A Offering, the Company raised an aggregate of $1,955,000
from 27 accredited investors (as defined in Rule 503 under the 0000 Xxx) to fund
the Company's business plan. The Company issued an aggregate of 1,955,000 shares
of Series A Preferred Stock, with a $1.00 per share stated value, initially
convertible into one share of the Company's Common Stock, par value, $.001 per
share. Investors in the Series A Offering also received warrants, of 5 year
life, to purchase a total of 1,955,000 shares of Common Stock at an exercise
price of $1.00 per share. The Placement Agent received commissions of $167,311,
an expense allowance of $18,600 and warrants, of 5 year life, to purchase
382,000 shares of Common Stock at an exercise price of $1.00 per share. In
addition three outstanding loans to the Company were paid by the Company's
allocation of $122,898 of the proceeds of the Series A Offering to affiliates of
the Placement Agent
Directors and Officers of the Company.
--------------------------------------
The following table sets forth certain information regarding each of
the directors and executive officers of the Company:
Name Age Position
---- --- --------
Xx. Xxxxxxx X. Xxxxxx 64 Chairman of the Board of Directors and
Chief Medical Officer
Xxxxxx X. Xxxxxxx 63 President, Chief Executive Officer and Director
Xxxxx X. Xxxxx 63 Director
Xxxxxxx X'Xxxxxxxx 53 Executive Vice President and Chief Operating
Officer
Xxxx Xxxxxx 44 Vice President and Chief Financial Officer
Xxxxxx Xxxxx 46 Senior Vice President, Sales and Marketing
Xx. Xxxxxxx X. Xxxxxx. Xx. Xxxxxx has been a Director of the Company
since September 2000. He is a gastroenterologist in private practice in Santa
Monica, California and was President of the American Medical Association ("AMA")
from July 2001 to July 2002. Prior to becoming President, Xx. Xxxxxx served as
-28-
Speaker of the AMA's House of Delegates for five years. He has been active in
the affairs of the AMA for the past twenty years, having served for nine years
as a member and then Chair of the AMA Council on Long Range Planning and
Development. From 1994 to 1998, Xx. Xxxxxx served as a member of the Advisory
Committee to the Director of the National Institute of Health. Xx. Xxxxxx served
as President of the California Medical Association ("CMA") from 1992 to 1993,
was Vice Speaker and Speaker of the CMA House of Delegates for nine years, and a
member of its Board of Trustees for twelve years and chaired numerous committees
of the CMA including the Finance Committee, the Liaison Committee to State
Hospital medical staffs, and was an active member of the CMA Speakers Bureau on
Tort Reform. Xx. Xxxxxx is a graduate of Rutgers University, and received his
M.D. degree from Hahnemann Medical College. Following residency training at
Hahnemann, Xx. Xxxxxx served as a Lt. Commander in the United States Public
Health Service, Heart Disease and Stroke Control Program from 1968 to 1970, and
then took a gastroenterology fellowship at UCLA. He is a fellow of the American
College of Physicians, is a member of both the American Gastroenterology
Association and the American Society of Internal Medicine, and is a Past
President of the Southern California Society of Gastrointestinal Endoscopy. He
is also the Chairman of the Audio Digest Foundation, a provider of continuing
medical education to healthcare professionals, a member of the Board of
Governors of Marathon Multimedia, a subsidiary of Audio Digest Foundation that
provides information management solutions to medical societies, Chairman of
Xxxxxx Xxxxxx Group, a subsidiary of Audio Digest Foundation that records sound
and video of professional association meetings, and an assistant clinical
professor at the University of California-Los Angeles School of Medicine. Xx.
Xxxxxx was Vice Chairman of American Sound and Video in 2000 when it filed a
petition for reorganization pursuant to Chapter 11 under the U.S. Bankruptcy
Code. The proceeding was converted to Chapter 7 under the U.S. Bankruptcy Code
and the company was liquidated.
Xxxxxx X. Xxxxxxx. Xx. Xxxxxxx joined the Board of Directors of the
Company in May 2002 and became Chief Operating Officer in September 2002. He
became President in January 2004 and more recently was appointed President and
Chief Executive Officer. He has been an advisor and member of the Board of
Directors of numerous early stage information technology companies during the
past 15 years, including, from 1991 to 1999, Voice Technology Group, a
manufacturer and distributor of telecommunications components that has been
acquired by Intel Corporation. He served as President and CEO of Viewfacts
Xxxxxxx Inc., a private learning systems and market research company, from 1990
to 1994. He has also been CFO and COO of Compuware, a global software and
professional services firm. He has also held chief technology positions at
Continental Information Systems, a leasing and financial services company, from
1994 to 1996 and Agway, Inc., an agricultural cooperative, from 1964 to 1984. He
has been a visiting Professor at Syracuse University's Graduate School of
Management and was Chairman of the Curriculum Board while he completed his Ph.D.
curriculum requirements. Xx. Xxxxxxx also is currently a Director of
MicroLanguage Inc., a software development company specializing in internet data
security, and Vice Chairman and a Director of XGear Technologies, Inc., a
web-based medical services billing company. He holds a B.S. from Bentley College
and an M.B.A. from Cornell University.
Xxxxx X. Xxxxx. Xx. Xxxxx joined the Board of Directors of the Company
in August 2002. From February 1996 to the present, Xx. Xxxxx has served as the
President and Chief Operating Officer and more recently Chief Executive Officer
-29-
of Audio-Digest Foundation. He also provides management oversight to its
subsidiary, Marathon Multimedia, and to CME Unlimited, a medical conference
capture and e-commerce business. Prior to joining Audio-Digest Foundation, Xx.
Xxxxx worked in education and technology industries where he has had experience
in sales, product management, marketing and general management. He previously
worked for National Computer Systems from 1990 to 1995, Science Research
Associates from 1988 to 1990, and IBM Corporation from 1967 to 1988. At IBM, he
managed a full product line including new product development and distributed
products through a national direct sales force, direct response marketing and
complementary third-party distribution channels. He specialized in opening the
Pacific Rim markets for IBM's small computers and peripherals and managed the
small system product portfolio. Xx. Xxxxx earned a Bachelor of Business
Administration from the University of Iowa and a Master's of Business
Administration from the University of Chicago. He is a director of MedePass
Inc., which provides secure transmission of medical information, a member of the
Board of Governors of Marathon Multimedia, and a Director of Xxxxxx Xxxxxx
Group. Xx. Xxxxx also was a Director of American Sound and Video from 1998 to
2000, when it filed a petition for reorganization under the U.S. Bankruptcy Code
and later was liquidated.
