Exhibit 10.1
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 ▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇ (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 issue on a "best efforts" basis, up to
twenty (20) 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) one hundred thousand (100,000)
shares of the Company's 5% Series A Convertible Preferred Stock (the "A
Shares"), each A 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 $1.00 per share, one hundred thousand (100,000)
shares of Common Stock (the "Warrant Shares");
WHEREAS, the A 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 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 "▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq. as Escrow Agent
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 ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq. - ▇▇▇▇
Account, Account Number 291-500-155-865, Chase Manhattan Bank, Routing Number
▇▇▇▇▇▇▇▇▇, Branch 291, ▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇. The
Units, the A Shares, the Conversion Shares and the Warrant Shares (shall
collectively be referred to hereunder as the "Securities"). The Warrants and
certificates for the A 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. 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 SECTION 1.5.
ALL SHARE AND PER SHARE INFORMATION IN THIS SUBSCRIPTION AGREEMENT
REFLECTS A 1.5 FOR 1 FORWARD STOCK SPLIT OF THE COMMON STOCK THAT OCCURS IN
FEBRUARY 2004.
Relationship to and influence and control by the Placement Agent; Conflict of
Interest.
As of the date of this Memorandum, Gryphon Opportunities Fund I, LLC
(the "Fund"), an affiliate of the Placement Agent, and the Placement Agent, own
in the aggregate 15,935,000 shares of Common Stock (approximately 80% of the
Company's issued and outstanding Common Stock). In addition, the Fund and York
Avenue Holding Corp., another affiliate of the Placement Agent have
approximately $614,000 aggregate principal amount of loans due from the Company
on various dates through and until July 31, 2005 (of which $70,000 will, at the
option of the Placement Agent, be repaid from the funds received in this
Offering). Such stock ownership, indebtedness of the Company to the Placement
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Agent and its affiliates and certain additional rights and compensation to be
received by the Placement Agent in this Offering including, without limitation,
the right, during the five (5) year period after this Offering, to appoint one
(1) of the five (5) members of the Company's Board of Directors, as well as one
(1) of the three members serving on each of the Company's Audit and Compensation
Committees, and the absolute right of approval with respect to all new members
appointed to the Board of Directors, during such period, 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.
Recent 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. 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. For
a more complete discussion of the Bankruptcy proceeding, please see EXHIBIT D
hereto. The Company's reorganization under the Bankruptcy Code may adversely
effect its ability to attract and maintain customers, which would have a
material adverse effect on the Company's operations.
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 $3,900,000 during 2001, approximately $2,900,000 during 2002, and
approximately $800,000 (after taking into account an accounting gain of
$2,700,000 on the settlement of the Company's outstanding indebtedness pursuant
to the Plan) during 2003. 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.
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 $3,900,000 during 2001, approximately $2,700,000
during 2002 and approximately $800,000 (after taking into account an accounting
gain of $2,700,000 on the settlement of the Company's outstanding indebtedness
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pursuant to the Plan) during 2003. 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 therefrom 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 twenty (20) Units offered hereby or any Units.
Furthermore, there can be no assurance that the amount of net proceeds received
by the Company from the sale of less than all twenty (20) Units will be adequate
to enable the Company to pursue its intended operations in the manner 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 twenty (20) Units in this
Offering, the net proceeds therefrom will satisfy its operating capital needs
for an estimated, approximately fifteen (15) 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 sell a sufficient number of Units in this Offering. If less
than such twenty (20) Units are sold, 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, if ever, which could adversely
affect its operating results and prospects.
Subsequent Offering.
The Company, through the Placement Agent, 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 A Shares 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.
We will not become profitable unless we achieve sufficient levels of physician
penetration and market acceptance of our services.
Our EMR business model depends upon usage by a large number of
physicians with a high volume of 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 our EMR solutions
will require adoption of new methods of conducting business and exchanging
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information. We cannot assure you that physicians or other health care providers
will integrate our services into their office workflow, or that the healthcare
market will accept our services as a replacement for traditional methods of
conducting healthcare transactions. The healthcare industry uses existing
computer systems that may be unable to access our Internet-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 our products or services will not adequately
protect proprietary information. Failure to achieve broad physician or health
care organization penetration or successfully contract with healthcare
participants, would have a material adverse effect on our business.
