SERIES A UNIT PURCHASE AGREEMENT
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THIS SERIES A UNIT PURCHASE AGREEMENT (this "Agreement") is made August
31, 2004 (the "Effective Date") by and among VSUS Technologies Incorporated, a
Delaware corporation (the "Company"), Safe Mail International Ltd., a company
registered in the Virgin Islands and Safe Mail Development Ltd., a company
registered in Israel (collectively the "Guarantor") and the investors named on
SCHEDULE A hereto (each an "Investor" and collectively the "Investors").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF UNITS.
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1.1 SALE AND ISSUANCE OF SERIES A UNITS. (a) On or before the
Closing (as defined below), the Company shall adopt and file with the Secretary
of State of the State of Delaware, the Certificate of Designation of Series and
Determination of Rights and Preferences of Series A Convertible Preferred Stock
concerning the Series A Convertible Preferred Stock, $.001 par value, of the
Company (the "Series A Preferred Stock"), substantially in the form attached
hereto as EXHIBIT A (the "Certificate of Designation").
(b) Subject to the terms and conditions of this Agreement,
and in reliance on the representations and warranties contained herein, each
Investor agrees, severally and not jointly, to purchase at the Closing, and the
Company agrees to sell and issue to such Investor at the Closing, that number of
units of the Company's securities (the "Securities"), as is set forth opposite
such Investor's name on SCHEDULE A hereto which are part of a maximum number of
350 units being issued and sold to, and purchased by, the Investors at the
Closing, at a purchase price of $5,000 per unit, each unit consisting of: (i)
one (1) share of Series A Preferred Stock (the "Shares"), convertible into
shares of common stock of the Company, $.001 par value per share (the "Common
Stock"), (ii) 5,000 Class A Warrants (the "Class A Warrants"), (iii) 5,000 Class
B Warrants (the "Class B Warrants"), and (iv) 5,000 Class C Warrants (the "Class
C Warrants"). The Shares, Class A Warrants, Class B Warrants and Class C
Warrants are hereinafter collectively referred to as the "Units" and the Class A
Warrants, Class B Warrants and Class C Warrants are hereinafter collectively
referred to as the "Warrants."
1.2 CLOSING. The purchase and sale of the Units shall take
place at the offices of ▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP, ▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇
▇▇▇▇ ▇▇▇▇▇ on the date hereof, or at such other place and time as the Company
and the Investors mutually agree (which time and place are designated as a
"Closing"). At the Closing, the Company shall deliver to each Investor
certificates representing the Shares and Warrants against payment of the
purchase price by wire transfer of immediately available funds payable to the
Company, or such other means acceptable to the Company, in the amount set forth
opposite such Investor's name on SCHEDULE A hereto.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company (together
with the Guarantor, unless not applicable) represents and warrants to each
Investor, to the best of its knowledge, as of the date hereof, as follows:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
own and operate its assets and properties and to carry on its current or
contemplated business. The Company is duly qualified to transact business and is
in good standing in each jurisdiction wherein the properties owned or leased or
the business transacted by the Company makes such qualification to do business
as a foreign corporation necessary, except where the failure to so qualify could
not reasonably be expected to have a material adverse effect on the condition
(financial or otherwise), results of operations, business, prospects or
properties of the Company (a "Material Adverse Effect").
2.2 CAPITALIZATION. (a) The number of outstanding shares of Common
Stock of the Company is as set forth on SCHEDULE 2.2(A). The outstanding shares
of Common Stock of the Company have been duly authorized and validly issued and
are fully paid and non-assessable, have been issued and sold in compliance with
applicable securities laws of the United States and jurisdictions thereof and
any other applicable securities laws and were not issued in violation of any
preemptive rights, rights of first refusal or other similar rights granted by
the Company.
(b) Except as set forth on SCHEDULE 2.2(B) herein, there are
no outstanding options, warrants, convertible securities or other rights calling
for the issuance of, and there are no commitments or arrangements to issue, any
shares of Common Stock of the Company or any security convertible, exchangeable
or exercisable for shares of Common Stock of the Company. Except as set forth on
SCHEDULE 2.2(B), there are no shareholders agreements, voting agreements or
other similar agreements with respect to the outstanding shares of Common Stock
of the Company to which the Company is a party or, to the knowledge of the
Company (having undertaken no independent investigation), between or among any
of the Company's shareholders.
(c) The names of the officers, directors and all stockholders
of the Company beneficially owning five (5%) percent or more of the Company's
outstanding shares of Common Stock and the number of outstanding shares of
Common Stock held by them are set forth on SCHEDULE 2.2(C) hereto.
2.3 SUBSIDIARIES. Except as set forth on SCHEDULE 2.3, the Company
has no subsidiaries and does not own or control, directly or indirectly, any
interest in any corporation, association or other business entity.
2.4 POWER AND AUTHORITY. All corporate action on the part of the
Company and its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the Escrow Agreement,
Security Agreement, Lock-Up Agreement (the "Lock-Up Agreement"), the
Registration Rights Agreement (the "Registration Rights Agreement") and any
other documents related thereto (collectively, the "Transaction Agreements"),
the performance of all obligations of the Company hereunder and thereunder and
the authorization, issuance and delivery of the Shares and Warrants comprising
the Units being sold hereunder and the Common Stock issuable upon conversion of
the Shares and exercise of the Warrants (the "Underlying Shares"), have been
taken or will be taken prior to the Closing. The Transaction Agreements have
been duly executed and delivered by the Company and (assuming due authorization,
execution and delivery by the Investors) constitute the valid and legally
binding obligations of
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the Company, enforceable in accordance with their terms, subject to (a) the laws
of bankruptcy and the laws affecting creditors' rights generally, (b) the
availability of equitable remedies, and (c) the potential unenforceability of
the rights to indemnification contained in the Registration Rights Agreement
under public policy.
2.5 VALID ISSUANCE OF SHARES, WARRANTS AND UNDERLYING SHARES. (a)
The Shares and Warrants, when issued, sold and delivered in accordance with the
terms hereof for the consideration expressed herein, will be duly and validly
issued, fully paid and non-assessable and free of any liens or encumbrances
created by the Company, and the Shares will have the rights, preferences and
privileges described in the Certificate of Designation. When the Shares and
Warrants are delivered in accordance with this Agreement and paid for pursuant
to this Agreement on the Closing, such Shares and Warrants will be convertible
into and/or exercisable for the Underlying Shares pursuant to the terms of the
Certificate of Designation and Warrants, respectively;
(b) The Underlying Shares initially issuable upon conversion
of the Shares and/or exercise of the Warrants have been duly and validly
reserved for issuance upon such conversion and/or exercise, and upon issuance in
accordance with the terms of the Certificate of Designation and/or the Warrants,
will be fully paid and non-assessable and will be free of restrictions on
transfer other than restrictions on transfer under the Lock-Up Agreement and the
Registration Rights Agreement and under applicable state and federal securities
laws. Except as set forth on SCHEDULE 2.5(B), no preemptive right, right of
first refusal granted by the Company or other similar right exists with respect
to the Shares, the Underlying Shares or the issuance and sale thereof.
