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NIHK.SUB
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Nighthawk Systems, Inc.
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This offering consists of up to $250,000 of the Company's Three Year Convertible
Debentures convertible into the
Company's Common Stock.
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SUBSCRIPTION AGREEMENT
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SUBSCRIPTION PROCEDURES
Convertible Debentures of Nighthawk, Systems, Inc. (the "Company") are
being offered (the "Debentures"). This offering is being made in accordance with
the exemptions from registration provided for under Section 4(2) of the
Securities Act of 1933, as amended (the "1933 Act") and Rule 506 of Regulation D
promulgated under the 1933 Act.
In order to purchase Debentures, each subscriber must complete and execute
a questionnaire (the "Questionnaire") and a subscription agreement (the
"Subscription Agreement"). In addition, the subscriber must make a payment
pursuant to the Funds Authorization Distribution Agreement, for the amount being
purchased or directly to the Purchaser. All subscriptions are subject to
acceptance by the Company, which shall not occur until the Company has returned
the signed Company Signature Page.
The Questionnaire is designed to enable the Purchaser to demonstrate
the minimum legal requirements under federal and state securities laws to
purchase the Debentures. The Signature Page for the Questionnaire and the
Subscription Agreement contain representations relating to the subscription and
should be reviewed carefully by each subscriber.
If you are a foreign person or foreign entity, you may be subject to a
withholding tax equal to 30% of any dividends paid by the Company. In order to
eliminate or reduce such withholding tax you must submit a properly executed
I.R.S. Form 4224 (Exemption from Withholding of Tax on Income Effectively
Connected with the Conduct of a Trade or Business in the United States) or
I.R.S. Form 1001 (Ownership Exemption or Reduced Trade Certificate), claiming
exemption from withholding or eligibility for treaty benefits in the form of a
lower rate of withholding tax on interest or dividends.
Payment must be made by wire transfer by Dutchess Private Equities Fund,
II, LP (the "Purchaser") per the wire instructions that will be established. In
the event of a termination of the offering or the rejection of a subscription,
subscription funds will be returned by the Company without interest or charges.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. THE
SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
SUBSCRIPTION AGREEMENT
To: Nighthawk Systems, Inc.
This Subscription Agreement is made between Nighthawk Systems, Inc., a
Nevada corporation, (the "Company"), and the undersigned prospective purchaser
("Purchaser") who is subscribing hereby for the Company's convertible debentures
(the "Debentures"). This subscription is submitted to you in accordance with and
subject to the terms and conditions described in this Subscription Agreement,
together with any Exhibits thereto, relating to an offering (the "Offering") of
up to $250,000 of Debentures. The Offering is limited to accredited Investors
and is made in accordance with the exemptions from registration provided for
under Section 4(2) of the 1933 Act and Rule 506 of Regulation D promulgated
under the 1933 Act ("Regulation D").
1. SUBSCRIPTION.
(a) The closing shall be deemed to have occurred on the date the funds
(less attorney fees and those amounts payable pursuant to the terms sheet) are
received by the Company (the "Closing Date" or a "Closing"). The Company shall
pay eight percent (8%) annual coupon on the unpaid principal amount of this
Debenture (the "Debenture") at such times and in such amounts as outlined in
this section. Prior to U.S. Securities and Exchange Commission ("SEC")
declaring the registration statement for shares underlying the Debenture
("Registration Statement") effective ("Effective Date"), the Company will make
mandatory prepaid payments, in advance, on the coupon ("Coupon Payment") in the
amount of 1/12th (one-twelfth) of the annual payment, per month, pursuant to
each tranche. The Coupon Payments shall start on August 15th, 2004, and
include, on a pro rata basis, in arrears, any coupon accrued on funds financed
before August 15th, 2004. All subsequent Coupon Payments are due on the 15th
(fifteenth) calendar day of each month thereafter.
For each subsequent Closing, prepaid Coupon Payments will start on the 15th
day of the month and include, on a pro rata basis, any coupon accrued for funds
financed before the 15th of the month, and shall continue for each subsequent
month thereafter. All Coupon Payments are to be due on the 15th calendar day of
each month, until the Effective Date. At such time as the SEC has declared the
Registration Statement Effective, the coupon is to be paid, at the time of each
conversion until the principal amount hereof is paid in full or has been
converted, in shares of registered common stock, par value $0.001 per share, of
the Company ("Common Stock"). The interest paid in Common Stock, shall be
delivered to the Holder, or per Holder's instructions, within three (3) business
days of the date of conversion. The Debentures are subject to automatic
conversion at the end of three (3) years from the date of issuance at which time
all Debentures outstanding will be automatically converted based upon the
formula set forth in Section 3.2 of the Debenture Agreement.
(b) Upon receipt by the Company of the requisite payment for the
Debentures being purchased, the Debentures so purchased will be forwarded by the
Company to the Purchaser or its broker, as listed on the signature page, and the
name of such Purchaser will be registered on the Debenture transfer books of the
Company as the record owner of such Debentures.
(c) As long as the Purchaser owns the Debenture, the Purchaser shall
have the right to change the terms for the balance of the Debenture it then
holds, to match the terms of any other offering of securities made by the
Company.
(d) The Purchasers shall fund $100,000 upon the initial closing and an
additional $100,000 on a pro-rata basis not later than three (3) business days
following the date the registration statement covering this Offering is filed
with the United States Securities and Exchange Commission ("SEC"), and an
additional $50,000 on a pro rata basis not later than three (3) business days
following the date the registration statement covering this Offering is declared
effective by the SEC along with a letter to request acceleration submitted to
the SEC.
2. REPRESENTATIONS AND WARRANTIES.
The Purchaser hereby represents and warrants to, and agrees with, the
Company as follows:
(a) The Purchaser has been furnished with, and has carefully read the
applicable Registration Rights Agreement, and the Debenture and is familiar with
and understands the terms of the Offering. With respect to tax and other
economic considerations involved in his investment, the Purchaser is not relying
on the Company. The Purchaser has carefully considered and has, to the extent
the Purchaser believes such discussion necessary, discussed with the Purchaser
's professional legal, tax, accounting and financial advisors the suitability of
an investment in the Company, by purchasing the Debentures, for the Purchaser 's
particular tax and financial situation and has determined that the investment
being made by the Purchaser is a suitable investment for the Purchaser.
(b) The Purchaser acknowledges that all documents, records, and books
pertaining to this investment which the Purchaser has requested have been made
available for inspection or the Purchaser has had access thereto.