Achieving market acceptance for our products and services will require
substantial marketing efforts and expenditure of significant funds to create
awareness and demand by participants in the healthcare industry. Our management
believes that we must gain significant market share with our services before our
competitors introduce alternative services with features similar to our
services. There can be no assurance that we will be able to succeed in
positioning our services as a preferred method for healthcare e-commerce, or
that any pricing strategy that we develop will be economically viable or
acceptable to the market. Failure to successfully market our products and
services would have a material adverse effect on our business, financial
condition and operating results.
Our business prospects will suffer if we are not able to quickly and
successfully deploy our EMR systems and products.
We believe that our business prospects will suffer if we do not deploy
our services quickly. We began allowing access to our Web-based EMR system in
November of 2000 and intend to expand deployment of access to our Web-based EMR
services during the year 2003, although there can be no assurance that we will
be able to continue to do so during this time, or at all. In order to deploy our
services, we must integrate our architecture with physicians', payers' and
suppliers' systems. We will need to expend substantial resources to integrate
our EMR systems with the existing computer systems of large healthcare
organizations, home health care organizations and physicians. We have limited or
no experience in doing so, and may experience delays in the integration process.
These delays would, in turn, delay our ability to generate revenue from our
services and may have a material adverse effect on our business, financial
condition and operating results. Once we have deployed our EMR system, we 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. We may be unable to expand or adapt our network
infrastructure to meet additional demand or our customers' changing needs on a
timely basis and at a commercially reasonable cost, or at all. Any failure to
deploy, expand or adapt our system quickly could have a material adverse effect
on the Company's business, financial condition and operating results.
We do not currently have a substantial customer base and our revenues come from
a few payers in one geographic market.
We currently do not have a substantial customer base. In addition, we
currently generate a significant portion of our revenue from providing our
products and services in Texas, Louisiana, North Carolina, Pennsylvania,
Minnesota, Wisconsin, Michigan and Oklahoma. If we do not generate as much
revenue in this market or from these payers as expected, our revenue will be
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significantly reduced, which would have a material adverse effect on our
business, financial condition and operating results.
Competition.
Our 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
our products and services. If forced to reduce our prices, our operating results
could suffer if we cannot achieve corresponding reductions in our expenses.
We may experience significant delays in generating revenues from our services
because potential customers could take a long time to evaluate the purchase of
our services.
A key element of our strategy is to market our services directly to large
healthcare organizations, including home health care organizations and nursing
home facilities. We do not control many of the factors that will influence
physicians', payers' and suppliers' buying decisions. We expect that the sales
and implementation process will be lengthy and will involve a significant
technical evaluation and commitment of capital and other resources by home
health agencies, nursing homes, physicians, payers and suppliers. The sale and
implementation of our services are subject to delays due to such organizations'
internal budgets and procedures for approving large capital expenditures and
deploying new technologies within their networks.
Our business will suffer if the integrity and security of its systems are
inadequate.
If we are successful in delivering our Web-based healthcare e-commerce services,
our business could be harmed if we or our present or future customers were to
experience any system delays failures or loss of data. Although we intend to
have safeguards for emergencies, the occurrence of a catastrophic event or other
system failure at our facilities could interrupt our operations or result in the
loss of stored data. In addition, we will depend on the efficient operation of
Internet connections from customers to our 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 our business, financial condition and
operating results. Furthermore, we will be dependent on hardware suppliers for
prompt delivery, installation and services of equipment used to deliver our
services.
Despite the implementation of security measures, our 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 our reputation or result in
liability to us. We retain confidential customer information in our processing
center and on our servers. An experienced computer user who is able to access
our computer systems could gain access to confidential company information.