(c) The Company understands and acknowledges the potentially
dilutive effect to the Common Stock upon the issuance of the Underlying Shares.
The Company further acknowledges that its obligation to issue the Shares and the
Underlying Shares in accordance with this Agreement, is absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company.
2.6 GOVERNMENTAL CONSENTS. No consent, approval, order (the
"Consents") or authorization of, or registration, qualification, designation,
declaration or filing with, any federal, regional, state or local governmental
authority on the part of the Company (a "Governmental Entity") is required in
connection with the Company's authorization, issuance and sale of the Units and
the transactions contemplated by the Transaction Agreements, except for filings,
if any, required pursuant to applicable state securities or Blue Sky laws, which
filings will be made within the required statutory or regulatory periods, and
any filing pursuant to Regulation D of the Securities and Exchange Commission
(the "SEC"), which filing, if made, will be made within 15 days of the Closing.
2.7 LITIGATION. Except as set forth on SCHEDULE 2.7, there is no
action, suit, claim, proceeding or investigation pending or, to the Company's
and/or Guarantor's knowledge, threatened against the Company and/or Guarantor
which could reasonably be expected to have a Material Adverse Effect. The
Company and/or Guarantor is not, and to the Company's and/or Guarantor's
knowledge (having undertaken no independent investigation), no founder,
director, officer or key employee is, a party or subject to the provisions of
any order, writ, injunction,
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judgment or decree of any court or government agency or instrumentality
(collectively, the "Judgments") that could reasonably be expected to have a
Material Adverse Effect. There is no action, proceeding or investigation by the
Company and/or Guarantor currently pending or which the Company and/or Guarantor
intends to initiate.
2.8 INTELLECTUAL PROPERTY. The Company and/or Guarantor own or have
valid licenses with respect to all patents, applications for patents,
inventions, copyright registrations, know-how (including trade secrets and other
unpatented proprietary or confidential information, systems or procedures),
registered trademarks (including service marks), trade names, or other
intellectual property described or referred to on SCHEDULE 2.8 owned or used by
the Company and/or Guarantor necessary for their business as now conducted and
as presently proposed to be conducted (collectively, "Intellectual Property"),
except for such failures to own or have valid licenses that would not reasonably
be expected to have a Material Adverse Effect. Set forth on SCHEDULE 2.8 is a
true and complete list of the (a) Intellectual Property; (b) domain names
registered or used by the Company and/or Guarantor and (c) all licenses related
to the Intellectual Property except for any Intellectual Property, licenses or
domain names that individually or in the aggregate would not reasonably be
expected to result in a Material Adverse Effect, excluding licenses to use mass
market or off-the-shelf software and related products or services. Except as set
forth on SCHEDULE 2.8, the Company and/or Guarantor own or have the right to use
all of their Intellectual Property free and clear of any rights of any other
person, corporation or other entity, the exercise of which would result in a
Material Adverse Effect. Except as set forth on SCHEDULE 2.8, the Company and/or
Guarantor have not granted any options, licenses or other rights relating to the
foregoing or entered into any agreements of any kind relating to the foregoing,
whether requiring the payment of royalties or not. Except as set forth on
SCHEDULE 2.8, the Company and/or Guarantor is not a party to or bound by any
outstanding option, license or agreement with respect to the Intellectual
Property of any other person or entity. Except as set forth on SCHEDULE 2.8, the
Company and/or Guarantor have not received any communication alleging that the
Company and/or Guarantor have violated or, by conducting their business as
proposed, would violate any of the Intellectual Property. No claim is pending
or, to the Company's and/or Guarantor knowledge, threatened against the Company
and/or Guarantor and, to the Company's and/or Guarantor's knowledge, no claim is
pending or threatened against their officers, employees and/or consultants to
the effect that any such Intellectual Property right owned or licensed by the
Company and/or Guarantor, or which the Company and/or Guarantor otherwise has
the right to use, is invalid or unenforceable by the Company and/or Guarantor.
Except as set forth on SCHEDULE 2.8, the Company and/or Guarantor has no
obligation to compensate any person or entity for the use of any such
Intellectual Property.
2.9 INTENTIONALLY OMITTED.
2.10 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation of (i) its Certificate of Incorporation or Bylaws, (ii) any statute or
Consents or Judgments of any Governmental Entity applicable to it, or (iii) any
contracts, mortgages, leases, indentures, agreements and instruments to which
the Company is currently bound which, other than contracts entered into in the
ordinary course of business, involve obligations of or payments to the Company
in excess of $25,000 (collectively, the "Material Contracts") or in material
violation or default of any provision of any orders or Judgments by which it is
bound or any
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provision of federal or state statute, rule or regulation applicable to the
Company, which violation or default, in the case of (i), (ii), or (iii), could
reasonably be expected to have a Material Adverse Effect. Except as set forth in
SCHEDULE 2.10, the execution, delivery and performance of and compliance with
the Transaction Agreements and the consummation of the transactions contemplated
hereby and thereby will not (i) result in any such violation or default or
result in the creation of any mortgage, lien or encumbrance against any of the
properties or assets of the Company, or (ii) give rise to obligations under any
Material Contracts, that, in the case of either (i) or (ii), could reasonably be
expected to have a Material Adverse Effect.
2.11 DISCLOSURE. The Company has provided each Investor with true and
complete copies of all documents and information reasonably requested by such
Investor in its due diligence review of the Company. As of the date hereof,
neither the Transaction Agreements, the Schedules and Exhibits attached hereto,
nor any certificate or other document prepared by the Company to be delivered at
the Closing contains or will contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements herein or
therein, in light of the circumstances under which they were made, not
misleading. To the Company's knowledge, there are no facts which (individually
or in the aggregate) materially and adversely affect the business, assets,
liabilities, financial condition, prospects or operations of the Company that
have not been set forth in the Agreement, the Schedules, the Exhibits hereto,
the other Transaction Agreements or in other documents delivered to Investors
their attorneys or agents in connection herewith.