(c) The Purchaser has had a reasonable opportunity to ask questions of
and receive answers from a person or persons acting on behalf of the Company
concerning the Offering and if such opportunity was taken, all such questions
have been answered to the full satisfaction of the Purchaser.
(d) The Purchaser will not sell, or otherwise dispose of the Debentures
or the Common Stock issued upon conversion of the Debentures without
registration under the 1933 Act or applicable state securities laws or
compliance with an exemption therefrom including but not limited to: Rule 144A,
144 (k) (herein after referred to as an "Exemption"). The Debentures have not
been registered under the 1933 Act or under the securities laws of any state.
Resales of the Common Stock underlying the Debentures or issued in payment of
accrued interest on the Debentures are to be registered by the Company pursuant
to the terms of the Registration Rights Agreement attached hereto as Exhibit B
and incorporated herein and made a part hereof.
(e) The Purchaser recognizes that an investment in the Debentures
involves substantial risks, including loss of the entire amount of such
investment. Further, the Purchaser has carefully read and considered the
schedule entitled Litigation matters attached hereto as Schedule 3(h).
(f) The Purchaser acknowledges that each certificate representing the
Debentures (and the shares of Common Stock issued upon conversion of the
Debentures, unless registered or with an Exemption) or in payment of dividends
on the Debentures shall be stamped or otherwise imprinted with a legend
substantially in the following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE OFFERED OR SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT (i) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER THE ACT (OR
ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR
(iii) PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER SUCH ACT.
If Purchaser sends a Notice of Conversion (See Exhibit A attached hereto),
and provided a registration statement under the Securities Act of 1933 is in
effect as to the sale, then in such event the Company shall have its transfer
agent send Purchaser the appropriate number of shares of Common Stock without
restrictive legends and not subject to stop transfer instructions.
(g) The Purchaser acknowledges and agrees that it shall not be entitled
to seek any remedies with respect to the Offering from any party other than the
Company.
(h) If this Subscription Agreement is executed and delivered on behalf
of a corporation: (i) such corporation has the full legal right and power and
all authority and approval required (a) to execute and deliver, or authorize
execution and delivery of, this Subscription Agreement and all other instruments
(including, without limitation, the Registration Rights Agreement) executed and
delivered by or on behalf of such corporation in connection with the purchase of
the Debentures and (b) to purchase and hold the Debentures; and (ii) the
signature of the party signing on behalf of such corporation is binding upon
such corporation.
(i) The Purchaser is not subscribing for the Debentures as a result of,
or pursuant to, any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio or presented at any seminar or meeting.
(j) The Purchaser is purchasing the Debentures for its own account for
investment, and not with a view toward the resale or distribution thereof,
except pursuant to sales registered or exempted from registration under the ▇▇▇▇
▇▇▇. The Purchaser has not offered or sold any portion of the Debentures being
acquired nor does the Purchaser have any present intention of dividing the
Debentures with others or of selling, distributing or otherwise disposing of any
portion of the Debentures either currently or after the passage of a fixed or
determinable period of time or upon the occurrence or non-occurrence of any
predetermined event or circumstance in violation of the 1933 Act provided,
however, that by making the representations herein, Purchaser does not agree to
hold any of the Debentures for any minimum or other specific term and reserves
the right to dispose of the Debentures at any time in accordance with or
pursuant to a registration statement or an exemption under the 1933 Act.
Purchaser is neither an underwriter of, nor a dealer in, the Debentures or the
Common Stock issuable upon conversion thereof or upon the payment of dividends
thereon and is not participating in the distribution or resale of the Debentures
or the Common Stock issuable upon conversion or exercise thereof. Except as
provided in the Registration Rights Agreement, the Company has no obligation to
register the Common Stock underlying Debentures and the Common Stock that may be
issued in lieu of cash dividends.
(k) The Purchaser or the Purchaser's representatives, as the case may
be, has such knowledge and experience in financial, tax and business matters so
as to enable the Purchaser to utilize the information made available to the
Purchaser in connection with the Offering to evaluate the merits and risks of an
investment in the Debentures and to make an informed investment decision with
respect thereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth in the Schedules attached hereto, the Company
represents and warrants to the Purchaser that:
a. 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 or holds an equity or
similar interest) (a complete list of which is set forth in Schedule 3(a)) are
corporations duly organized and validly existing in good standing under the laws
of the respective jurisdictions of their incorporation, and have the requisite
corporate 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, financial condition or prospects of
the Company and its Subsidiaries, if any, taken as a whole, or on the
transactions contemplated hereby or by the agreements and instruments to be
entered into in connection herewith, or on the authority or ability of the
Company to perform its obligations under the Transaction Documents (as defined
in Section 3(b)below).
b. Authorization; Enforcement; Compliance with Other Instruments. (i)
The Company has the requisite corporate power and authority to enter into and
perform this Subscription Agreement, the Registration Rights Agreement and the
Form of Debenture Agreement, and each of the other agreements entered into by
the parties hereto in connection with the transactions contemplated by this
Subscription Agreement (collectively, the "TRANSACTION DOCUMENTS"), and to issue
the Debentures in accordance with the terms hereof and thereof, (ii) the
execution and delivery of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby,
including without limitation the reservation for issuance and the issuance of
the Debentures pursuant to this Subscription Agreement, have been duly and
validly 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
shareholders, (iii) the Transaction Documents have been duly and validly
executed and delivered by the Company, and (iv) the Transaction Documents
constitute the 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.
c. Capitalization. As of the date hereof, the authorized capital stock
of the Company consists of 50,000,000 shares of Common Stock authorized, of
which as of the date hereof, approximately 25,659,235 shares are issued and
outstanding, 5,000,000 shares of Preferred Stock of which 3,000 are issued and
outstanding and approximately (as of March 31, 2004) 5,022,874 shares of Common
Stock are issuable upon the exercise of options, warrants and conversion rights.