Furthermore, we may not have a timely remedy to secure our system against any
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hacker who has been able to penetrate our system. Therefore, it is critical that
our 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 our 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. We 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 transaction 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 our security or misappropriation of proprietary information were
to occur, it could have a material adverse effect on our business, financial
condition and operating results. We may be required to expend significant
capital and other resources to protect against such security breaches or to
alleviate problems caused by security breaches. We may also be required to spend
significant resources and encounter significant delays in upgrading our 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 our services in particular,
especially as a means of conducting commercial and/or healthcare-related
transactions. There can be no assurance that our security measures will prevent
security breaches or that failure to prevent such breaches will not have a
material adverse effect on our business, financial condition and operating
results.
Our operations will also be dependent on the development and maintenance of
software.
Although we 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.
Our expansion through acquisitions may be difficult to implement and may expose
us to additional risk.
We maintain an acquisition program and intend to concentrate our
acquisition efforts on businesses that are complementary to our core businesses.
Such emphasis is not, however, intended to limit in any manner our ability to
pursue acquisition opportunities in other related businesses or in other
industries. We anticipate that we may enter into further acquisitions, joint
ventures, strategic alliances or other business combinations. These transactions
may materially change the nature and scope of our business. Although our
management will endeavor to evaluate the risks inherent in any particular
transaction, there can be no assurance that we will properly ascertain all such
risks. In addition, no assurances can be given that we will succeed in
consummating any such transactions, that such transactions will ultimately
provide us with the ability to offer the services described or that we will be
able to successfully manage or integrate any resulting business.
The success of our acquisition program will depend on, among other things:
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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 proceeds from new indebtedness, or
o proceeds from the issuance of additional common stock,
preferred stock, convertible debt or other securities
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. We do not intend to seek stockholder approval for
any such transaction or security issuance unless required by applicable law or
regulation.
Integrating our business operations with businesses we may acquire in the
future, may be difficult and may have a negative impact on our business.
We may acquire additional businesses in the future. The integration of
companies or businesses that we 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 our 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.
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Such disruptions and difficulties, if they occur, may cause us to fail to
realize the benefits that we currently expect to result from such integration
and may cause material adverse short- and long-term effects on our operating
results and financial condition.
Uncertainties in realizing benefits from a combination.
Even if we are 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 we expect
to result from such integration or that such benefits will be achieved within
the time frame that we 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 our business.
All businesses which rely on technology, including the healthcare
work-flow solutions business that we are 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 Internet-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, we must be able to
quickly and successfully modify our services so that we adapt to such changes.
There can be no assurance that we will not experience difficulties that could
delay or prevent the successful development and introduction of our healthcare
work-flow solutions services or that we 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 our 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 a provisional patent application on
some of its processes, the Company's technology is not patented and existing
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copyright laws offer only limited practical protection. We rely 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 our proprietary rights. There can be no assurance that the
legal protections afforded to us or the steps taken will be adequate to prevent
misappropriation of our technology. In addition, these protections do not
prevent independent third-party development of competitive products or services.
Our management believes that our 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 us or that any such assertion will not require us 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 our management and otherwise have a material adverse effect on our business,
financial condition and operating results.
The desirability of our services is contingent on our ability to continue to
comply with present and future government regulations.
Our 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 we are developing. We believe, 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, our
healthcare solutions business may be affected by current regulations as well as
future regulations specifically targeted to this new segment of the healthcare
industry. While our products are designed to aid our customers' compliance with
certain government regulations, changes in these regulations or their repeal
could reduce the need for our 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: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, President; ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
Chairman of the Board; ▇▇▇▇ ▇▇▇▇▇▇, Chief Financial Officer; ▇▇▇▇▇▇ ▇▇▇▇▇,
Vice-President of Sales and Marketing; and ▇▇▇▇▇▇ ▇▇▇, Vice-President of
Business Development. 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
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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.
Immediate and substantial dilution.
Investors in this Offering will incur immediate and substantial dilution of
their ownership interest as a result of this Offering.
No Assurance of Trading Market for Common Stock; ▇▇▇▇▇ 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
The Common Stock is deemed to be "▇▇▇▇▇ stock" as that term is defined
in Rule 3a51-1 promulgated under the Securities Exchange Act of ▇▇▇▇ (▇▇▇
"▇▇▇▇▇▇▇▇ ▇▇▇"). ▇▇▇▇▇ 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 ▇▇▇▇▇ stocks to provide
potential investors with a document disclosing the risks of ▇▇▇▇▇ stocks and to
obtain manually signed and dated written receipt of the document before
effecting a transaction in a ▇▇▇▇▇ 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.