Xxxxxxx X'Xxxxxxxx. Xx. X'Xxxxxxxx joined the Company in October 2004
as Chief Operating Officer. He is responsible for all aspects of the Company's
product and technology development, implementation and integration, customer
service and support, including training and the overall operations of the
Company. Prior to joining the Company, Xx. X'Xxxxxxxx worked for WellChoice,
Inc. (formerly Empire Blue Cross Blue Shield) from 1971 - 2000 where he held
many different positions spanning information technology, business operations,
quality assurance and strategic negotiations. Most recently, he was a member of
the operating committee and Senior Vice President of Strategic Alliances. Xx.
X'Xxxxxxxx successfully led corporate negotiations for a multi-year,
multi-faceted contract resulting in several hundred millions in funding to
modernize the company's IT applications, including a new claim engine, while
eliminating millions in corporate expenses. Earlier, as the Senior Vice
President of Business Technology Development from 2000 to 2002, Xx. X'Xxxxxxxx
created and led the team responsible for designing and developing a Java 2
Enterprise Edition compliant framework to support rapid development and code
reuse in different business applications. He led the team that developed a
multi-functional website with direct, real-time mainframe connectivity ensuring
24x7 availability. From 1997 to 2000, Xx. X'Xxxxxxxx served as the Chief
Information Officer at Empire managing 100+ core and ancillary applications
including all data center functions. It was during this time that he led
corporate activities for year 2000 compliance culminating in an incident free
implementation. He also reorganized the data center processes and business
principles, installed a virtual tape subsystem with a significant reduction in
staff and executed multi-year contracts with large mainframe software vendors
resulting in multiple millions in savings. His tenure as Chief Information
Officer was preceded by a position as the Vice President of Systems from 1996 to
1997. In this role, Xx. X'Xxxxxxxx successfully consolidated seven processing
systems to one integrated real time system servicing over three million members.
Xx. X'Xxxxxxxx gained first hand business experience as the Vice President of
Membership, Billing & Group Accounts Customer Service from 1995 to 1996 and the
Vice President of Senior Accounts from 1993-1995. In these roles, Xx. X'Xxxxxxxx
provided for corporate wide systemic solutions, performing process redesign and
implementing improvements including automation of membership enrollment and
-30-
methodologies in cash reconciliation. Xx. X'Xxxxxxxx graduated Beta Gamma Sigma
from Baruch College with an MBA in Computer Methodology. He also holds a BS in
Computer Science from Brooklyn College.
Xxxx Xxxxxx. Xx. Xxxxxx is primarily responsible for the development of
the Company's financial model, optimization of cash flow and all aspects of
finance and accounting. He joined the Company in 2001 and is a financial
executive with over 20 years experience. Xx. Xxxxxx was employed by Pennzoil
Company from 1982 to 1996 where he held a variety of accounting and finance
positions, including responsibility for all internal and external (SEC)
financial reporting for the Manufacturing and Marketing Division. He was
employed by Compaq Computer Corporation from 1996 to 2000, and served as
Director of Corporate Financial Planning and Analysis. In this role he
functioned as a senior financial advisor to the Chief Financial Officer and
Corporate Controller of this Fortune 500 Company. He led a professional team in
the development and preparation of consolidated financial reports, board
presentations, speech materials, quarterly budgets, earnings targets and
financial forecasts for all company regions and business units. In May 2000 he
left Compaq to accept equity participation and a senior management role as VP
Finance and Controller in the start-up of a managed data storage services
company, Storage Provider, Inc. In this role he assumed financial leadership
responsibility for the strategic planning, staffing, budgeting, and management
of the entire finance and accounting infrastructure. Xx. Xxxxxx earned a BS,
Accounting from Louisiana State University and is a Texas Certified Public
Accountant.
Xxxxxx Xxxxx. Xx. Xxxxx has been employed with the Company since August
2003 and has over twenty (20) years of executive experience in sales and
marketing in the healthcare industry. Prior to joining the Company, Xx. Xxxxx,
from 2001 to 2002, was Director of Sales at ResMed Corporation, a leading home
health respiratory equipment manufacturer. Xx. Xxxxx has been successful, during
the past eighteen (18) years in building high-energy sales teams at both small
and large companies including Xxxxxxxx-Xxxxxx Professional Healthcare, a major
medical/surgical supply manufacturer, where he was employed as District Sales
Manager from 1983 to 1991, and from STERIS Corporation, a leading medical device
company, where he held positions as Vice President of Sales-Americas, Vice
President National Accounts and Vice President of Sterilization Services from
1991 to 1998. From 2000 to 2001, Xx. Xxxxx also served as President of X10NET, a
start up venture that was focused on bringing web-based workflow solutions to
the physician marketplace. Since January 2004, Xxxxx has achieved triple-digit
revenue growth percentages and has established a nationwide sales force
including the addition of three regional vice presidents and a sales manager.
(c) Employment Arrangements
-----------------------
The Company does not have any employment agreements with any of its
directors, officers or employees.
In January 2004, the Company issued shares of Common Stock to its
Directors. The Company issued 500,000 shares, 1,000,000 shares and 100,000
shares, respectively, to Xx. Xxxxxxx X. Xxxxxx, Xxxxxx X. Xxxxxxx and Xxxxx X.
Xxxxx, of which 250,000 shares, 500,000 shares and 50,000 shares, respectively,
will be forfeited in the director resigns from the Board of Directors prior to
January 20, 2005.
-31-
In January 2004, the Company issued shares of Common Stock to its
Officers and Employees totaling 815,000 shares. These shares vested on October
1, 2004 for the employees still employed by the Company on October 1, 2004. As
of October 1, 2004 a total of 790,000 shares were issued to the eligible
employees, including 215,000 shares to Xxxx Xxxxxx and 150,000 shares to Xxxxxx
Xxxxx.