2.12 MATERIAL AGREEMENTS; ACTIONS. (a) Except as set forth on
SCHEDULE 2.12(a), there are no Material Contracts by which the Company is
currently bound. Except as set forth on SCHEDULE 2.12(a), or in the Company's
annual budget as set forth on SCHEDULE 2.12(a), the Company is not currently
indebted for money borrowed or has any other liabilities individually in excess
of $25,000 or in the aggregate in excess of $50,000 other than as set forth in
the Company's annual budget. No default exists under any Material Contract to
which the Company is a party that could reasonably be expected to have a
Material Adverse Effect. Each of the Material Contracts is valid, binding, and
in full force and effect in all material respects, subject to (i) the laws of
bankruptcy and the laws affecting creditors' rights generally and (ii) the
availability of equitable remedies.
(b) The Company has not (i) declared or paid any dividends or
authorized any distribution upon or with respect to any class or series of its
capital stock, (ii) made any loans or advances to any person, other than in the
ordinary course of business except as provided on SCHEDULE 2.12(B), or (iii)
sold, exchanged or otherwise disposed of any of its assets or rights other than
in the ordinary course of business.
2.13 TITLE TO PROPERTY AND ASSETS. The Company has good title to its
properties and assets, in each case free and clear of all material lien, claim,
encumbrance, security interest, option, charge or restriction of any kind
(collectively, the "Liens") except such as (i) are set forth on SCHEDULE 2.13,
or (ii) arise in the ordinary course of business and do not impair the Company's
use of such property or assets, including those reflected in the Company's
balance sheet (the "Balance Sheet") dated as of June 30, 2004, included in the
Company's financial statements attached hereto as EXHIBIT B. With respect to the
property and assets it leases, the
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Company is in material compliance with such leases and, holds a valid leasehold
interest free of any material liens, claims and encumbrances.
2.14 BROKERS OR FINDERS. Except as set forth on SCHEDULE 2.14, there
are no contracts, agreements or understandings between or among the Company, on
the one hand, and any person, on the other, that would give rise to a claim
against the Company or any Investor for a brokerage commission, finder's fee or
other like payment (the "Finder's Fees") in connection with the issuance and
sale of the Units. To the extent permitted by law, the Company will indemnify
and hold harmless each Investor against any losses, claims, damages or
liabilities to which they may become subject under any claims for such Finder's
Fees in so far as such losses, claims, damages or liabilities are based on the
finding that the Company is responsible for any such Finder's Fees.
2.15 REGISTRATION RIGHTS; VOTING RIGHTS. Except as set forth on
SCHEDULE 2.15(a) and as provided for in this Agreement and the Registration
Rights Agreement to be executed and delivered at the Closing, the Company is
currently not under any obligation to register under the Securities Act of 1933,
as amended (the "Securities Act"), any of its currently outstanding securities
or any of its securities which may hereafter be issued. Except as set forth on
SCHEDULE 2.2(b), to the Company's knowledge (having undertaken no independent
investigation) no shareholder of the Company has entered into any agreement,
understanding or other arrangement with respect to the voting of common stock.
2.16 EMPLOYEES. Except as set forth on SCHEDULE 2.16(a), the Company
is not a party to any employment or deferred compensation agreements and does
not have any bonus, incentive or profit-sharing plans. The Company is not a
party to any collective bargaining agreements and, to its knowledge (having
undertaken no independent investigation), no organizational efforts are
currently being made with respect to any of their respective employees. Set
forth on SCHEDULE 2.16 is a true and complete list of the Company's key
employees along with the title associated with each such employee's position
with the Company. SCHEDULE 2.16 sets forth the employment agreements of the
Company which may not be terminated by the Company without normal and customary
liability to the Company.
2.17 STOCKHOLDERS, DIRECTORS AND OFFICERS; INDEBTEDNESS. Except as
set forth on SCHEDULE 2.17, the Company is not currently indebted to its
officers, directors or stockholders or any of their respective relatives (and
none of the same are indebted to the Company), other than travel, relocation and
other expenses which are advanced and reimbursed in the ordinary course of
business. None of the officers or directors or significant employees or
consultants of the Company has, individually or collectively, a material
interest in any entity which is a competitor, customer or supplier of (or has
any existing contractual relationship with) the Company.
2.18 EMPLOYMENT BENEFIT PLANS. Except as set forth on SCHEDULE 2.18,
the Company does not have any employee benefit plans.
2.19 TAX RETURNS AND PAYMENTS. The Company has accurately prepared
and timely filed all tax returns and reports as required by law. Such returns
and reports are true and correct in all material respects. The Company has paid
all taxes and other assessments due. All such taxes with respect to which the
Company has become obligated pursuant to elections made by the Company in
accordance with generally accepted practices have been paid and adequate
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reserves have been established for all taxes accrued but not yet payable. The
Federal income tax returns of the Company have never been audited by the
Internal Revenue Service. No deficiency or assessment with respect to or
proposed adjustment of the Company's Federal, state, county or local taxes is
pending or, to the Company's knowledge (having undertaken no independent
investigation), threatened. There is no tax lien, whether imposed by any
Federal, state, county or local taxing authority, outstanding against the
assets, properties or business of the Company.
2.20 PROPRIETARY INFORMATION AND INVENTION AGREEMENTS. Each material
employee, consultant and officer of the Company has executed, or will execute,
an agreement with the Company regarding confidentiality and proprietary
information. The Company (having undertaken no independent investigation) is not
aware that any of its employees or consultants is in violation thereof, and the
Company will use its best efforts to prevent any such violation.
2.21 PERMITS. The Company has all franchises, permits, licenses and
any similar authority necessary for the conduct of its business ("Permits") and
is not in default under such Permits, except where the failure to have such
Permits, or such default, would not reasonably be expected to result in a
Material Adverse Effect.
2.22 ABSENCE OF CERTAIN CHANGES. Except as set forth on
SCHEDULE 2.22, since the Balance Sheet Date (as defined in Section 2.13), there
has not been:
(a) any changes in the assets, liabilities, condition
(financial or otherwise), affairs, earnings, material contracts, business,
operating or prospects of the Company, except changes in the ordinary course of
business which could not reasonably be expected to have a Material Adverse
Effect;
(b) any change, except in the ordinary course of business, in
the contingent obligations of the Company by way of guaranty or any assurance of
performance or payment, endorsement, indemnity or warranty;
(c) any material transaction or commitment made, or any
material contract or material agreement entered into, by the Company relating to
its assets or business (including the acquisition or disposition of any assets)
or any relinquishment by the Company of any material contract or other material
right (direct or indirect, whether alleged, contingent or otherwise), other than
transactions and commitments in the ordinary course of business;
(d) (i) any creation, incurrence or assumption of any debt
(including obligations in respect of capital leases); (ii) assumption,
guarantee, endorsement or other liability (whether directly, contingently or
otherwise) for the obligations of any other person or entity; or (iii) any
loans, advances or capital contributions to, or investments in, any other person
or entity, except in the ordinary course of business and not in excess of
$25,000 in the aggregate or $10,000 individually;
(e) any damage, destruction or loss, whether or not covered
by insurance, materially and adversely affecting the properties or business or
the Company;
(f) any waiver by the Company of a valuable right or material
debt owed to it;
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(g) any resignation or termination of employment of any
officer or key employee of the Company, or the threat of such resignation or
termination, or any material change in any compensation arrangement or agreement
(including salary, bonus, insurance or pension benefits) with any of the same;
(h) any sale, assignment or transfer of any material
Intellectual Property or tangible assets of the Company which would have a
Material Adverse Effect; or
(i) to the best of the Company's knowledge, any agreement to
do any of the foregoing, or any other event or condition of any character which
could reasonably be expected to have a Material Adverse Effect.