All of such outstanding shares have been, or upon issuance will be, validly
issued and are fully paid and nonassessable. Except as disclosed in Schedule
3(c) which is attached hereto and made a part hereof, (i) no shares of the
Company's capital stock are subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company, (ii)
there are no outstanding debt securities, (iii) there are no outstanding shares
of capital stock, options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, 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, any
shares of capital stock of the Company or any of its Subsidiaries, (iv) there
are no agreements or arrangements under which the Company or any of its
Subsidiaries is obligated to register the sale of any of their securities under
the 1933 Act (except the Registration Rights Agreement), (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 this Subscription Agreement, (vii) the Company
does not have any stock appreciation rights or "phantom stock" plans or
agreements or any similar plan or agreement and (viii) there is no dispute as to
the class of any shares of the Company's capital stock. The Company has
furnished to the Purchaser, or the Purchaser has had access through ▇▇▇▇▇ to,
true and correct copies of the Company's Articles of Incorporation, as in effect
on the date hereof (the "ARTICLES OF INCORPORATION"), and the Company's By-laws,
as in effect on the date hereof (the "BY-LAWS '), and the terms of all
securities convertible into or exercisable for Common Stock and the material
rights of the Purchaser thereof in respect thereto.
d. Issuance of Debentures. A sufficient number of Debentures
issuable pursuant to this Subscription Agreement, but not more than 19.99% of
the shares of Common Stock outstanding as of the date hereof (if the Company
becomes listed on Nasdaq or the American Stock Exchange), has been duly
authorized and reserved for issuance pursuant to this Subscription Agreement.
Upon issuance in accordance with this Subscription Agreement, the Debentures
will be validly issued, fully paid and nonassessable and free from all taxes,
liens and charges with respect to the issue thereof. In the event the Company
cannot register a sufficient number of shares of Common Stock, due to the
remaining number of authorized shares of Common Stock being insufficient, the
Company will use its best efforts to register the maximum number of shares it
can based on the remaining balance of authorized shares and will use its best
efforts to increase the number of its authorized shares as soon as reasonably
practicable.
e. No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby will not (i) result in a violation
of the Articles of Incorporation, any Certificate of Designations, Preferences
and Rights of any outstanding series of preferred stock of the Company or the
By-laws or (ii) conflict with, or constitute a material default (or an event
which with notice or lapse of time or both would become a material default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, contract, indenture mortgage,
indebtedness or instrument to which the Company or any of its Subsidiaries is a
party, or result in a violation of any law, rule, regulation, order, judgment or
decree, including United States federal and state securities laws and
regulations and the rules and regulations of the principal securities exchange
or trading market on which the Common Stock is traded or listed (the "Principal
Market"), 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. Except as disclosed in Schedule 3(e), neither the Company nor its
Subsidiaries is in violation of any term of, or in default under, the Articles
of Incorporation, any Certificate of Designations, Preferences and Rights of any
outstanding series of preferred stock of the Company or the By-laws or their
organizational charter or by-laws, respectively, or any contract, agreement,
mortgage, indebtedness, indenture, instrument, judgment, decree or order or any
statute, rule or regulation applicable to the Company or its Subsidiaries,
except for possible conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations that would not individually or in
the aggregate have a Material Adverse Effect. The business of the Company and
its Subsidiaries is not being conducted, and shall not be conducted, in
violation of any law, statute, ordinance, rule, order or regulation of any
governmental authority or agency, regulatory or self-regulatory agency, or
court, except for possible violations the sanctions for which either
individually or in the aggregate would not have a Material Adverse Effect.
Except as specifically contemplated by this Subscription Agreement and as
required under the 1933 Act, the Company is not required to obtain any consent,
authorization, permit or order of, or make any filing or registration (except
the filing of a registration statement) with, any court, governmental authority
or agency, regulatory or self-regulatory agency or other third party in order
for it to execute, deliver or perform any of its obligations under, or
contemplated by, the Transaction Documents in accordance with the terms hereof
or thereof. All consents, authorizations, permits, 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 and are
in full force and effect as of the date hereof. Except as disclosed in Schedule
3(e), the Company and its Subsidiaries are unaware of any facts or circumstances
which might give rise to any of the foregoing. The Company is not, and will not
be, in violation of the listing requirements of the Principal Market as in
effect on the date hereof and on each of the Closing Dates and is not aware of
any facts which would reasonably lead to delisting of the Common Stock by the
Principal Market in the foreseeable future.
f. SEC Documents; Financial Statements. As of August 2, 2004, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the Securities and Exchange Commission ("SEC")
pursuant to the reporting requirements of the Securities and Exchange Act of
1934 ("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"). The Company has delivered to the Purchaser or its
representatives, or they have had access through ▇▇▇▇▇, to true and complete
copies of the SEC Documents. 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 to make the statements
therein, in light of the circumstances under which they were made, not
misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
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). No other written information provided by or on behalf of the
Company to the Purchaser which is not included in the SEC Documents, including,
without limitation, information referred to in Section 3(d) of this Subscription
Agreement, contains any untrue statement of a material fact or omits to state
any material fact necessary to make the statements therein, in the light of the
circumstance under which they are or were made, not misleading.
g. Absence of Certain Changes. Except as disclosed in Schedule 3(g) or
the SEC Documents filed at least five (5) days prior to the date hereof, since
August 2, 2004, there has been no change or development in the business,
properties, assets, operations, financial condition, results of operations or
prospects of the Company or its Subsidiaries which has had or reasonably could
have a Material Adverse Effect. The Company has not taken any steps, and does
not currently expect to take any steps, to seek protection pursuant to any
bankruptcy law nor does the Company or its Subsidiaries have any knowledge or
reason to believe that its creditors intend to initiate involuntary bankruptcy
proceedings.
h. Absence of Litigation. Except as set forth in the Company's SEC
filings, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board, government agency, self-regulatory organization
or body pending or, to the knowledge of the executive officers of Company or any
of its Subsidiaries, threatened against or affecting 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, in
which an adverse decision could have a Material Adverse Effect.
i. Acknowledgment Regarding the Purchase of Debentures. The Company
acknowledges and agrees that the Purchaser is acting solely in the capacity of
an arm's length investor with respect to the Transaction Documents and the
transactions contemplated hereby and thereby. The Company further acknowledges
that the Purchaser is not acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to the Transaction Documents
and the transactions contemplated hereby and thereby and any advice given by the
Purchaser or any of its respective representatives or agents in connection with
the Transaction Documents and the transactions contemplated hereby and thereby
is merely incidental to the Purchaser's purchase of the Debentures. The Company
further represents to the Purchaser that the Company's decision to enter into
the Transaction Documents has been based solely on the independent evaluation by
the Company and its representatives.
j. Intentionally omitted.
k. Employee Relations. Neither the Company nor any of its Subsidiaries
is involved in any union labor dispute nor, to the knowledge of the Company or
any of its Subsidiaries, is any such dispute threatened. Neither the Company nor
any of its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that relations with their employees are
good. No executive officer (as defined in Rule 501(f) of the ▇▇▇▇ ▇▇▇) has
notified the Company that such officer intends to leave the Company's employ or
otherwise terminate such officer's employment with the Company.