In June 2004, the Company issued 15,000 shares of Common Stock to Xx.
Xxxxxxx X. Xxxxxx, to be available to be granted at Xx. Xxxxxx'x discretion in
the future.
In June 2004, the Company issued 4,000 shares of Common Stock to its
two Physician Advisory Board members (2,000 shares each) as compensation for
their first year of service provided on the board.
In October 2004, the Company agreed to issue options to purchase the
Common Stock of the Company to Xx. Xxxxxxx X'Xxxxxxxx. A total of 300,000
options will be issued to Xx. X'Xxxxxxxx upon the Company's adoption of the
SecureCare Year 2004 Stock Option Plan. These options will be priced at $1.00
per share and will vest over a two year period. As of the date of this report,
the Company's Year 2004 Stock Option Plan had not been adopted.
(d) Stock Option Plan
-----------------
The Company does not currently have a Stock Option Plan, but is
adopting one in the near future in order to provide proper incentives for its
employees and to attract new employees.
(e) Capital Structure of the Company. The following sets forth the
capital structure of the Company prior to the sale of any Securities in the
Offering.
Total Common Shares Outstanding
-------------------------------
Gryphon Opportunities Fund I, LLC 13,980,638
The Xxxxxxxxx Foundation 495,000
Unsecured Creditors of the Company as of 375,000
May 13, 2003 (approximately 155 creditors)
Prior Shareholders of the Company as of 149,362
December 2, 2003, the date of Plan
Confirmation (approximately 1300 prior shareholders)
Reorganization Shares 15,000,000
Gryphon Financial Securities Corporation 2,000,000
-32-
Shares issued to the Board of Directors of 1,600,000
the Company, up to 800,000 shares of which
will be subject to forfeiture, in the event
that any such executive officer or director
does not maintain a relationship with the
Company for at least twelve (12) months after
the issuance of such shares
Shares to be issued to officers and 815,000
employees of the Company at a later date
Shares issued during February and March 2004 to 520,000
7 accredited investors in the Bridge Financing (1)
Shares Issued to Xxxxxxx Xxxxxx by the Board of 15,000
Directors on June 18, 2004
Shares Issues to the Medical Advisory Committee by 4,000
the Board of Directors on June 18, 2004
- Xxxx X. Herald and J. Xxxxxx Xxxx
(2,0000 shares each)
----------
Total Common Shares Outstanding at 9/30/04 19,954,000
==========
(1) In addition to the 520,000 shares issued during the Bridge Financing, a
warrant was issued to the Placement Agent which is redeemable for fifty two
thousand (52,000) shares of common stock at one dollar ($1.00) per share on
or before March 8, 2011.
Total Series A Preferred Stock Outstanding as of 9/30/04:
(i) 1,955,000 shares of Common Stock issuable upon conversion of
the outstanding Series A shares;
(ii) 1,955,000 shares issuable upon the exercise of the warrants
issued in the Series A Offering; and
(iii) 382,000 shares issuable upon the exercise of the placement
agent warrant issued in connection with the Series A Offering.
-33-
REPRESENTATIONS BY THE COMPANY
The Company represents and warrants to the Subscriber, except as set
forth in the disclosure schedules attached hereto:
2.1 Organization and Qualification. The Company and its
"Subsidiaries" (which for purposes of this Subscription Agreement means any
entity in which the Company, directly or indirectly, owns capital stock and
holds a majority or similar interest) are duly organized and validly existing in
good standing under the laws of the jurisdiction in which they were organized,
and have the requisite power and authorization to own their properties and to
carry on their business as now being conducted. Each of the Company and its
Subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which its ownership of property or the
nature of the business conducted by it makes such qualification necessary,
except to the extent that the failure to be so qualified or be in good standing
would not have a Material Adverse Effect. As used in this Subscription
Agreement, "Material Adverse Effect" means any material adverse effect on the
business, properties, assets, operations, results of operations or financial
condition of the Company and its Subsidiaries, if any, taken as a whole, or on
the transactions contemplated hereby, or by the other Offering Documents or the
agreements and instruments to be entered into in connection herewith or
therewith, or on the authority or ability of the Company to perform its
obligations under the Offering Documents.
2.2 Authorization; Enforcement; Validity. The Company has the
requisite corporate power and authority to enter into and perform its
obligations under the Offering Documents and perform its obligations under the
Offering Documents, and to issue the Securities in accordance with the terms of
the Offering Documents. The execution and delivery of the Offering Documents by
the Company and the consummation by the Company of the transactions contemplated
by the Offering Documents, including without limitation the issuance of the
Securities, have been duly authorized by the Company's board of directors and no
further consent or authorization is required by the Company, its board of
directors or its stockholders. The Offering Documents have been duly executed
and delivered by the Company, and constitute valid and binding obligations of
the Company enforceable against the Company in accordance with their terms,
except as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies.
2.3 Capitalization. Prior to the initial Closing (as defined
below), the authorized, issued and outstanding securities of the Company
(including, but not limited to, all and/or other securities convertible into
equity securities of the Company and all options and warrants, of which such
Schedule 2.3 shall list such securities and shall provide the type and amount of
underlying securities such securities are convertible and/or exercise into to)
will be set forth in Schedule 2.3 (and at each subsequent Closing will remain
the same except for securities issued in any Closing). All of the issued and
outstanding securities of the Company have been and are, or upon issuance will
be duly authorized, validly issued, fully paid and non-assessable. Except as
disclosed in Offering Documents, (i) no shares of the Company's capital stock
are subject to preemptive rights under Nevada law or any other similar rights or
any liens or encumbrances suffered or permitted by the Company; (ii) there are
no outstanding debt securities issued by the Company; (iii) there are no
-34-
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, any shares of capital stock of the Company
or any of its Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, any shares of capital stock of the Company
or any of its Subsidiaries; (iv) there are no agreements or arrangements under
which the Company or any of its Subsidiaries is obligated to register the sale
of any of their securities under the 1933 Act; (v) there are no outstanding
securities of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries; (vi) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities as described in the Offering Documents; and (vii) the Company
does not have any stock appreciation rights or "phantom stock" plans or
agreements or any similar plan or agreement. All prior sales of securities of
the Company were either registered under the 1933 Act and applicable state
securities laws or exempt from such registration, and no security holder has any
rescission rights with respect thereto.