2.23 FINANCIAL STATEMENTS. The Company has provided to each Investor
its audited financial statements for the year ended December 31, 2003 and its
unaudited statements for the period ended June 30, 2004. The consolidated
financial statements of the Company and the related notes, including the Balance
Sheet, present fairly the financial position of the Company as of the dates
indicated and the statement of operations, changes in shareholders' equity and
cash flows for the periods specified; said financial statements have been
prepared in conformity with generally accepted accounting principles in the
United States ("GAAP") applied on a consistent basis throughout the periods
involved. ▇▇▇▇▇▇▇▇▇ Almagor & Co., who have audited and reviewed certain
consolidated financial statements of the Company, are independent public
accountants as required under Rule 101 of the American Institute of Certified
Public Accountants Code of Professional Conduct, and its interpretations and
rulings.
2.24 ACCOUNTING. The Company maintains a system of internal
accounting controls sufficient to provide assurances 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 GAAP and to maintain accountability for assets;
(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 existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
2.25 INSURANCE. The Company has adequately insured its properties
against loss or damage by fire or other casualty and maintains, in amounts which
it believes to be adequate, such other insurance, including but not limited to
liability insurance, as is usually maintained by companies in the same or
similar businesses. The Company has no reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not have a Material Adverse Effect.
2.26 ENVIRONMENTAL LAWS. The Company (i) is not in violation of any
applicable statute or Judgments of any Governmental Entity, relating to the use,
disposal or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to hazardous or
toxic substances (collectively, "Environmental Laws"), (ii) does not own or
operate, to the Company's knowledge, any real property contaminated with any
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substance that is subject to any Environmental Laws, and (iii) is not liable for
any off-site disposal or contamination pursuant to any Environmental Laws, or is
subject to any pending, or to the knowledge of the Company, threatened
Proceeding relating to any Environmental Laws, in each instance which violation,
contamination, liability or claim, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect.
2.27 NO GENERAL SOLICITATION. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D of the Securities Act ("Regulation D") in connection with the offer
or sale of the Units.
2.28 NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Units or Underlying Securities under the Securities Act or cause this
offering of the Units to be integrated with prior offerings by the Company for
purposes of the Securities Act.
2.29 EXEMPTION FROM REGISTRATION. Neither the Company nor any agent
acting on its behalf shall take any action that would cause the loss of an
exemption from, the registration provisions of the Securities Act and any state
or foreign securities laws for the offer, sale and issuance of the Units and the
conversion of the Shares and/or exercise of the Warrants into and/or for the
Underlying Shares.
2.30 TRANSACTIONS WITH AFFILIATES. Except as set forth on SCHEDULE
2.30, none of the officers, directors, or employees of the Company is presently
a party to any material transaction with the Company or any of its affiliates
(other than in connection with 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.
2.31 SEC DOCUMENTS. Except as set forth on SCHEDULE 2.31, since at
least June 30, 2003, the Company has timely 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 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
(other than exhibits to such documents) incorporated by reference therein, being
hereinafter referred to herein as 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 in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. None of the statements made in any such SEC
Documents is, or has been,
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required to be amended or updated under applicable law (except for such
statements as have been amended or updated in subsequent filings prior to the
date hereof). 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 United States 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 not
include 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). Except as set forth in the financial statements of the Company
included in the SEC Documents, the Company has no material liabilities,
contingent or otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to June 30, 2004 (ii) liabilities set forth on
SCHEDULE 2.22 and (iii) obligations under contracts and commitments incurred in
the ordinary course of business and not required under generally accepted
accounting principles to be reflected in such financial statements, which,
individually or in the aggregate, are not material to the financial condition or
operating results of the Company.
2.32 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 Subsidiary has, in the course of his actions
for, or on behalf of, the Company, 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; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,
as amended, or made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or domestic government official or
employee.
2.33 NO INVESTMENT COMPANY. The Company is not, and upon the issuance
and sale of the Units as contemplated by this Agreement will not be an
"investment company" required to be registered under the Investment Company Act
of 1940 (an "Investment Company"). The Company is not controlled by an
Investment Company.
2.34 ACKNOWLEDGMENT REGARDING INVESTOR'S PURCHASE OF SECURITIES. The
Company acknowledges and agrees that the Investor is acting solely in the
capacity of an arm's length purchaser with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that the
Investor is not acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any statement made by the Investor or any of its
respective representatives or agents in connection with this Agreement and the
transactions contemplated hereby is not advice or a recommendation and is merely
incidental to the Investor's purchase of the Securities. The Company further
represents to the Investor that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation of the Company and
its representatives.
10
2.35 MINUTE BOOKS. The minute books of the Company provided to the
Investors or their counsel contain a complete summary of all meetings and
actions by written consent of directors and shareholders since the time of
incorporation and reflect all transactions referred to in such minutes
accurately in all material respects.
2.36 LABOR AGREEMENTS AND ACTIONS; EMPLOYEE ARRANGEMENTS. The Company
is not bound by or subject to (and none of its assets or properties is bound by
or subject to) any written or oral, express or implied, contract, commitment or
arrangement with any labor union, and no labor union has requested or, to the
best of the Company's knowledge, has sought to represent any of the employees,
representatives or agents of the Company. There is no strike or other labor
dispute involving the Company pending, or to the best of the Company's
knowledge, threatened, that could have a Material Adverse Affect on the assets,
properties, financial condition, operating results, or business of the Company
(as such business is presently conducted and as it is proposed to be conducted),
nor is the Company aware of any labor organization activity involving its
employees. The Company is not aware that any officer or key employee, or that
any group of key employees, intends to terminate their employment with the
Company, nor does the Company have a present intention to terminate the
employment of any of the foregoing. The employment of each officer and employee
of the Company is terminable at the will of the Company. The Company has
complied in all material respects with all applicable state and federal equal
employment opportunity and other laws related to employment. Except as set forth
on SCHEDULE 2.36, the Company is not a party to or bound by any currently
effective employment contract, severance agreement, deferred compensation
agreement, bonus plan, incentive plan, profit sharing plan, retirement
agreement, other employee compensation agreement or Employee Benefit Plan as
defined in the Employee Retirement Income Security Act of 1974. The Company has
entered into an effective agreement with each of its employees requiring such
employee not to compete with the Company for a period following that person's
employment by the Company.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. Each Investor hereby
represents and warrants with respect to itself and not as to other Investors as
of the date hereof as follows:
3.1 AUTHORIZATION. The Investor has all the requisite power and is
duly authorized to execute and deliver the Transaction Agreements and has taken
all necessary action to consummate the transactions contemplated hereby and
thereby. The Transaction Agreements have been duly executed and delivered by the
Investor and constitute valid and binding obligations of the Investor,
enforceable in accordance with their respective terms, subject to, (a) the laws
of bankruptcy and the laws affecting creditors' rights generally, (b) the
availability of equitable remedies, and (c) the unenforceability of the rights
to indemnification contained in the Registration Rights Agreement under public
policy.