Restrictions on resale of the Conversion Shares and the Warrant Shares; No
Assurance of Registration of Underlying Shares.
The Conversion Shares and the Warrant Shares (the "Underlying Shares")
may not be sold unless, at the time of such intended sale, the Company has a
current prospectus covering the Underlying Shares or there exists an exemption
from registration under the Securities Act, and such Underlying Shares have been
-11-
registered, qualified, or deemed to be exempt under the securities or "blue sky"
laws of the state of residence of the seller. The Company has provided certain
registration rights permitting for resale of the Underlying Shares, however, no
assurance can be given that the Company will be successful in this endeavor.
Accordingly, if the Underlying Shares are not registered under the Securities
Act, or exempt therefrom, and registered or qualified under applicable
securities or "blue sky" laws, or deemed exempt therefrom, the value of the A
Shares and the Warrants may be greatly reduced. Moreover, no assurances can be
given when, if ever, the Company will file a registration statement covering the
resale of the Underlying Shares or if the SEC will ever approve such a
registration statement.
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 (assuming a public market ever
exists) 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 19,870,000 shares of
Common Stock currently outstanding are 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.
Volatility of Common Stock.
The Company believes that if the Common Stock is ever permitted to
trade on the OTCBB, 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:
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.
Determination of offering price of the Units and the rights of the Units.
The offering price of the Units, the rights, preferences, privileges
and limitations of the Preferred Shares the exercise price of the Warrants and
the Agent Warrants, were determined by negotiation between the Company and the
Placement Agent. Accordingly, the offering price of the Units, the terms of the
A Shares and the exercise price of the Investor Warrants and the Agent Warrants,
may not accurately reflect the actual value of the A Shares, or such warrants,
or the price that may be realized upon disposition of the Underlying Shares.
Investors in the Units should particularly note that the Placement Agent is a
controlling stockholder of the Company.
-12-
No independent determination of fairness of Offering terms.
If the A Shares and Warrants 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 Company has estimated the amounts it will use for the
purposes specified under "Use of Proceeds." 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. See "Use of Proceeds."
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.
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
▇▇-▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇, ▇▇▇▇, (▇) the Certificate of Designation; (g) the Warrant,
(h) the Registration Rights Agreement, and (i) all exhibits, schedules and
appendices which are part of the aforementioned documents (collectively, the
"Offering Documents"), 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.
-13-
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
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.
-14-
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
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 ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, 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.
(a) Description of the Company:
--------------------------
Introduction. The Company believes it is a leading developer
of proprietary Internet-based secure patient record document transfer workflow
applications and e-signature technology. Our technology can be applied to
virtually any document that requires authentication, verification and document
process flow. The Company has initiated marketing its products to a growing U.S.
based industry of healthcare provider networks that administer care to acute and
post acute-care patients including the in-home patient industry. The network,
which consists 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 and require
numerous signatures from physicians and nurses. The Company believes healthcare
has trailed most other industries in technological workflow efficiencies which
-15-
has increased cost structure, delayed reimbursements, reduced cash flows and
exposed the industry to regulatory issues for mishandling of patient records,
reimbursement claims procedures and has led to Medicare fraud and abuse or
allegations thereof.
Home healthcare is served by practice management software offered to
each segment of the industry by numerous vendors including home-grown systems.
The dominant solutions providers to this industry are:
McKesson - HBOC Siemens
Patient Care Technologies ▇▇▇▇▇
Misys Beyond Now (Cerner)
Infosys Computer Unlimited
Computer Application Unlimited Care Centric (Mestamed, DME 6)
Fastrack
Home-grown solutions are utilized by larger organizations such as:
Gentiva Amedisys Inc.
Interim Apria
Rotech Lincare
Practice management software is a mature market and offers homecare a
range of solutions including documenting patient records as required by the
Center for Medicare, and Medicaid Services ("CMS"), billing and scheduling.
Because of the maturation of the industry, the Company believes that there is
little differentiation or competitive advantage among solution providers.