2.4 Issuance of Securities; Reservation. The issuance, sale and
delivery of the Securities have been duly authorized by all requisite corporate
action by the Company and, upon issuance in accordance with the Offering
Documents, shall be (a) duly authorized, validly issued, fully paid and
non-assessable, (b) free from all taxes, liens and charges with respect to the
issue thereof except that may be created by the Subscriber, and (c) entitled to
the rights and preferences set forth in the Securities. At each Closing such
number of shares of Common Stock as the Placement Agent shall so indicate will
be duly authorized and reserved for issuance. Assuming (i) the accuracy of the
information provided by the respective Subscribers in the Subscription Agreement
and Questionnaire, (ii) that all of the offerees and Subscribers are "accredited
investors" as such term is defined in Rule 501 of Regulation D, and (iii) that
the Placement Agent has not engaged, nor will engage, in connection with the
Offering, in any form of general solicitation or general advertising within the
meaning of Rule 502(c) of Regulation D, the offer and sale of the Units pursuant
to the terms of this Subscription Agreement are and will be exempt from the
registration requirements of the 1933 Act and the rules and regulations
promulgated thereunder. The Company is not disqualified from the exemption under
Regulation D by virtue of the disqualification contained in Rule 507 thereof or
otherwise.
2.5 No Conflicts. Except as set forth in the Offering Documents,
the execution, delivery and performance of the Offering Documents by the
Company, the consummation by the Company of the transactions contemplated by the
Offering Documents, and the issuance of the Securities and performance by the
Company of its obligations under the Notes, will not (a) result in a violation
of the Company's Certificate of Incorporation, any other certificate of
designations, preferences and rights of any outstanding series of preferred
stock of the Company, or the Company's By-Laws, (b) conflict with, or constitute
a default or an event which with notice or lapse of time or both would become a
default under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, note and/or other
-35-
indebtedness, lease, license or instrument (including without limitation, any
document filed as an exhibit to any of the Company's SEC Documents (as defined
below)), or (c) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations
and the rules and regulations of the NASD) applicable to the Company or any of
its Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected.
2.6 Consents. The Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency or any regulatory or self-regulatory agency in order for it
to execute, deliver or perform any of its obligations under or contemplated by
the Offering Documents. Except as otherwise provided in the Offering Documents,
all consents, authorizations, orders, filings and registrations which the
Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof. The Company and its
Subsidiaries are unaware of any facts or circumstances which might prevent the
Company from obtaining or effecting any of the foregoing.
2.7 No General Solicitation. None of the Company, its
Subsidiaries, any of their affiliates, and any person acting on their behalf,
has engaged in any form of general solicitation or general advertising (within
the meaning of Regulation D under the 0000 Xxx) in connection with the offer or
sale of the Securities.
2.8 No Integrated Offering. None of the Company, its Subsidiaries,
any of their affiliates, and any person acting on 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 require registration of any of
the Securities under the 1933 Act by causing this Offering of the Securities to
be integrated with prior offerings by the Company for purposes of the 1933 Act
or any applicable stockholder approval provisions, including without limitation,
under the rules and regulations of any exchange or automated quotation system on
which any of the securities of the Company are listed or designated, or
otherwise. None of the Company, its Subsidiaries, their affiliates and any
person acting on their behalf will take any action or steps referred to in the
preceding sentence that would require registration of any of the Securities
under the 1933 Act by causing the Offering of the Securities to be integrated
with other offerings, or otherwise.
2.9 Application of Takeover Protections; Rights Agreement. The
Company and its board of directors have taken all necessary action, if any, in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Certificate of Incorporation
or the laws of the state of its incorporation which is or could become
applicable to the Subscriber as a result of the transactions contemplated by
this Subscription Agreement, including without limitation, the Company's
issuance of the Securities and the Subscriber's ownership of the Securities. The
Company has not adopted a shareholder rights plan or similar arrangement
relating to accumulations of beneficial ownership of Common Stock or a change in
control of the Company.
2.10 SEC Documents; Financial Statements. Since December 31, 2003,
the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
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requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act")
(all of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the "SEC
Documents"). All SEC documents are available on the SEC's website. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (a) as may be otherwise indicated in such financial
statements or the notes thereto, or (b) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments that will not be
material).
2.11 Conduct of Business; Regulatory Permits, Trading of Common
Stock, Etc. Except as set forth herein and/or in the SEC Documents, since
December 31, 2003, the Company has not (a) incurred any debts, obligations or
liabilities, absolute, accrued, contingent or otherwise, whether due or to
become due, except current liabilities incurred in the usual and ordinary course
of business, having a Material Adverse Effect, (b) made or suffered any changes
in its contingent obligations by way of guaranty, endorsement (other than the
endorsement of checks for deposit in the usual and ordinary course of business),
indemnity, warranty or otherwise, (c) discharged or satisfied any liens other
than those securing, or paid any obligation or liability other than, current
liabilities shown on the balance sheet dated as at December 31, 2003 and forming
part of the SEC Documents, and current liabilities incurred since December 31,
2003, in each case in the usual and ordinary course of business, (d) mortgaged,
pledged or subjected to lien any of its assets, tangible or intangible, (e)
sold, transferred or leased any of its assets except in the usual and ordinary
course of business, (f) cancelled or compromised any debt or claim, or waived or
released any right, of material value, (g) suffered any physical damage,
destruction or loss (whether or not covered by insurance) adversely affecting
the properties or business of the Company, (h) entered into any transaction
other than in the usual and ordinary course of business except for this
Subscription Agreement and the related agreements referred to herein, (i)
encountered any labor difficulties or labor union organizing activities, (j)
made or granted any wage or salary increase or entered into any employment
agreement, (k) issued or sold any shares of capital stock or other securities or
granted any options with respect thereto, or modified any equity security of the
Company, (l) declared or paid any dividends on or made any other distributions
with respect to, or purchased or redeemed, any of its outstanding equity
securities, (m) suffered or experienced any change in, or condition affecting,
its condition (financial or otherwise), properties, assets, liabilities,
business operations or results of operations other than changes, events or
conditions in the usual and ordinary course of its business, having (either by
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itself or in conjunction with all such other changes, events and conditions) a
Material Adverse Effect, (n) made any change in the accounting principles,
methods or practices followed by it or depreciation or amortization policies or
rates theretofore adopted, or (o) entered into any agreement, or otherwise
obligated itself, to do any of the foregoing. Neither the Company nor any of its
Subsidiaries is in violation of any judgment, decree or order or any statute,
ordinance, rule or regulation applicable to the Company or its Subsidiaries, and
neither the Company nor any of its Subsidiaries will conduct its business in
violation of any of the foregoing, except for possible violations which would
not, individually or in the aggregate, have a Material Adverse Effect. The
Common Stock is quoted on the NASD Bulletin Board, trading in the Common Stock
has not been suspended by the SEC or the NASD and the Company has received no
communication, written or oral, from the SEC or the NASD regarding the
suspension or delisting of the Common Stock from the NASD Bulletin Board. The
Company and its Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct their respective businesses, except where the
failure to possess such certificates, authorizations or permits would not have,
individually or in the aggregate, a Material Adverse Effect, and neither the
Company nor any such Subsidiary has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit.