3.2 SOPHISTICATION AND SUITABILITY. (a) The Investor, either alone
or with the assistance of its professional advisor, is a sophisticated investor,
and has such knowledge and experience in financial and business matters that it
is capable of evaluating the merits and risks of the prospective investment in
the Units. The investment in the Units is suitable for the Investor based upon
the Investor's investment objectives and financial needs, and the Investor has
adequate net worth and means for providing for its current financial needs and
contingencies
11
and has no need for liquidity of its investment with respect to the Units. The
Investor has experience in investing in companies in the start-up or early
stages of development. The Investor is aware that there are substantial risks
incident to an investment in the Units. The Investor is aware that any financial
projections contained in any document provided to the Investor are forecasts
only and do not contain any express or implied representation that such
projections will be achieved or are attainable. The Investor also acknowledges
that any estimates of market size or projected expenses contained in any
documents provided or to be provided to the Investor do not contain any express
or implied representation that such estimates will be attained. The Investor
acknowledges that the tax consequences to the Investor of investing in the Units
will depend on the Investor's particular circumstances, and neither the Company,
nor its agents, officers, directors, employees, affiliates or consultants or any
of them will be responsible or liable for the tax consequences to the Investor
of an investment in the Company. The Investor will look solely to, and rely
solely upon, the Investor's own advisors with respect to the tax consequences of
this investment.
3.3 ACCESS TO INFORMATION. The Investor has received and carefully
reviewed the Transaction Agreements and all other documents requested by such
Investor, related to and to be executed in connection with the Investor's
investment in the Units and other transactions contemplated hereby (the
"Additional Documents"). The Investor has either attended or been given
reasonable opportunity to attend a meeting with representatives of the Company
for the purpose of asking questions of, and receiving answers from, such
representatives concerning the business of the Company and the terms and
conditions of the offering of the Units. Except as set forth in the Transaction
Agreements and the Additional Documents, no representations or warranties,
whether written or oral, have been made to the Investor by the Company or any
officer, employee or agent of the Company.
3.4 PURCHASE ENTIRELY FOR OWN ACCOUNT. The Investor is acquiring the
Units for investment purposes for the Investor's own account, not as a nominee
or agent, and not with a view to the distribution of any part thereof. The
Investor has no present intention of selling, granting any participation in or
otherwise distributing the Units.
3.5 RESTRICTED SECURITIES. The Investor realizes that: (a) neither
the Units nor the Shares and Warrants comprising the Units have been registered
under the Securities Act or registered or qualified under any state securities
or "blue sky" laws, are characterized under the Securities Act as "restricted
securities" and, therefore, cannot be sold or transferred unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available, and (b) there is presently no public market for the
Units, or Shares and Warrants comprising the Units, and only a limited public
market for the Underlying Shares and no public market for the Units, or Shares
and Warrants comprising the Units, is expected to develop and, due to the
limited public market for the Underlying Shares, the Investor may not be able to
liquidate its investment or pledge the Shares and/or Warrants as collateral
security for loans. The Investor represents that it is familiar with Rule 144
under the Securities Act as presently in effect, and understands the resale
limitations imposed thereby and by the Securities Act including the requirement
that the Shares and/or Underlying Shares must be held for at least one year
after purchase thereof from the Company prior to resale (two years in the
absence of publicly available information about the Company) and the condition
that there be available to the public current information about the Company
under certain circumstances. Except as set
12
forth in the Registration Rights Agreement, the Investor acknowledges that the
Company is under no obligation to register or qualify the Shares and/or
Underlying Shares under the Securities Act or under any state or foreign
securities law, or to assist the Investor in complying with any exemption from
registration and qualification, except as provided in the Registration Rights
Agreement. The Investor understands that the Company will rely upon the accuracy
and truth of the foregoing representations and the Investor hereby consents to
such reliance. The Investor is also aware that sales or transfers of the Shares
and/or Underlying Shares may be further restricted by state and foreign
securities laws and that the certificates for the Shares and/or Underlying
Shares will bear appropriate legends restricting their transfer.
3.6 RESIDENCY. For purposes of the application of state securities
laws, each Investor represents that it is a bona fide resident of the state set
forth in such Investor's address on the signature pages hereof.
3.7 LEGEND. It is understood that the certificates evidencing the
Shares may bear a legend such as the following:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE
STATE LAW, AND NO INTEREST THEREIN MAY BE SOLD, DISTRIBUTED, ASSIGNED,
OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (i) THERE IS AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS COVERING ANY SUCH TRANSACTION INVOLVING SAID
SECURITIES, (ii) VSUS TECHNOLOGIES INCORPORATED ("COMPANY") RECEIVES AN
OPINION OF LEGAL COUNSEL FOR THE HOLDER OF THESE SECURITIES
SATISFACTORY TO THE COMPANY STATING THAT SUCH TRANSACTION IS EXEMPT
FROM REGISTRATION, OR (iii) THE COMPANY OTHERWISE SATISFIES ITSELF THAT
SUCH TRANSACTION IS EXEMPT FROM REGISTRATION. TRANSFER OF THESE
SECURITIES IS FURTHER RESTRICTED AS PROVIDED IN THE SERIES A UNIT
PURCHASE AGREEMENT, A COPY OF WHICH IS AVAILABLE AT THE COMPANY'S
OFFICES."
3.8 ACCREDITATION. The Investor represents and warrants that it is
an "accredited investor," as defined in Rule 501 of Regulation D promulgated by
the SEC under the Securities Act. Any and all accounts for which the Investor is
acting (including its own) is able to bear the economic risks of this investment
and to withstand a total loss of its investment. If the Investor is acquiring
the Units as a fiduciary or agent for another investor's account, the Investor
has sole investment and voting discretion with respect to such account and has
full power to make the acknowledgments, representations and agreements contained
herein on behalf of such account.