l. Intellectual Property Rights. All patents, patent applications,
trademark registrations and applications for trademark registration held by the
Company are owned free and clear of all mortgages, liens, charges or
encumbrances whatsoever. No licenses have been granted with respect to these
items and the Company and its Subsidiaries do not have any knowledge of any
infringement by the Company or its Subsidiaries of trademark, trade name rights,
patents, patent rights, copyrights, inventions, licenses, service names, service
marks, service ▇▇▇▇ registrations, trade secret or other similar rights of
others, and, except as set forth on Schedule 3(l), there is no claim, action or
proceeding being made or brought against, or to the Company's knowledge, being
threatened against, the Company or its Subsidiaries regarding trademark, trade
name, patents, patent rights, invention, copyright, license, service names,
service marks, service ▇▇▇▇ registrations, trade secret or other infringement;
and 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.
m. Environmental Laws. The Company and its Subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval where, in each of the three
foregoing cases, the failure to so comply would have, individually or in the
aggregate, a Material Adverse Effect.
n. Title. The Company and its Subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its Subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in Schedule 3(n) or such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company or any of its
Subsidiaries. Any real property and facilities held under lease by the Company
or any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
o. Insurance. The Company does not currently have insurance.
p. Regulatory Permits. The Company and its Subsidiaries have in full
force and effect all certificates, approvals, authorizations and permits from
the appropriate federal, state, local or foreign regulatory authorities and
comparable foreign regulatory agencies, necessary to own, lease or operate their
respective properties and assets and conduct their respective businesses, and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
approval, authorization or permit, except for such certificates, approvals,
authorizations or permits which if not obtained, or such revocations or
modifications which, would not have a Material Adverse Effect.
q. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
r. No Materially Adverse Contracts, Etc. Neither the Company nor any
of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement which in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.
s. Tax Status. The Company's consolidated 2002 federal income tax
return, the Company and each of its Subsidiaries has made or filed all United
States federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) 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, except those being contested in good faith
and has set aside on its books provision reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. Except for unpaid federal withholding taxes, 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.
t. Certain Transactions. Except as set forth on Schedule 3(t) and in
the SEC Documents filed at least ten days prior to the date hereof and except
for arm's length transactions pursuant to which the Company makes payments in
the ordinary course of business upon terms no less favorable than the Company
could obtain from third parties and other than the grant of stock options
disclosed on Schedule 3(c), none of the officers, directors, or employees of the
Company is presently a party to any transaction with the Company or any of its
Subsidiaries (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
u. Dilutive Effect. The Company understands and acknowledges that the
number of shares of Common Stock issuable upon purchases pursuant to this
Subscription Agreement will increase in certain circumstances including, but not
necessarily limited to, the circumstance wherein the trading price of the Common
Stock declines following the effective date of the registration statement
covering the Common Stock underlying the Debentures (the "Effective Date"). The
Company's executive officers and directors have studied and fully understand the
nature of the transactions contemplated by this Subscription Agreement and
recognize that they have a potential dilutive effect. The board of directors of
the Company has concluded, in its good faith business judgment that such
issuance is in the best interests of the Company. The Company specifically
acknowledges that, subject to such limitations as are expressly set forth in the
Transaction Documents, its obligation to issue shares of Common Stock upon
purchases pursuant to this Subscription Agreement is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other shareholders of the Company.
v. Additional Financings. The Company shall not, directly nor indirectly,
without the prior written consent of Dutchess Private Equities Fund, II, L.P.,
offer, sell, grant any option to purchase, or otherwise dispose of (or announce
any offer, sale, grant or any option to purchase or other disposition) any of
its Common Stock or securities convertible into Common Stock, or file any
registration statement, including those on Form S-8, including the Current S-8
filed on March 5, 2004, file number 333-113305, for any securities (a
"SUBSEQUENT FINANCING") for a period of 180 (one hundred-eighty) days after the
Effective Date.
4. COVENANTS OF THE COMPANY
a. Best Efforts. The Company shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in this
Subscription Agreement.
b. Blue Sky. The Company shall, at its sole cost and expense, make all
filings and reports relating to the offer and sale of the Debentures and the
Common Stock underlying the Debentures as required under the applicable
securities or "Blue Sky" laws of such states of the United States as specified
by the Purchaser.
c. Reporting Status. Until the earlier of (i) the date that the
Purchaser may sell all of the Common Stock underlying the shares acquired
pursuant to this Subscription Agreement without restriction pursuant to Rule
144(k) promulgated under the 1933 Act (or successor thereto), or (ii) the date
on which the Purchaser shall have sold all the Common Stock underlying the
Debentures, the Company shall file all reports required to be filed with the SEC
pursuant to the 1934 Act, and the Company shall not terminate its status as a
reporting company under the 1934 Act.
d. Use of Proceeds. The Company shall use the entire proceeds from
this Debenture exclusively to further the growth and interest of the Company.
The Company shall not use these proceeds as payment on any debts. Any other use
of the funds contemplated herein, shall be considered a breach of contract and
an event of Default.
e. Conditions to Closing, The Company shall sign the Investment
Agreement for the Equity Line of Credit with Dutchess Private Equities Fund, II,
L.P.
f. Financial Information. The Company agrees to make available to the
Purchaser via ▇▇▇▇▇ or other electronic means the following: (i) within five (5)
business days after the filing thereof with the SEC, a copy of its Annual
Reports on Form 10-KSB, its Quarterly Reports on Form 10-QSB, any Current
Reports on Form 8-K and any Registration Statements or amendments filed pursuant
to the 1933 Act; (ii) on the same day as the release thereof, facsimile copies
of all press releases issued by the Company or any of its Subsidiaries, (iii)
copies of any notices and other information made available or given to the
shareholders of the Company generally, contemporaneously with the making
available or giving thereof to the shareholders and (iv) within two (2) calendar
days of filing or delivery thereof, copies of all documents filed with, and all
correspondence sent to, the Principal Market, any securities exchange or market,
or the National Association of Securities Dealers, Inc.
g. Reservation of Common Stock. Subject to the following sentence, the
Company shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance, a sufficient number of shares of Common
Stock to provide for the issuance of the Common Stock underlying the Debentures.