2.12 Foreign Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company, (a) used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds, (b)
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended, or (c) made any unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.
2.13 Absence of Litigation. Except as set forth in the Offering
Documents and the SEC Documents, there is no action, suit, proceeding, inquiry
or investigation before or by the NASD, any court, public board, government
agency, self-regulatory organization or body, or arbitrator pending or, to the
knowledge of the Company, threatened against the Company, the Common Stock or
any of the Company's Subsidiaries or any of the Company's or the Company's
Subsidiaries' officers or directors in their capacities as such.
2.14 Tax Status. Except as set forth in the Offering Documents and
the SEC Documents, the Company and each of its Subsidiaries has made or filed
all federal and state income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject, except when the failure to
do so would not have a Material Adverse Effect, and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations or to the
Company's knowledge otherwise due and payable, except those being contested in
good faith and has set aside on its books reserves in accordance with GAAP
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim.
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2.15 Securities Law Compliance. The offer, offer for sale, and sale
of the Units has not been registered with the SEC. The Units are to be offered,
offered for sale and sold in reliance upon the exemptions from the registration
requirements of Section 5 of the 1933 Act. The Company will conduct the Offering
in compliance with the requirements of Regulation D under the 1933 Act, and the
Company will file all appropriate notices of offering with the SEC.
2.16 Title. Except as set forth in or contemplated by the Offering
Documents and the SEC Documents, the Company has good and marketable title to
all material properties and tangible assets owned by it, free and clear of all
liens, charges, encumbrances or restrictions, except as such as are not
significant or important in relation to the Company's business; all of the
material leases and subleases under which the Company is the lessor or sublessor
of properties or assets or under which the Company holds properties or assets as
lessee or sublessee are in full force and effect, and the Company is not in
default in any material respect with respect to any of the terms or provisions
of any of such leases or subleases, and to the Company's knowledge no material
claim has been asserted by anyone adverse to rights of the Company as lessor,
sublessor, lessee or sublessee under any of the leases or subleases mentioned
above, or affecting or questioning the right of the Company to continued
possession of the leased or subleased premises or assets under any such lease or
sublease. The Company owns, leases or licenses all such properties as are
necessary to its operations as described in the Offering Documents.
2.17 Intellectual Property Rights. The Company and its Subsidiaries
own or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service xxxx registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted, the lack of which could reasonably be expected to
have a Material Adverse Effect. Except as set forth in the Offering Documents,
to the Company's knowledge, none of the Company's trademarks, trade names,
service marks, service xxxx registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, government authorizations,
trade secrets or other intellectual property rights have expired or terminated,
or are expected to expire or terminate within two years from the date of this
Subscription Agreement, except where such expiration or termination would not
have either individually or in the aggregate a Material Adverse Effect. The
Company and its Subsidiaries do not have any knowledge of any infringement by
the Company or its Subsidiaries of trademarks, trade name rights, patents,
patent rights, copyrights, inventions, licenses, service names, service marks,
service xxxx registrations, trade secrets or other similar rights of others, or
of any such development of similar or identical trade secrets or technical
information by others and, except as set forth in the Offering Documents, no
claim, action or proceeding has been made or brought against, or to the
Company's knowledge, has been threatened against, the Company or its
Subsidiaries regarding trademarks, trade name rights, patents, patent rights,
inventions, copyrights, licenses, service names, service marks, service xxxx
registrations, trade secrets or other infringement, except where such
infringement, claim, action or proceeding would not reasonably be expected to
have either individually or in the aggregate a Material Adverse Effect. Except
as set forth in the Offering Documents, the Company and its Subsidiaries are
unaware of any facts or circumstances which might give rise to any of the
foregoing. The Company and its Subsidiaries have taken reasonable security
measures to protect the secrecy, confidentiality and value of all of their
intellectual properties except where the failure to do so would not have either
individually or in the aggregate a Material Adverse Effect.
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2.18 Brokers. Neither the Company nor any of its officers,
directors, employees or stockholders has employed any broker or finder in
connection with the transactions contemplated herein other than the Placement
Agent.
2.19 Right of First Refusal. Other than the Placement Agent, no
person, firm or other business entity is a party to any agreement, contract or
understanding, written or oral entitling such party to a right of first refusal
with respect to offerings of securities by the Company.
2.20 Disclosure. None of the representations and warranties of the
Company appearing in this Subscription Agreement or any information appearing in
any Exhibit or Schedule hereto or in any of the Offering Documents (other than
information received in writing by the Company from third-party sources or
statements which are described as a "belief" or "expectation" of the Company or
similarly qualified, which statements the Company believes to the best of its
knowledge as of the date hereof and at each Closing Date to be true and accurate
in all material respects and not misleading), when considered together as a
whole, contains, or on any Closing Date will contain, any untrue statement of a
material fact or omits, or on any Closing Date will omit, to state any material
fact required to be stated herein or therein in order for the statements herein
or therein, in light of the circumstances under which they were made, not to be
misleading.