3.9 INVESTOR'S REVIEW. The Investor has relied on its own
examination of the Company and the terms of the offering, including the merits
and risks involved in making an investment in the Units. The Investor
acknowledges that it has had the opportunity to review this Agreement, the
Schedules and Exhibits attached hereto, the Registration Rights Agreement and
the other agreements referred to herein and the transactions contemplated hereby
with its own legal counsel and tax and investment advisor. The Investor is
relying solely on such counsel and
13
advisors for legal, tax and investment advice with respect to the transactions
contemplated by this Agreement and the Registration Rights Agreement except that
this Section 3.9 does not limit or modify the representations and warranties of
the Company set forth in Section 2 of this Agreement or the right of the
Investor to rely thereon. The Investor has been informed and understands that
the Company's offering documents and offering materials, if any, and any
statements made to the Investor have not been reviewed or passed upon by the
Company's counsel, accountants or other independent parties.
3.10 BROKERS OR FINDERS. Neither the Investor nor any of its
officers, directors, employees, or shareholders has employed or made any
agreement with any broker, finder or similar agent or any person or firm, which
will result in the obligation of the Company to pay any finder's fee in
connection with the Agreement or the transactions contemplated hereby.
4. CONDITIONS OF THE INVESTORS' OBLIGATIONS AT THE CLOSING. The
obligations of the Investors under subsection 1.1(b) is subject to the
fulfillment by the Company at or before the Closing, of each of the following
conditions, the waiver of which shall not be effective against any Investor
which does not consent in writing thereto:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company and, as applicable, the Guarantor contained in Section
2 shall be true and correct on and as of the Closing with the same effect as
though such representations and warranties had been made as of the date of the
Closing.
4.2 PERFORMANCE. The Company shall have performed and complied in
all material respects with all agreements, covenants, obligations and conditions
contained in this Agreement that are required to be performed or complied with
by it on or before the Closing.
4.3 REGISTRATION RIGHTS AGREEMENT. The Company shall have entered
into a Registration Rights Agreement substantially in the form of EXHIBIT C
hereto.
4.4 CERTIFICATE OF DESIGNATION. The Certificate of Designation shall
have been filed with the Secretary of State of the State of Delaware on or prior
to the Closing Date.
4.5 COMPLIANCE CERTIFICATE. The Company and/or Guarantor shall have
delivered to the Investors a certificate of the Chief Executive Officer and the
Chief Financial Officer of the Company or Guarantor, as the case may be, dated
as of the Closing, certifying as to the fulfillment, as applicable, of the
conditions specified in Sections 4.1, 4.2 and 4.4 hereof, and such other matters
as the Investors may reasonably request.
4.6 OFFICER'S CERTIFICATE. Each Investor shall have received a
certificate of the Chief Financial Officer of the Company certifying as to the
Certificate of Incorporation and Certificate of Designation, the Bylaws of the
Company and the resolutions of the Board of Directors of the Company (the
"Board"), in form and substance reasonably satisfactory to counsel for the
Investors, and the stockholders of the Company with respect to the subject
matter hereof and the incumbency of certain officers of the Company.
14
4.7 LOCK-UP AGREEMENTS. Except as set forth on SCHEDULE 4.7, the
pre-offering officers, directors and the holders, of five (5%) percent or more
of the Company's Common Stock shall have entered into a Lock-Up Agreement
substantially in the form of EXHIBIT D hereto.
4.8 QUALIFICATIONS. The Company shall have obtained all necessary
authorizations, approvals, permits and qualifications, if any, or have the
availability of exemptions or waivers therefrom, for the offer and sale of the
Units.
4.9 INTENTIONALLY OMITTED
4.10 STOCK CERTIFICATES. The Company is delivering to each Investor a
certificate or certificates, duly executed on behalf of the Company, for the
shares of Series A Preferred Stock and Warrants purchased by such Investor and
such Investor is delivering to the Company the full purchase price for such
shares of Series A Preferred Stock and Warrants in accordance with Section 1.2
hereof.
4.11 ADDITIONAL DOCUMENTS. At the Closing Date, such ancillary
certificates and documents required for closing the transactions contemplated
hereby, as each Investor may reasonably request, shall have been delivered to
such Investor including, but not limited to, a good standing certificate, any
necessary waivers or consents, proprietary information and inventions agreements
and key man life insurance.
4.12 APPOINTMENT OF SERIES A OBSERVER. As long as Investors hold
8.75% or more of the Company's authorized Series A Preferred Stock, on a fully
diluted basis, the Investors shall be entitled to designate one person to serve
as a non-voting observer on the Board, with rights to receive notice of, and to
attend all meeting of the Board.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT THE CLOSING. The obligations
of the Company to each Investor under this Agreement are subject to the
fulfillment by such Investor on or before the Closing of the following
conditions by that Investor:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of such Investor contained in Section 3 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made as of the Closing.
5.2 PAYMENT OF PURCHASE PRICE. Each Investor shall have delivered
the purchase price specified in subsection 1.1(b) to be delivered at the
Closing, in the form specified in Section 1.2.
5.3 SECURITIES LAWS QUALIFICATION. The offer and sale to the
Investors of the Units shall be qualified or exempt from registration or
qualification under all applicable federal securities laws and Blue Sky laws.
15
5.4 PERFORMANCE. Each Investor shall have performed and complied in
all material respects with all agreements, obligations and conditions contained
in the Transaction Agreements that are required to be performed or complied with
by it on or before the Closing.
6. COVENANTS OF THE COMPANY.
6.1 CORPORATE EXISTENCE. The Company will maintain its corporate
existence in good standing. The Company will comply with all applicable laws and
regulations of the United States or any state or states thereof or of any
political subdivisions thereof and of any governmental authority where failure
to so comply could reasonably be expected to have a Material Adverse Effect.
6.2 INSPECTION. The Company will permit each such Investor and any
of its officers or employees, or any outside representatives designated by such
Investor and reasonably satisfactory to the Company, to visit and inspect at the
expense of such Investor any of the properties of the Company upon ten business
days prior notice and during regular business hours without disruption of the
Company's operations, including their books and records (and to make photocopies
thereof or extracts therefrom), and to discuss their affairs, finances and
accounts with their officers, except with respect to trade secrets and similar
confidential information. This right shall not exclude any right of inspection
of any stockholders of the Company under applicable Delaware law.