In the event that the Company determines that it does not have a sufficient
number of authorized shares of Common Stock to reserve and keep available for
issuance, the Company shall use its best efforts to increase the number of
authorized shares of Common Stock by seeking shareholder approval for the
authorization of such additional shares. The Purchaser shall have the right to
determine the amount of shares to be re-registered to satisfy the terms of the
Agreement. Such amount must be usual or customary.
h. Listing. The Company shall promptly secure the listing of all of
the Common Stock underlying the Debentures upon the Principal Market and each
other national securities exchange and automated quotation system, if any, upon
which shares of Common Stock are then listed (subject to official notice of
issuance) and shall maintain, such listing. The Company shall maintain the
Common Stock's authorization for quotation on the Principal Market, unless the
Purchaser and the Company agree otherwise, and the Company shall use its best
efforts to promptly make application for listing on the new Bulletin Board
Exchange not later than ninety (90) calendar days after the date the Company
receives its application in the mail. Neither the Company nor any of its
Subsidiaries shall take any action which would be reasonably expected to result
in the delisting or suspension of the Common Stock on the Principal Market
(excluding suspensions of not more than one trading day resulting from business
announcements by the Company). The Company shall promptly provide to the
Purchaser copies of any notices it receives from the Principal Market regarding
the continued eligibility of the Common Stock for listing on such automated
quotation system or securities exchange. The Company shall pay all fees and
expenses in connection with satisfying its obligations under this Section.
i. Transactions With Affiliates. Without the prior consent of
Purchaser, which consent shall not be unreasonably withheld, the Company shall
not, and shall cause each of its Subsidiaries not to, enter into, amend, modify
or supplement, or permit any Subsidiary to enter into, amend, modify or
supplement, any agreement, transaction, commitment or arrangement with any of
its or any Subsidiary's officers, directors, persons who were officers or
directors at any time during the previous two years, shareholders who
beneficially own 5% or more of the Common Stock, or affiliates or with any
individual related by blood, marriage or adoption to any such individual or with
any entity in which any such entity or individual owns a 5% or more beneficial
interest (each a "RELATED PARTY"), except for (i) customary employment
arrangements and benefit programs on reasonable terms , (ii) any agreement,
transaction, commitment or arrangement on an arms-length basis on terms no less
favorable than terms which would have been obtainable from a person other than
such Related Party, or (iii) any agreement, transaction, commitment or
arrangement which is approved by a majority of the disinterested directors of
the Company. For purposes hereof, any director who is also an officer of the
Company or any Subsidiary of the Company shall not be a disinterested director
with respect to any such agreement, transaction, commitment or arrangement.
"AFFILIATE" for purposes hereof means, with respect to any person or entity,
another person or entity that, directly or indirectly, (i) has a 5% or more
equity interest in that person or entity, (ii) has 5% or more common ownership
with that person or entity, (iii) Controls that person or entity, or (iv) shares
common control with that person or entity. "CONTROL" or "CONTROLS" for purposes
hereof means that a person or entity has the power, direct or indirect, to
conduct or govern the policies of another person or entity.
j. Corporate Existence. The Company shall use its best efforts to
preserve and continue the corporate existence of the Company.
k. Notice of Certain Events Affecting Registration. The Company shall
promptly notify Purchaser upon the occurrence of any of the following events in
respect of a registration statement or related prospectus covering the Common
Stock underlying the Debentures: (i) receipt of any request for additional
information by the SEC or any other federal or state governmental authority
during the period of effectiveness of the registration statement for amendments
or supplements to the registration statement or related prospectus; (ii) the
issuance by the SEC or any other federal or state governmental authority of any
stop order suspending the effectiveness of any registration statement or the
initiation of any proceedings for that purpose; (iii) receipt of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Common Stock underlying the Debentures for sale
in any jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in such
registration statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the registration statement, related
prospectus or documents so that, in the case of a registration statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) the Company's reasonable determination that a post-effective
amendment to the registration statement would be appropriate, and the Company
shall promptly make available to Purchaser any such supplement or amendment to
the related prospectus.
l. Indemnification. In consideration of the Purchaser's execution and
delivery of this Agreement and the Registration Rights Agreement and acquiring
the Debentures hereunder and in addition to all of the Company's other
obligations under the Transaction Documents, the Company shall defend, protect,
indemnify and hold harmless the Purchaser and all of their shareholders,
officers, directors, employees and direct or indirect investors and any of the
foregoing person's agents or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "Indemnitees") from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys' fees and disbursements
(the "Indemnified Liabilities"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (i) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(ii) any breach of any covenant, agreement or obligation of the Company
contained in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (iii) any cause of action, suit or
claim brought or made against such Indemnitee by a third party and arising out
of or resulting from the execution, delivery, performance or enforcement of the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (iv) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of the issuance
of the Debentures or (v) the status of the Purchaser as an investor in the
Company, except insofar as any such untrue statement, alleged untrue statement,
omission or alleged omission is made in reliance upon and in conformity with
written information furnished to the Company by the Purchaser which is
specifically intended by the Purchaser for use in the preparation of any such
Registration Statement, preliminary prospectus or prospectus. To the extent that
the foregoing undertaking by the Company may be unenforceable for any reason,
the Company shall make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities which is permissible under applicable
law. The indemnity provisions contained herein shall be in addition to any cause
of action or similar rights the Purchaser may have, and any liabilities to which
the Purchaser may be subject.
m. Reimbursement. If (i) Purchaser, other than by reason of its gross
negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by any shareholder of the Company,
in connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if Purchaser is impleaded in any
such action, proceeding or investigation by any person, or (ii) Purchaser, other
than by reason of its gross negligence or willful misconduct or by reason of its
trading of the Common Stock in a manner that is illegal under the federal
securities laws, becomes involved in any capacity in any action, proceeding or
investigation brought by the SEC against or involving the Company or in
connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if Purchaser is impleaded in any
such action, proceeding or investigation by any person, then in any such case,
the Company will reimburse Purchaser for its reasonable legal and other expenses
(including the cost of any investigation and preparation) incurred in connection
therewith, as such expenses are incurred. In addition, other than with respect
to any matter in which Purchaser is a named party, the Company will pay to
Purchaser the charges, as reasonably determined by Purchaser, for the time of
any officers or employees of Purchaser devoted to appearing and preparing to
appear as witnesses, assisting in preparation for hearings, trials or pretrial
matters, or otherwise with respect to inquiries, hearing, trials, and other
proceedings relating to the subject matter of this Subscription Agreement. The
reimbursement obligations of the Company under this section shall be in addition
to any liability which the Company may otherwise have, shall extend upon the
same terms and conditions to any affiliates of Purchaser that are actually named
in such action, proceeding or investigation, and partners, directors, agents,
employees, attorneys, accountants, auditors and controlling persons (if any), as
the case may be, of Purchaser and any such affiliate, and shall be binding upon
and inure to the benefit of any successors of the Company, Purchaser and any
such affiliate and any such person.