2.21 Certain Officers. As of the date hereof, Xxxxxx Xxxxxxx, Xxxx
Xxxxxx, Xxxxxx Xxx and Xxxxxx Xxxxx (the "Key Executives") are employed by the
Company on a full-time basis, and, to the best of the Company's knowledge, none
of the Key Executives is planning to cease being employed by the Company on a
full-time basis in their current capacity and the Company is not aware of any
circumstances related to the employment of the Key Executives, apart from
circumstances related to the operations of the Company as a whole, that could
result in cessation of full-time employment of any of the Key Executives in
their current capacities.
III. TERMS OF SUBSCRIPTION
3.1 Closing and Termination of Offering. Provided the conditions
to closing set forth in Article V and Article VI hereof have been satisfied or
waived and neither the Company nor the Placement Agent have notified the other
that they do not intend to effect an initial Closing, the Company may effectuate
an initial Closing and subsequent Closings (as defined below) at such time and
place as it so determines (but in no event later than five (5) business days
following the Termination Date). At each closing, payment from the Escrow
Account for the Units sold by the Company shall be made. The Company and the
Placement Agent may consummate subsequent closings of the Offering, upon mutual
agreement only, each of which shall be subject to satisfaction or waiver of the
conditions to closing set forth in Article V and Article VI hereof, and each of
which shall be deemed a "Closing" hereunder. The date of the last closing of the
Offering is hereinafter referred to as the "Final Closing" and the date of any
Closing hereunder is hereinafter referred to as a "Closing Date." The offering
period for the Offering shall commence on the day the Offering Documents
relating thereto are first made available to the Placement Agent by the Company
for delivery in connection with the offering for sale of the Units and shall
continue until the earlier to occur of: (i) the sale of all ten (10) Units in
the Offering; and (ii) 5:00 p.m. (New York time), January 31, 2005; provided,
however, that the Placement Agent may extend the Offering Period for an
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additional thirty (30) days. The day that the Offering Period terminates is
hereinafter referred to as the "Termination Date."
3.2 Expenses; Fees. Simultaneously with payment for and delivery
of the B Shares and Warrants at each Closing, the Company shall: (A) pay to the
Placement Agent a cash fee equal to eight (8%) percent of the aggregate purchase
price of the Units sold (the "Cash Fee"); payment of which shall be made
directly from the Escrow Account at each Closing; (B) pay to the Placement Agent
a cash non-accountable expense allowance equal to one (1%) percent of the
aggregate purchase price of the Units sold (the "Non-Accountable Fee"), payment
of which shall be made directly from the Escrow Account at each Closing; (C)
reimburse the Placement Agent for its actual out-of-pocket expenses incurred in
connection with the Offering, including, without limitation, the fees and
expenses of its head counsel, the Placement Agent's due diligence investigation
expenses, travel and mailing expenses, payment of which shall be made directly
from the Escrow Account at each Closing; (D) pay all expenses in connection with
the qualification of the Units under the blue sky laws of the states which the
Placement Agent shall designate, including legal fees, filing fees and
disbursements of Placement Agent's counsel in connection with such blue sky
matters, payment of which shall be made directly from the Escrow Account at each
Closing; (E) issue to the Placement Agent (i) five (5) year common stock
purchase warrants (the "Agent Warrants") to purchase at an exercise price of
$1.25 per share of Common Stock, ten (10%) percent of the aggregate number of
Underlying Shares included in the Units sold at each Closing; and (F) pay to the
Placement Agent in the future a five (5%) percent fee on the gross proceeds
received by the Company from any future exercise by the Subscribers of the
Warrants, if any Warrants are so exercised.
3.3 Certificates. The Subscriber hereby authorizes and directs the
Company, upon each closing in the Offering, to (i) deliver the Warrants and
certificates representing the B Shares (the "Stock Certificates") to be issued
to such Subscriber pursuant to this Subscription Agreement to the Subscriber's
address indicated in the Questionnaire, by the date ten (10) days after the
applicable Closing Date.
IV. COVENANTS
4.1 Registration Rights Agreement. The Company shall provide for
the registration of the Shares for resale under the 1933 Act, as provided in the
Registration Rights Agreement. The Company and the Subscriber agree to the terms
and provisions of Registration Rights Agreement, which terms and provisions are
incorporated herein by reference in their entirety and made a part hereof.
4.2 Best Efforts. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Article V
and Article VI of this Subscription Agreement.
4.3 Form D and Blue Sky. The Company shall file a Form D with
respect to the Units as required under Regulation D under the 1933 Act and, upon
written request, provide a copy thereof to the Subscriber promptly after such
filing. The Company shall, on or before the Closing, take such action as the
Company shall reasonably determine is necessary in order to obtain an exemption
for or to qualify the Units for sale to the Subscriber pursuant to this
Subscription Agreement under applicable securities or "Blue Sky" laws of the
states of the United States, and shall provide evidence of any such action so
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taken to the Subscriber on or prior to the Closing. The Company shall make all
filings and reports relating to the offer and sale of the Securities required
under applicable securities or "Blue Sky" laws of the states of the United
States following the Closing.
4.4 Use of Proceeds. The Company shall only use the net proceeds
from the sale of the Units for the purpose set forth in Schedule 4.4 hereto.
V. CONDITIONS TO CLOSING IN FAVOR OF THE COMPANY
The obligation of the Company hereunder to issue and sell Units to the
Subscriber at the Closing is subject to the satisfaction, at or before the
Closing, of each of the following conditions, provided that these conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion by providing the Subscriber with prior written notice
thereof:
5.1 Offering Documents. The Subscriber shall have executed a
Questionnaire, a Subscription Agreement and delivered the same to the Company.
5.2 Purchase Price. The Subscriber shall have paid the purchase
price for the Units being purchased by the Subscriber at the Closing in the
manner set forth in Section 1.1.