6.3 PAYMENT OF TAXES AND MAINTENANCE OF PROPERTY. The Company will:
(a) pay and discharge promptly, or cause to be paid and
discharged promptly when due and payable, all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or upon any of
its property, real, personal or mixed, or upon any part thereof, as well as all
material claims of any kind (including claims for labor, material and supplies)
which, if unpaid, might by law become a lien or charge upon its property;
provided, however, that the Company shall not be required to pay any such tax,
assessment, charge, levy or claim while the amount, applicability or validity
thereof is being contested in good faith by appropriate proceedings, provided
that the Company shall have set aside on its books reserves (segregated to the
extent required by generally accepted accounting principles) deemed adequate by
it with respect thereto; and
(b) maintain and keep, or cause to be maintained and kept,
its properties in good repair, working order and condition, and from time to
time make, or cause to be made, all repairs and renewals and replacements which
in the opinion of the Company are necessary and proper so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times.
6.4 INSURANCE. The Company will:
(a) keep or cause all of its insurable property or properties
to be kept insured against loss or damage or fire and other risks;
16
(b) maintain general liability insurance against claims for
personal injury, death or property damage suffered by others upon or in or about
the premises occupied by the Company or occurring as a result of the Company's
maintenance or operation of any automobiles, trucks or other vehicles or other
facilities;
(c) maintain all such worker's compensation or similar
insurance as may be required under the laws of any state or jurisdiction in
which it may be engaged in business; and
(d) use commercially reasonable efforts to maintain key man
life insurance on ▇▇▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇ in customary amounts.
All insurance for which provision has been made in this Section 6.4
shall be maintained in the amounts and to the extent determined to be reasonable
by the Board. All such insurance shall be effected and maintained in force under
a policy or policies issued by insurers of recognized responsibility, except
that the Company may effect worker's compensation or similar insurance in
respect of operations in any state or other jurisdiction either through an
insurance fund operated by such state or other jurisdiction or by causing to be
maintained a system or systems of self insurance which is in accord with
applicable laws.
6.5 COMPLIANCE WITH LAWS. The Company shall conduct its business in
compliance, in all material respects, with all laws, rules, regulations,
statutes, ordinances and other legal requirements.
6.6 PROPRIETARY INFORMATION AND INVENTION AGREEMENTS. The Company
shall use its best efforts to enter into proprietary information and invention
agreements with each of its significant full-time employees and consultants.
6.7 FORM D; BLUE SKY LAWS. The Company agrees to file a Form D with
respect to the Units as required under Regulation D and to provide a copy
thereof to each Investor promptly after such filing. The Company shall, on or
before the Closing, take such action as the Company shall reasonably determine
is necessary to qualify the Units for sale to each Investor at the applicable
closing pursuant to this Agreement under applicable securities or "blue sky"
laws of the states of the United States (or to obtain an exemption from such
qualification), and shall provide evidence of any such action so taken to each
Investor on or prior to the Closing Date.
6.8 REPORTING STATUS; ELIGIBILITY TO USE FORM S-3. Concurrently with
it's registration of the Underlying Shares pursuant to the Securities Act, the
Company register such Underlying Shares pursuant to the 1934 Act. So long as any
Investor beneficially owns any of the shares and/or Underlying Shares, the
Company shall timely file all reports required to be filed with the SEC pursuant
to the 1934 Act, and the Company shall not terminate its status as an issuer
required to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would permit such termination. Henceforth, the
Company will take all necessary action to meet, the "registrant requirements"
set forth in the general instructions to Form S-3.
6.9 USE OF PROCEEDS. The Company shall use the proceeds from the
sale of the Units in the manner set forth in SCHEDULE 6.9 attached hereto and
made a part hereof and shall not,
17
directly or indirectly, use such proceeds for any repayment of debt, loan to or
investment in any other corporation, partnership, enterprise or other person
(except in connection with its currently existing direct or indirect
Subsidiaries).
6.10 FUTURE OFFERINGS. Subject to the exceptions described below, the
Company will not, without the prior written consent of a majority-in-interest of
the Investors, negotiate or contract with any party to obtain additional equity
financing (including debt financing with an equity component) that involves: (a)
the issuance of Common Stock at a discount to the market price of the Common
Stock on the date of issuance (taking into account the value of any warrants or
options to acquire Common Stock issued in connection therewith), or (b) the
issuance of convertible securities that are convertible into an indeterminate
number of shares of Common Stock, or (c) the issuance of warrants during the
period (the "Lock-up Period") beginning on the Closing Date and ending on the
later of (i) one hundred eighty (180) days from the Closing Date, and (ii) one
hundred fifty (150) days from the date the Registration Statement (as defined in
the Registration Rights Agreement) is declared effective (plus any days in which
sales cannot be made thereunder). In addition, subject to the exceptions
described below, the Company will not conduct any equity financing (including
debt with an equity component) ("Future Offerings") during the period beginning
on the date of the Closing and ending on the Redemption Date (as that term is
defined in the Certificate of Designation) (the "Future Offering Period"),
unless it shall have first delivered to each Investor, at least fifteen (15)
business days prior to the closing of such Future Offering, written notice
describing the proposed Future Offering, including the terms and conditions
thereof and proposed definitive documentation to be entered into in connection
therewith, and providing each Investor an option during the ten (10) business
day period following delivery of such notice to purchase its pro rata share
(based on the ratio that the aggregate principal amount of Units purchased by it
hereunder bears to the aggregate principal amount of Units purchased hereunder)
of the securities being offered in the Future Offering on the same terms as
contemplated by such Future Offering (the limitations referred to in this
sentence and the preceding sentence are collectively referred to as the "Capital
Raising Limitations"). In the event the terms and conditions of a proposed
Future Offering are amended in any respect after delivery of the notice to the
Investors concerning the proposed Future Offering, the Company shall deliver a
new notice to each Investor describing the amended terms and conditions of the
proposed Future Offering and each Investor thereafter shall have an option
during the ten (10) business day period following delivery of such new notice to
purchase its pro rata share of the securities being offered on the same terms as
contemplated by such proposed Future Offering, as amended. The foregoing
sentence shall apply to successive amendments to the terms and conditions of any
proposed Future Offering. The Capital Raising Limitations shall not apply to any
transaction involving (a) issuances of securities in a firm commitment
underwritten public offering (an "Underwritten Offering") (excluding a
continuous offering pursuant to Rule 415 under the 1933 Act), or (b) issuance of
any Units pursuant to the Transaction Agreements, or (c) issuances of securities
as consideration for a merger, consolidation or purchase of assets, or in
connection with any strategic partnership or joint venture (the primary purpose
of which is not to raise equity capital), or in connection with the disposition
or acquisition of a business, product or license by the Company. The Capital
Raising Limitations also shall not apply to the issuance of securities upon
exercise or conversion of the Company's options, warrants or other convertible
securities outstanding as of the date hereof or issued hereinafter in an
Underwritten Offering or pursuant to the Transaction Agreements, the grant of
additional options or warrants, or the issuance of additional securities, under
any
18
Company stock option or restricted stock plan approved by the Stockholders of
the Company. In the event that, during the Future Offering Period, the Company
completes a Future Offering on terms more favorable than the transaction
contemplated hereby, the terms of the Units, Shares and/or Warrants, as the case
may be, will be amended to reflect such more favorable terms.