The Company believes that it offers one of the only solutions that
currently addresses the problems of transferring the endless number of forms and
documents that the industry utilizes in an efficient and operational manner.
With SecureCARE(TM), documents such as verbal orders, plan of care 485's, 486's,
487's and various letters of medical necessity, physician orders, physician
prescriptions, hospital forms for admission, discharge and various authorization
forms are processed and transmitted from healthcare provider to referring
physicians for review and signatures. They are then returned to providers and
used to submit and document reimbursement claims to Medicare, Medicaid and other
third party payers in a fast, efficient and cost effective manner. This process
is performed in compliance with the Health Insurance Portability and
Accountability Act ("HIPAA") that Congress has passed to regulate the industry.
The Company believes this existing paper environment has fostered significant
inefficiencies particularly in the area of Medicare billing, and has cost tax
payers, as well as increased over-all healthcare costs. We further believe it
has negatively impacted the financial stability of healthcare providers such
that major solution providers are not finding new markets for their products.
Medicare regulations are driving the need for technological solutions that will
speed the administration of care documentation and reduce operational costs in
the industry. The Company believes that SecureCARE(TM) is at the forefront of
this movement to technology efficiency.
Technology. Our SecureCARE(TM) platform is an Internet based solution
utilizing a transaction-based pricing, ASP (Application Service Provider) model
and software standards currently in place for healthcare regulations utilizing
the Internet. The SecureCARE(TM) platform uses XML, SOAP, HTTP, HL7, HIPAA
-16-
transaction sets and ANSI X12N. The SecureCARE(TM) platform also utilizes
Microsoft development solutions for the front-end client application as well as
the backend server applications. All database information is stored utilizing
encrypted XML data using Microsoft SQL 2000. Multiple web servers and database
servers are co-located in a third party facility that meets the Internet
requirements as well as the federal regulations for the storing of healthcare
data. The application utilizes open standards that allow for the integration of
other software as well as the exchange of data with both new and older systems
alike.
Products: The Company currently sells two lines of products:
SecureCARE(TM) offers healthcare providers, within an internet
based ASP model fully integrated\ed with any existing practice management
software, the ability to create any standardized 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(TM) also provides highly
scalable platforms for use with mid-to-large-sized enterprise platforms that
permit connections to medical equipment companies, pharmacies, nursing homes,
hospices, hospitals, research communities, lab companies and insurance payers,
among others.
SecureMD(TM) enables referring physicians to receive in an
"email-like" formatted page, instant secure patient related electronic forms and
documents from agency 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 document for time spent on Certification,
Recertification and reviewing other Care Plan Oversight ("CPO") documents.
Though the Company believes that there will be a high rate of adoption
for its current generation of technology, to meet the vast demand of scale in
the future, it plans to seamlessly move to a Microsoft ".Net" platform which the
company believes will create faster implementation, higher adoption and faster
integration with other solutions. The Company believes it is setting the
standard for home health care provider workflow solutions.
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.
We believe the market for our solutions is in its infancy, and that
only a fraction of 1% of the potential adoption rate has been addressed to date.
We believe we are creating a new demand. We believe there are few, if any, other
participants in our space that offer our end-to-end comprehensive solutions.
-17-
There is an emergence of solutions 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 ▇▇▇▇▇▇ & Flippis
Computers Unlimited Computers Applications Unlimited
CareCentric(MestaMed and Omnicare
Dezine DME6)
We believe our 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 can easily integrate with all 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.
Our reporting capabilities allow physicians to track and ▇▇▇▇ by key
billing codes for services reimbursable by Medicare. This functionality creates
revenue opportunities that approximately 97% of physicians are not using today.
We believe no vendor provides this capability, giving us the inside track to
physicians' desk-tops.
We have invested the capital and years to build our solutions and
believe that we have a long time advantage over competitors. There is very
little additional capital required for technology upgrades which enables us to
focus on expanding our market, our brand and support systems.