5.3 Representations and Warranties. The representations and
warranties of the Subscriber shall be true and correct in all material respects
as of the date when made and as of the Closing as though made at that time, and
the Subscriber shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Subscription Agreement to be performed, satisfied or complied with by the
Subscriber at or prior to the Closing.
5.4 Other Matters. All opinions, certificates and documents and
all proceedings related to this Offering shall be in form and content reasonably
satisfactory to the Company and its legal counsel.
VI. CONDITIONS TO CLOSING IN FAVOR OF THE SUBSCRIBER
The obligation of the Subscriber hereunder to purchase the Units is
subject to the satisfaction, at or before the Closing, of each of the following
conditions, provided that these conditions are for the Subscriber's sole benefit
and may be waived by the Subscriber at any time in its sole discretion by
providing the Company with prior written notice thereof:
6.1 Offering Documents. The Company shall have executed and
delivered to the Subscriber each of the Offering Documents to which its
signature is required.
6.2 Legal Opinion. The Subscriber shall have received the opinion
of the Company's counsel dated as of the Closing, in substantially the form
approved by the Placement Agent.
6.3 Representations and Warranties. The representations and
warranties of the Company shall be true and correct as of the date when made and
as of the Closing as though made at that time (except for representations and
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warranties that reference a specific date which shall have been true and correct
in all material respects as of such date), and the Company shall have performed,
satisfied and complied in all respects with the covenants, agreements and
conditions required by the Transaction Documents to be performed, satisfied or
complied with by the Company at or prior to the Closing, except where the
failure of such representations and warranties to be true and correct as stated
above and except for such nonperformance, failure to satisfy or comply as would
not, individually or in the aggregate, have a Material Adverse Effect.
6.4 Certain Placement Agent Documents. The Company shall have
executed and delivered to the Placement Agent, the Agent Warrant and the Agent
Registration Rights Agreement.
6.5 Due Diligence. The Placement Agent shall have completed its
due diligence investigation of the Company, including without limitation, its
review of the Company's financial statements, projections, business prospects,
capital structure, and contractual arrangements, to the Placement Agent's
reasonable satisfaction.
6.6 Other Matters. All opinions, certificates and documents and
all proceedings related to this Offering shall be in form and content
satisfactory to the Placement Agent and its counsel.
6.7 Lock-Up Agreements. The Company has previously delivered to
the Placement Agent Lock-Up Agreements executed by each of Xx. Xxxxxxx X.
Xxxxxx, Xxxxxx X. Xxxxxxx, Xxxxx X. Xxxxx, Xxxx Xxxxxx Xxxxxx Xxx, Xxxxxx Xxxxx
and the Placement Agent expiring February 5, 2005. (NEED TO GET Xxxxxxx
X'Xxxxxxxx)
VII. RIGHTS OF TERMINATION
7.1 Termination by Subscriber or Company. This Subscription
Agreement may be terminated at any time prior to the Closing: (a) by mutual
written consent of the parties hereto; (b) by either the Company or (b) by the
Company or the Subscriber upon written notice to the other party if any court or
governmental authority of competent jurisdiction shall have issued a final,
non-appealable order restraining, enjoining or otherwise prohibiting the
consummation of the transactions contemplated by this Subscription Agreement.
Termination of this Subscription Agreement under this Section 7.1 shall result
in this Subscription Agreement becoming void and of no further force and effect,
except that a termination shall not release, or be construed as so releasing,
any party hereto from any liability or damage to the other party hereto arising
out of the breaching party's willful and material breach of the warranties and
representations made by it, or willful and material failure in performance of
any of its covenants, agreements, duties or obligations provided hereunder, and
the obligations under Section 8.8 shall survive such termination.
7.2 Termination by the Placement Agent. In the event the Placement
Agent decides for any reason prior to the Closing not to proceed with the
Offering, upon notice to the Company and the Subscriber, this Subscription
Agreement shall be terminated and become void and of no further force and
effect, and none of the Company, the Placement Agent, or the Subscriber shall
have any further obligations pursuant to this Subscription Agreement, including
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without limitation, the obligation to consummate the Offering; provided,
however, that the obligations under Section 8.8 and Section 8.12 shall survive
such termination.
MISCELLANEOUS
8.1 Notice. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Subscription Agreement
must be in writing and will be deemed to have been delivered: (a) upon receipt,
when delivered personally, (b) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party), or (c) one (1) business day after deposit
with an overnight courier service, in each case properly addressed to the party
to receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company:
0000 Xxx Xxxxx Xxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000
Attention: President
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to:
Xxxxx X. Xxxxxxx, Esq.
0000 Xxxxx Xxxxx Xxxx
Xxxxx Xxxxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Subscriber, to its address and facsimile number set forth at
the end of this Subscription Agreement, or to such other address and/or
facsimile number and/or to the attention of such other person as specified by
written notice given to the Company five (5) days prior to the effectiveness of
such change, together with a copy to:
Gryphon Financial Securities Corp.
000 Xxxxx Xxxx Xxx
Xxxx Xxxxx, XX
Attention: President
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Written confirmation of receipt (a) given by the recipient of such
notice, consent, waiver or other communication, (b) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission, or (c) provided by an overnight courier service shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from an
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overnight courier service in accordance with clauses (a), (b) or (c) above,
respectively.
8.2 Entire Agreement; Amendment. This Subscription Agreement
supersedes all other prior oral or written agreements between the Subscriber,
the Company, their affiliates and persons acting on their behalf with respect to
the matters discussed herein, and this Subscription Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Subscriber
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Subscription Agreement may be amended or waived
other than by an instrument in writing signed by the Company and each
Noteholder.
8.3 Severability. If any provision of this Subscription Agreement
shall be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Subscription Agreement in that jurisdiction or the validity or
enforceability of any provision of this Subscription Agreement in any other
jurisdiction.