5. OPINION LETTER/BOARD RESOLUTION
Prior to or on the Closing Date the Company shall deliver to the Purchaser
an opinion letter signed by counsel for the Company in the form attached hereto
as Exhibit D. If the Company's counsel fails to provide a Rule 144 opinion
letter in a timely manner, then the Company shall: (a) pay the Investor's
counsel to write said Rule 144 opinion letter; and (b) instruct the designated
transfer agent to accept same Rule 144 Opinion letter. Also, prior to or on the
Closing Date the Company shall deliver to the Purchaser a signed Board
Resolution authorizing this Offering, which shall be attached hereto as Exhibit
E.
6. DELIVERY INSTRUCTIONS; FEES
The Debentures being purchased hereunder shall be delivered to Dutchess
Private Equities Fund, L.P., II, on the Closing Date at which time funds (less
fees and those amount payable pursuant to the Funds Authorization Distribution
Agreement) will be wired to the Company and the Debentures will be delivered to
the Purchaser, per the Purchaser's instructions.
7. UNDERSTANDINGS.
The undersigned understands, acknowledges and agrees with the Company as
follows:
FOR ALL SUBSCRIBERS:
a. This Subscription may be rejected, in whole or in part, by the
Company in its sole and absolute discretion at any time before the date set for
closing unless the Company has given notice of acceptance of the undersigned's
subscription by signing this Subscription Agreement and delivering it to
Purchaser.
b. No U.S. federal or state agency or any agency of any other
jurisdiction has made any finding or determination as to the fairness of the
terms of the Offering for investment nor any recommendation or endorsement of
the Debentures or the Company.
c. The representations, warranties and agreements of the undersigned
and the Company contained herein shall be true and correct in all material
respects on and as of the date of the sale of the Debentures as if made on and
as of such date and shall survive the execution and delivery of this
Subscription Agreement and the purchase of the Debentures.
d. In making an investment decision, purchasers must rely on their own
examination of the company and the terms of the offering, including the merits
and risks involved. The shares have not been recommended by any federal or
state securities commission or regulatory authority. Furthermore, the foregoing
authorities have not confirmed the accuracy or determined the adequacy of this
document. Any representation to the contrary is a criminal offense.
e. The Offering is intended to be exempt from registration by virtue of
Section 4(2) of the 1933 Act and the provisions of Regulation D thereunder,
which is in part dependent upon the truth, completeness and accuracy of the
statements made by the undersigned herein and in the Questionnaire.
f. It is understood that in order not to jeopardize the Offering's
exempt status under Section 4(2) of the 1933 Act and Regulation D, any purchaser
may, at a minimum, be required to fulfill the investor suitability requirements
thereunder.
g. The shares may not be resold except as permitted under the
securities act and applicable state securities laws, pursuant to registration or
exemption therefrom. Purchasers should be aware that they will be required to
bear the financial risks of this investment for an indefinite period of time.
8. DISPUTES SUBJECT TO ARBITRATION GOVERNED BY MASSACHUSETTS LAW
a. All disputes arising under this agreement shall be governed by and
interpreted in accordance with the laws of the Commonwealth of Massachusetts,
without regard to principles of conflict of laws. The parties to this agreement
will submit all disputes arising under this agreement to arbitration in Boston,
Massachusetts before a single arbitrator of the American Arbitration Association
("AAA"). The arbitrator shall be selected by application of the rules of the
AAA, or by mutual agreement of the parties, except that such arbitrator shall be
an attorney admitted to practice law in the Commonwealth of Massachusetts. No
party to this agreement will challenge the jurisdiction or venue provisions as
provided in this section.
9. MISCELLANEOUS.
a. 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 (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided a
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) day after deposit with a
nationally recognized overnight delivery 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:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Chief Executive Officer
Nighthawk Systems, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
If to the Purchaser:
At the address listed in the Questionnaire.
Each party shall provide five (5) business days prior notice to the other
party of any change in address, phone number or facsimile number.
b. All pronouns and any variations thereof used herein shall be deemed
to refer to the masculine, feminine, impersonal, singular or plural, as the
identity of the person or persons may require.
c. Neither this Subscription Agreement nor any provision hereof shall
be waived, modified, changed, discharged, terminated, revoked or canceled,
except by an instrument in writing signed by the party effecting the same
against whom any change, discharge or termination is sought.
d. Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
or sent by facsimile transmission: (i) if to the Company, at it's executive
offices or (ii) if to the Purchaser, at the address for correspondence set forth
in the Questionnaire, or at such other address as may have been specified by
written notice given in accordance with this paragraph.
e. This Subscription Agreement shall be enforced, governed and
construed in all respects in accordance with the laws of the Commonwealth of
Massachusetts , as such laws are applied by Massachusetts courts to agreements
entered into, and to be performed in, Massachusetts by and between residents of
Massachusetts, and shall be binding upon the undersigned, the undersigned's
heirs, estate and legal representatives and shall inure to the benefit of the
Company and its successors. If any provision of this Subscription Agreement is
invalid or unenforceable under any applicable statue or rule of law, then such
provisions shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any provision hereof that may prove invalid or unenforceable under any law
shall not affect the validity or enforceability of any other provision hereof.
f. This Agreement shall not be assignable.
g. This Subscription Agreement, together with Exhibits A, B, C, D and E
attached hereto and made a part hereof, constitute the entire agreement between
the parties hereto with respect to the subject matter hereof and may be amended
only by a writing executed by both parties hereto.
h. This Subscription Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
Execution and delivery of this Subscription Agreement by exchange of facsimile
copies bearing the facsimile signature of a party shall constitute a valid and
binding execution and delivery of this Subscription Agreement by such party.
Such facsimile copies shall constitute enforceable original documents.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK)
Nighthawk Systems, Inc.
QUESTIONNAIRE
The information contained in this Questionnaire is being furnished in order
to determine whether the undersigned's subscription to purchase the Debentures
described in the Subscription Agreement may be accepted.