Business strategy. The Company intends to continue to grow and
expand its market position by pursuing the following strategies:
o Market into the natural synergistic relationship that occurs
between referring physicians and provider networks. Our
strategic initiatives focus on capturing key enterprise
providers and key specialty physicians groups. We train
providers' marketing staff to market to their referring
physicians and also work with physicians groups to market to
their provider networks in a viral approach.
o Market through our strategic partners and customers including
those practice management software groups with which we have
integrated.
o Seek strategic endorsements of healthcare groups and
associations that enable the Company to penetrate their
affiliated networks in a joint marketing effort.
Our sales and marketing is conducted under the direction of a business
development VP and VP of Sales and Marketing. The Company has three additional
sales representatives and a group of forty independent commissioned-based
-18-
representatives focused on expanding our provider physician target market
nationally. We intend to expand our direct sales representatives and independent
representatives following this Offering.
Pricing. Client providers 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. We believe our pricing reflects an easy
"buy-in" decision given our customers' expected cost savings and increased cash
flow relative to the low transaction fee.
Examples of our clients, pilots programs, strategic partners
and key endorsements include:
Clients & Pilots
VNA of Wisconsin Nurse Finders
Vitas Corporation Interim Healthcare
Med South ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇
US Oncology Medical Edge
Van ▇. ▇▇▇▇▇▇ Group Siemens Information Systems
Home Health Corporation of America
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. In May 2003 the Company filed a
voluntary petition under Chapter 11 of Title 11 of the United States Bankruptcy
Code (the "Bankruptcy Code"). The Company's Plan of 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
-19-
included in Exhibit D hereto. For a more complete discussion of the Plan and
other matters relating to the bankruptcy proceeding, see Exhibit D hereto.
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 ▇▇▇▇ ▇▇▇) 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.
(b) 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
---- --- --------
▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇... 63 Chairman of the Board of Directors and
Chief Medical Officer
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇....... 62 President, Chief Operating Officer, and Director
▇▇▇▇▇ ▇. ▇▇▇▇▇.......... 62 Director
▇▇▇▇ ▇▇▇▇▇▇............. 43 Chief Financial Officer
▇▇▇▇▇▇ ▇▇▇.............. 42 Vice President - Strategic Alliances
▇▇▇▇▇▇ ▇▇▇▇▇............ 45 Vice President - Sales, Marketing and
Customer Support
▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇. ▇▇. ▇▇▇▇▇▇ 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, ▇▇. ▇▇▇▇▇▇ served as
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, ▇▇. ▇▇▇▇▇▇ served as a member
-20-
of the Advisory Committee to the Director of the National Institute of
Health. ▇▇. ▇▇▇▇▇▇ 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. ▇▇. ▇▇▇▇▇▇ is a
graduate of Rutgers University, and received his M.D. degree from Hahnemann
Medical College. Following residency training at Hahnemann, ▇▇. ▇▇▇▇▇▇ 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 ▇▇▇▇▇▇
▇▇▇▇▇▇ 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.
▇▇. ▇▇▇▇▇▇ 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.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇. ▇▇. ▇▇▇▇▇▇▇ joined the Board of Directors of the
Company in May 2002 and became Chief Operating Officer in September 2002. 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 ▇▇▇▇▇▇▇ 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. ▇▇.
▇▇▇▇▇▇▇ 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., an internet-based medical services
billing company. He holds a B.S. from Bentley College and an M.B.A. from Cornell
University.
▇▇▇▇▇ ▇. ▇▇▇▇▇. ▇▇. ▇▇▇▇▇ joined the Board of Directors of the Company
in August 2002. From February 1996 to the present, ▇▇. ▇▇▇▇▇ has served as the
President and Chief Operating Officer and more recently Chief Executive Officer
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, ▇▇.
▇▇▇▇▇ 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
-21-
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.
▇▇. ▇▇▇▇▇ 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 ▇▇▇▇▇▇ ▇▇▇▇▇▇ Group. ▇▇. ▇▇▇▇▇ 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, as
described above.
▇▇▇▇ ▇▇▇▇▇▇. ▇▇. ▇▇▇▇▇▇ 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. ▇▇. ▇▇▇▇▇▇ 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, StorageProvider, Inc. In this role he assumed financial leadership
responsibility for the strategic planning, staffing, budgeting, and management
of the entire finance and accounting infrastructure. ▇▇. ▇▇▇▇▇▇ earned a BS,
Accounting from Louisiana State University and is a Texas Certified Public
Accountant.