8.4 Governing Law; Jurisdiction. This Agreement shall be governed
by and construed solely in accordance with the internal laws of the State of New
York with respect to contracts made and to be fully performed therein, without
regard to the conflicts of laws principles thereof. The parties hereto hereby
expressly and irrevocably agree that any suit or proceeding arising under this
Agreement or the consummation of the transactions contemplated hereby, shall be
brought solely in a federal or state court located in the City, County and State
of New York. By its execution hereof, Company hereby expressly and irrevocably
submits to the in personam jurisdiction of the federal and state courts located
in the City, County and State of New York and agrees that any process in any
such action may be served upon it personally, or by certified mail or registered
mail upon Company or such agent, return receipt requested, with the same full
force and effect as if personally served upon Company in New York City. The
parties hereto each waive any claim that any such jurisdiction is not a
convenient forum for any such suit or proceeding and any defense or lack of in
personam jurisdiction with respect thereto. In the event of any such action or
proceeding, the party prevailing therein shall be entitled to payment from the
other party hereto of its reasonable counsel fees and disbursements.
8.5 Headings. The headings of this Subscription Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Subscription Agreement.
8.6 Successors And Assigns. This Subscription Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns, including any purchasers of the Units. The Company shall
not assign this Subscription Agreement or any rights or obligations hereunder.
Subscriber may assign some or all of its rights hereunder without the consent of
the Company, provided, however, that any such assignment shall not release the
Subscriber from its obligations hereunder unless such obligations are assumed by
such assignee and the Company has consented to such assignment and assumption,
which consent shall not be unreasonably withheld.
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8.7 No Third Party Beneficiaries. This Subscription Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
8.8 Survival. The representations and warranties of the Company
and the Subscriber contained in Article I and Article II and the agreements set
forth this Article VIII shall survive the Closing for a period of twelve (12)
months.
8.9 Further Assurances. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and documents,
as the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Subscription Agreement and the consummation of
the transactions contemplated hereby.
8.10 No Strict Construction. The language used in this Subscription
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.
8.11 Legal Representation. The Subscriber acknowledges that: (a) it
has read this Subscription Agreement and the exhibits hereto; (b) it understands
that the Company has been represented in the preparation, negotiation, and
execution of this Subscription Agreement by Xxxxx Xxxxxxx, Esq., counsel to the
Company; (c) it understands that the Placement Agent has been represented by its
own counsel, and that such counsel has not represented and is not representing
the Subscriber; (d) it has either been represented in the preparation,
negotiation, and execution of this Subscription Agreement by legal counsel of
its own choice, or has chosen to forego such representation by legal counsel
after being advised to seek such legal representation; and (e) it understands
the terms and consequences of this Subscription Agreement and is fully aware of
its legal and binding effect.
8.12 Expenses of Enforcement. The Company shall pay all fees and
expenses (including reasonable fees and expenses of counsel and other
professionals) incurred by the Subscriber or any successor holder of the
Securities Notes and Shares in enforcing any of its rights and remedies under
this Subscription Agreement, the Certificate of Designation, or the Registration
Rights Agreement.
8.13 Confidentiality. The Subscriber agrees that, at all times
during the period ending five (5) business days after the filing by the Company
with the SEC of its next Annual Report on Form 10-KSB following the date hereof,
it shall keep confidential and not divulge, furnish or make accessible to
anyone, the confidential information concerning or relating to the business or
financial affairs of the Company contained in the Offering Documents to which it
has become privy by reason of this Subscription Agreement.
8.14 Counterparts. This Subscription Agreement may be executed in
two or more identical counterparts, all of which shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
-46-
8.15 Registration Rights Agreement. By execution of this Agreement,
Subscriber hereby agrees to all terms and conditions set forth in the
Registration Rights Agreement as if Subscriber executed such Registration Rights
Agreement directly.
-47-
IN WITNESS WHEREOF, the parties have executed this Subscription
Agreement as of the date first written above.
SUBSCRIBER ** CO-SUBSCRIBER **
__________________________________ ____________________________________
Signature of Subscriber Signature of Co-Subscriber
__________________________________ ____________________________________
Name of Subscriber [please print] Name of Co-Subscriber [please print]
__________________________________ ____________________________________
Address of Subscriber Address of Co-Subscriber
__________________________________ ____________________________________
Social Security or Taxpayer Social Security or Taxpayer
Identification Number of Identification Number of
Subscriber Co-Subscriber
Name of Holder(s) as it should appear on the security
certificates* [please print]
* Please provide the exact names that you wish to see on the certificates
(1) For individuals, print full name of subscriber.
(2) For joint, print full name of subscriber and all co-subscribers.
(3) For corporations, partnerships, LLC, print full name of entity, including
"&," "Co.," "Inc.," "etc," "LLC," "LP,"etc.
(4) For Trusts, print trust name (please contact your trustee for the exact
name that should appear on the certificates.)
Dollar Amount of Units Subscribed For: $__________
Dollar Amount of Units
Subscription Accepted: $____________
SUBSCRIPTION ACCEPTED BY THE COMPANY
SECURECARE TECHNOLOGIES, INC.
By:_________________________________
**If Subscriber is a Registered
Representative with an NASD member
firm or an affiliated person of an
NASD member firm, have the
acknowledgment to the right signed
by the appropriate party:
The undersigned NASD Member firm
acknowledges receipt of the notice
required by Rule 3040 of the NASD
Conduct Rules.
Name of NASD Member Firm
By:_______________________________
Authorized Officer
INDEX OF EXHIBITS
-----------------
Exhibit A Form of Warrant
Exhibit B Certificate of Designation for Series B Shares
Exhibit C Form of Registration Rights Agreement
Exhibit D Prior Bankruptcy Information
Exhibit E Certificate of Designation for Series A Shares
INDEX OF SCHEDULES
------------------
Schedule 2.3 Capital Structure; Outstanding Securities
Schedule 4.4 Use of Proceeds
EXHIBIT A
---------
Form of Warrant
EXHIBIT B
---------
Certificate of Designation for Series B Shares
EXHIBIT C
---------
Form of Registration Rights Agreement
EXHIBIT D
---------
Prior Bankruptcy Information
EXHIBIT E
---------
Certificate of Designation for Series A Shares
SCHEDULE 2.3
------------
Outstanding Securities
See Schedule attached.
SCHEDULE 4.4
------------
Use of Proceeds
See Schedule attached.