ALL INFORMATION CONTAINED IN THIS QUESTIONNAIRE WILL BE TREATED
CONFIDENTIALLY. The undersigned understands, however, that the Company may
present this Questionnaire to such parties as it deems appropriate if called
upon to establish that the proposed offer and sale of the Securities is exempt
from registration under the 1933 Act, as amended. Further, the undersigned
understands that the offering is required to be reported to the Securities and
Exchange Commission, NASDAQ and to various state securities and "blue sky"
regulators.
IN ADDITION TO SIGNING THE SIGNATURE PAGE, IF REQUESTED BY THE COMPANY, THE
UNDERSIGNED MUST COMPLETE FORM W-9.
I. PLEASE CHECK EACH OF THE STATEMENTS BELOW THAT APPLIES.
1. The undersigned: (a) has total assets in excess of $5,000,000;
(b) was not formed for the specific purpose of acquiring the securities and (c)
has its principal place of business in ___________.
2. The undersigned is a natural person whose individual net worth* or
joint net worth with his or her spouse exceeds $1,000,000.
3. The undersigned is a natural person who had an individual income* in
excess of $200,000 in each of the two most recent years and who reasonably
expects an individual income in excess of $200,000 in the current year. Such
income is solely that of the undersigned and excludes the income of the
undersigned's spouse.
4. The undersigned is a natural person who, together with his or her
spouse, has had a joint income* in excess of $300,000 in each of of the two most
recent years and who reasonably expects a joint income in excess of $300,000 in
the current year.
* For purposes of this Questionnaire, the term "net worth" means the excess
of total assets over total liabilities. In determining "income", an investor
should add to his or her adjusted gross income any amounts attributable to
tax-exempt income received, losses claimed as a limited partner in any limited
partnership, deductions claimed for depletion, contributions to ▇▇▇ or ▇▇▇▇▇
retirement plan, alimony payments and any amount by which income from long-term
capital gains has been reduced in arriving at adjusted gross income.
5. The undersigned is:
(a) a bank as defined in Section 3(a)(2) of the 1933 Act; or
(b) a savings and loan association or other institution as defined in
Section 3(a)(5)(A) of the 1933 Act whether acting in its individual or fiduciary
capacity; or
(c) a broker or dealer registered pursuant to Section 15 of the 1934
Act; or
(d) an insurance company as defined in Section 2(13) of the 1933 Act;
or
(e) An investment company registered under the Investment Company Act
of 1940 or a business development company as defined in Section 2(a)(48) of the
Investment Company Act of 1940; or
(f) a small business investment company licensed by the U.S. Small
Business Administration under Section 301 (c) or (d) of the Small Business
Investment Act of 1958; or
6. The undersigned is an entity in which all of the equity owners are
accredited investors.
II. PURCHASER INFORMATION.
(a) IF THE UNDERSIGNED IS AN INDIVIDUAL:
Name _________________________________________
Street Address __________________________________
City, State, Zip Code _____________________________
Phone ____________________ Fax _________________
Social Security Number ___________________________
Send Correspondence to:
_______________________________________________
_______________________________________________
_______________________________________________
(b) IF THE UNDERSIGNED IS NOT AN INDIVIDUAL:
Name of Entity ____Dutchess Private Equities Fund, II, L.P._
Person's Name ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Title:_Managing Member
State of Organization ____Delaware___________________
Principal Business Address ___312 Stuart St, Third Floor__
City, State, Zip Code ______Boston, MA 02116__________
Taxpayer Identification Number _____________________
- Phone __▇▇▇-▇▇▇-▇▇▇▇________ Fax ___▇▇▇-▇▇▇-▇▇▇▇___
Send Correspondence to:
_______________________________________________
_______________________________________________
_______________________________________________
Nighthawk Systems, Inc.
SIGNATURE PAGE
Your signature on this Signature Page evidences your agreement to be bound
by the Questionnaire, Subscription Agreement and Registration Rights Agreement.
1. The undersigned hereby represents that (a) the information contained
in the Questionnaire is complete and accurate and (b) the undersigned will
notify Nighthawk Systems, Inc. immediately if any material change in any of the
information occurs prior to the acceptance of the undersigned's subscription and
will promptly send Nighthawk Systems, Inc. written confirmation of such change.
2. The undersigned signatory hereby certifies that he/she has read and
understands the Subscription Agreement and Questionnaire, and the
representations made by the undersigned in the Subscription Agreement and
Questionnaire are true and accurate.
$250,000
______________________________ 8.10.04
Amount of Debentures being purchased Date
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
(Signature)
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
(Please Type or Print)
COMPANY ACCEPTANCE PAGE
This Subscription Agreement accepted and agreed
to this 10th day of August, 2004.
Nighthawk Systems, Inc.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, President
LIST OF EXHIBITS
-----------------
EXHIBIT A Notice of Conversion
EXHIBIT B Registration Rights Agreement
EXHIBIT C Debenture
EXHIBIT D Opinion of Company's Counsel
EXHIBIT E Board Resolution
LIST OF SCHEDULES
-----------------
Schedule 3(a) Subsidiaries
Schedule 3(c) Capitalization
Schedule 3(e) Conflicts
Schedule 3(g) Material Changes
Schedule 3(h) Litigation
Schedule 3(l) Intellectual Property
Schedule 3(n) Liens
Schedule 3(t) Certain Transactions
Exhibit A
NOTICE OF CONVERSION
(To be Executed by the Registered Owner in order to Convert Debenture)
The undersigned hereby irrevocably elects, as of ________________, to
convert $________________ of its convertible debenture (the "Debenture") into
Common Stock of Nighthawk Systems, Inc. (the "Company") according to the
conditions set forth in the Debenture issued by the Company.
Date of Conversion________________________________________________
Applicable Conversion Price________________________________________
Number of Debentures Issuable upon this Conversion_______________________
Name(Print)___________Dutchess Private Equities Fund, II, LP _________________
Address______________312 Stuart St, 3rd Floor____________________________
Phone_____▇▇▇-▇▇▇-▇▇▇▇_____________ Fax________▇▇▇-▇▇▇-▇▇▇▇___________
By:_______________________________________
EXHIBIT D
August 10, 2004
Re: Nighthawk Systems, Inc.
Ladies and Gentlemen:
As counsel to Nighthawk Systems, Inc. (the "Company"), I am familiar with
its Articles of Incorporation and Bylaws and with the corporate proceedings
taken by it in connection with the proposed issuance and sale of convertible
debentures (the "Securities") pursuant to the related Subscription Agreement
(including all Exhibits and Appendices thereto) (collectively the "Agreements").