▇▇▇▇▇▇ ▇▇▇. ▇▇. ▇▇▇ is primarily responsible for developing strategic
and mutually beneficial relationships for the Company, including the development
of marketing partnerships and technology alliances. He joined the Company in
2002 and has over fifteen (15) years of information technology experience
spanning across system analysis/engineering, sales, field service and
operations. From 1996 to 1999 ▇▇. ▇▇▇ was employed by ▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇,
a major engineering firm, where he was responsible for designing and upgrading
new technology and ensuring that implementation was coordinated and successful
throughout the organization's multiple offices. Prior to that, from 1994 to 1996
he was employed by Pacific Atlantic Group SA in Buenos Aires, Argentina, where
he created an infrastructure for a U.S. affiliate to distribute, market, and
manufacture a vending machine product in Argentina and other Latin American
companies. ▇▇. ▇▇▇ holds various technical certifications and expertise in
various protocols, operating systems, and software. He holds a B. S. in Computer
Science from ▇▇▇▇▇▇ University and College.
-22-
▇▇▇▇▇▇ ▇▇▇▇▇. ▇▇. ▇▇▇▇▇ 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, ▇▇. ▇▇▇▇▇,
from 2001 to 2002, was Director of Sales at ResMed Corporation, a leading home
health respiratory equipment manufacturer. ▇▇. ▇▇▇▇▇ has been successful, during
the past eighteen (18) years in building high-energy sales teams at both small
and large companies including ▇▇▇▇▇▇▇▇-▇▇▇▇▇▇ 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, ▇▇. ▇▇▇▇▇ also served as President of X10NET, a
start up venture that was focused on bringing Web-based workflow solutions to
the physician marketplace. Since joining the Company, ▇▇. ▇▇▇▇▇ has engaged over
forty (40) independent sales representatives, on behalf of the Company, along
with two (2) regional sales managers, significantly adding to the Company's
sales force, and making it, the Company believes, one of the largest sales
forces in the home health care software business.
(c) 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.
19,870,000 shares of Common Stock issued and outstanding as follows:
(i) 13,935,000 shares by an affiliate of the Placement
Agent;
(ii) 2.000,000 shares by the Placement Agent;
(iii) 1,065,000 shares by six (6) non-affiliated creditors
of the Company and to the shareholders of the
Company, prior to the filing of the Plan;
(iv) 1,600,000 shares to the executive officers and/or
directors of 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;
(v) 750,000 shares to be issued at a future date to
employees of the Company; and
(vi) 520,000 shares of Common Stock issued in the Bridge
Financing.
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
-23-
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
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
-24-
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
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
-25-
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 ▇▇▇▇ ▇▇▇) 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
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
-26-
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
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
-27-
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.
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
-28-
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 ▇▇▇▇ 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 ▇▇▇▇ 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 ▇▇▇▇ 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 ▇▇▇▇
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.
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.
-29-
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, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇ (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 the Maximum Offering;
and (ii) 5:00 p.m. (New York time), June 15, 2004; provided, however, that the
Placement Agent may extend the Offering Period for an additional sixty (60)
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 A 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)
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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 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) seven (7) year common stock
purchase warrants (the "Agent Warrants") to purchase at an exercise price of
$1.00 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 A 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
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.
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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
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.
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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 ▇▇. ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
and the Placement Agent expiring February 5, 2005.
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
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
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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:
▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: President
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
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.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇
Attention: President
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
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
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
-34-
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.
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
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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 ▇▇▇▇▇ ▇▇▇▇▇▇▇, 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.
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.
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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
Exhibit C Form of Registration Rights Agreement
Exhibit D Prior Bankruptcy Information
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
EXHIBIT C
---------
Form of Registration Rights Agreement
EXHIBIT D
---------
Prior Bankruptcy Information
SCHEDULE 2.3
------------
Outstanding Securities
See Schedule attached.
SCHEDULE 4.4
------------
Use of Proceeds
See Schedule attached.