I have been furnished with copies, certified or otherwise identified to my
satisfaction, of the Agreements, and have examined such other documents,
agreements and records as I deemed necessary to render the opinions set forth
below.
In conducting my examination, I have assumed the following: (i) that each
of the Agreements has been executed by each of the parties thereto in the same
form as the forms which we have examined, (ii) the genuineness of all
signatures, the legal capacity of natural persons, the authenticity and accuracy
of all documents submitted to me as originals, and the conformity to originals
of all documents submitted to me as copies, (iii) that each of the Agreements
has been duly and validly authorized, executed and delivered by the party or
parties thereto other than the Company, and (iv) that each of the Agreements
constitutes the valid and binding agreement of the party or parties thereto
other than the Company, enforceable against such party or parties in accordance
with the Agreements' terms.
Subject to the foregoing, I am of the opinion that:
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Nevada, and has all
requisite corporate power and authority to own its properties and conduct its
business.
2. The authorized capital stock of the Company consists of 50,000,000
shares of Common Stock, $0.001 par value per share, ("Common Stock") and
5,000,000 Preferred Stock, par value $0.001 per share;
3. The Common Stock is registered pursuant to Section 12(b) or Section
12(g) of the Securities Exchange Act of 1934, as amended, and the Company has
timely filed all the material required to be filed pursuant to Sections 13(a) or
15(d) of such Act for a period of at least twelve months preceding the date
hereof;
4. When duly countersigned by the Company's transfer agent and
registrar, and delivered to you or upon your order against payment of the agreed
consideration therefore in accordance with the provisions of the Agreements, the
Securities as described in the Agreements represented thereby will be duly
authorized and validly issued, fully paid and nonassessable;
5 The Company has the requisite corporate power and authority to enter
into the Subscription Agreement and to sell and deliver the Securities and the
Common Stock to be issued upon the conversion of the Securities as described in
the Agreements; each of the Agreements has been duly and validly authorized by
all necessary corporate action by the Company. To my knowledge, no approval of
any governmental or other body is required for the execution and delivery of
each of the Agreements by the Company or the consummation of the transactions
contemplated thereby; each of the Agreements has been duly and validly executed
and delivered by and on behalf of the Company, and is a valid and binding
agreement of the Company, enforceable in accordance with its terms, except as
enforceability may be limited by general equitable principles, bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other laws
affecting creditors rights generally, and except as to compliance with federal,
state, and foreign securities laws, as to which no opinion is expressed;
6. To the best of our knowledge, after due inquiry, the execution,
delivery and performance of the Subscription Agreement and Securities by the
Company and the performance of its obligations thereunder do not and will not
constitute a breach or violation of any of the terms and provisions of, or
constitute a default under or conflict with or violate any provision of (i) the
Company's Certificate of Incorporation or By-Laws, (ii) any indenture, mortgage,
deed of trust, agreement or other instrument to which the Company is party or by
which it or any of its property is bound, (iii) any applicable statute or
regulation, (iv) or any judgment, decree or order of any court or governmental
body having jurisdiction over the Company or any of its property.
7. To the best of our knowledge, after due inquiry, there is no pending
or threatened litigation, investigation or other proceedings against the
Company, except as described in Schedule 3(h), attached to the Subscription
Agreement.
8. The Company complies with the eligibility requirements for the use
of Form SB-2, under the Securities Act of 1933, as amended.
This opinion is rendered only with regard to the matters set out in the
numbered paragraphs above. No other opinions are intended nor should they be
inferred. This opinion is based solely upon the laws of the United States and
does not include an interpretation or statement concerning the laws of any other
state or jurisdiction.
The opinions expressed herein are given to you solely for your use in
connection with the transaction contemplated by the Subscription Agreement and
Securities and may not be relied upon by any other person or entity or for any
other purpose without our prior consent.
Very truly yours,
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Licensed in the State of Illinois
Reg. No. 3128503
SCHEDULE 3(a) SUBSIDIARIES
Peregrine Control Technologies, Inc. (a Colorado corporation).
SCHEDULE 3(c) CAPITALIZATION
SCHEDULE 3(e) CONFLICTS
SCHEDULE 3(g) MATERIAL CHANGES
NONE
SCHEDULE 3(h) LITIGATION
1. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ vs. Nighthawk Systems, Inc., ▇▇▇▇ ▇▇. ▇▇▇▇-▇▇▇▇, ▇▇
the Second District Court of the State of Nevada, In the County of Washoe.
2. ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇ ▇. ▇▇▇▇▇ vs. Nighthawk Systems, Inc.,
Peregrine Control Technologies, Inc., et al., Case No. 2004CV2569, In the
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇.
SCHEDULE 3(l) INTELLECTUAL PROPERTY
NONE
SCHEDULE 3(n) LIENS
The following Lien is held by ▇▇▇▇▇ ▇▇▇▇▇▇ pursuant to a secured promissory
note;
All presently owned and hereafter acquired inventory of Debtor (including,
without limitation, all raw materials and goods now or hereafter held for sale),
(ii) All rights of Debtor for payments of goods sold or leased, or to be leased
or sold, or for services rendered, or to be rendered, however evidenced or
incurred, including without limitation all accounts, instruments, chattel paper,
and general intangibles, including without limitation all trade names and
trademark, and all books, records, computer tapes, programs and ledger books
arising therefrom or relating thereto, whether now owned or hereafter acquired;
(iii) All of Debtor's machinery, equipment, furniture and fixtures, (iv) All
insurance policies relating in whole or in part to any of the foregoing, (v) All
proceeds from any of the foregoing, (vi) All substitutions for and replacements
of and all additions and accessions to any of the foregoing, (vii) All
guarantees and security for any of the foregoing, (viii) Accounts, accounts
receivable, reimbursements, notes, contracts, contract rights, chattel paper,
cash, checks, drafts, documents, instruments, all rights of Debtor to receive
payment in money or kind, and other evidence of indebtedness owed to Debtor;
(ix) Customer lists, all documents containing the names, addresses, telephone
numbers, and other information regarding the Debtor's customers, subscribers,
tapes, programs, printouts, disks, and other material and documents relating to
the recording, billing or analyzing of any of the foregoing, and any other right
to payment; (x) Any and all contract and lease rights, and (xiii) All products
and proceeds (cash and non-cash) of all of the foregoing, and increases,
accessions, renewals, replacements and substitutions of all of the foregoing.
SCHEDULE 3(t) CERTAIN TRANSACTIONS