6.11 RESERVATION OF SHARES. The Company shall at all times have
authorized, and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the full conversion or exercise of the
outstanding Shares and Warrants and issuance of the Underlying Shares in
connection therewith (based on the Conversion Price of the Shares or Exercise
Price of the Warrants in effect from time to time) and as otherwise required by
the Shares. The Company shall not reduce the number of shares of Common Stock
reserved for issuance upon conversion of the Shares and exercise of the Warrants
without the consent of each Investor. The Company shall use its best efforts at
all times to maintain the number of shares of Common Stock so reserved for
issuance at no less than the greater of (a) 17,362,746, or (b) two (2) times the
number that is then actually issuable upon full conversion of the Shares and
upon exercise of the Warrants (based on the Conversion Price of the Shares or
the Exercise Price of the Warrants in effect from time to time). If at any time
the number of shares of Common Stock authorized and reserved for issuance is
below the number of Underlying Shares issued and issuable upon conversion of the
Shares and exercise of the Warrants (based on the Conversion Price of the Shares
or the Exercise Price of the Warrants then in effect), the Company will promptly
take all corporate action necessary to authorize and reserve a sufficient number
of shares, including, without limitation, calling a special meeting of
stockholders to authorize additional shares to meet the Company's obligations
under this Section 6.11, in the case of an insufficient number of authorized
shares, and using its best efforts to obtain stockholder approval of an increase
in such authorized number of shares.
6.12 NO FURTHER ISSUANCES OF ADDITIONAL SECURITIES. Except as to
those transactions to which the Capital Raising Limitations do not apply (which
this Section shall not prohibit) until such time as the Registration Statement
is declared effective by the SEC and 100% of the Shares are either redeemed or
converted, the Company shall not, without the Investors' written consent, issue,
or cause the issuance of, any securities of the Company except pursuant to an
employee stock option plan or other agreement with an employee in existence on
or committed as of June 30, 2004.
6.13 LISTING. The Company shall and, so long as any Investor owns any
of the Shares or Warrants, maintain the listing and trading of its Common Stock
on the OTCBB, the Nasdaq National Market ("Nasdaq"), the Nasdaq SmallCap Market
("Nasdaq SmallCap"), the New York Stock Exchange ("NYSE"), or the American Stock
Exchange ("AMEX") and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the National
Association of Securities Dealers ("NASD") and such exchanges, as applicable.
The Company shall promptly provide to each Investor copies of any notices it
receives from the OTCBB and any other exchanges or quotation systems on which
the Common Stock is then listed regarding the continued eligibility of the
Common Stock for listing on such exchanges and quotation systems.
6.14 CORPORATE EXISTENCE. Until such date as 100% of the Shares are
either redeemed or converted, the Company shall maintain its corporate existence
and shall not sell all or
19
substantially all of the Company's assets, except in the event of a merger or
consolidation or sale of all or substantially all of the Company's assets, where
the surviving or successor entity in such transaction assumes the Company's
obligations hereunder and under the agreements and instruments entered into in
connection herewith.
6.15 NO INTEGRATION. The Company shall not make any offers or sales
of any security (other than the Units) under circumstances that would require
registration of the Units being offered or sold hereunder under the 1933 Act or
cause the offering of the Units to be integrated with any other offering of
securities by the Company for the purpose of any stockholder approval provision
applicable to the Company or its securities.
6.16 BINDING AGREEMENT. By execution of this Agreement, Investor and
Company shall be entitled to any and all benefits, and subject to any and all
obligations, of the Transaction Agreements.
7. TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable
instructions to its transfer agent to issue certificates, registered in the name
of each Investor or its nominee, for the Underlying Shares in such amounts as
specified from time to time by each Investor to the Company upon conversion of
the Shares or exercise of the Warrants in accordance with the terms thereof (the
"Irrevocable Transfer Agent Instructions"), in the form of EXHIBIT E attached
hereto. Prior to registration of the Underlying Shares under the Securities Act
or the date on which the Underlying Shares (and the Shares) may be sold pursuant
to Rule 144 without any restriction as to the number of Securities as of a
particular date that can then be immediately sold, all such certificates shall
bear the restrictive legend specified in Section 3.7 of this Agreement. The
Company warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 7, and stop transfer instructions to
give effect to Section 3.5 hereof (in the case of the Underlying Shares, prior
to registration of the Underlying Shares under the Securities Act or the date on
which the Underlying Shares may be sold pursuant to Rule 144 without any
restriction as to the number of Securities as of a particular date that can then
be immediately sold), will be given by the Company to its transfer agent and
that the Securities shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section shall affect in any way
the Investor's obligations to comply with all applicable prospectus delivery
requirements, if any, upon re-sale of the Securities. If an Investor provides
the Company with (i) an opinion of counsel in form, substance and scope
customary for opinions in comparable transactions, to the effect that a public
sale or transfer of such Securities may be made without registration under the
1933 Act and such sale or transfer is effected or (ii) the Investor provides
reasonable assurances that the Securities can be sold pursuant to Rule 144, the
Company shall permit the transfer, and, in the case of the Underlying Shares,
promptly instruct its transfer agent to issue one or more certificates, free
from restrictive legend, in such name and in such denominations as specified by
such Investor. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Investor, by vitiating the intent
and purpose of the transactions contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 7 will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Section, that the Investor shall
be entitled, in addition to all other available
20
remedies, to an injunction restraining any breach and requiring immediate
transfer, without the necessity of showing economic loss and without any bond or
other security being required.
8. LEGAL FEES. The Company will pay at the Closing the reasonable and
customary fees plus disbursements of counsel for the Investors in connection
with the investment transaction under this Agreement.
9. MISCELLANEOUS.
9.1 AMENDMENTS AND WAIVERS. After the Closing, any provision of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only with the written consent of the Company and the holders of seventy percent
(70%) of the aggregate shares of Series A Preferred Stock then outstanding. Any
amendment or waiver effected in accordance with this Section 9.1 shall be
binding upon each holder of Series A Preferred Stock, each future holder of
Series A Preferred Stock and the Company.
9.2 NOTICES. Any notice or other communications required or
permitted hereunder shall be deemed to be sufficient if contained in a written
instrument delivered in person or duly sent by first class certified mail,
postage prepaid, by reputable overnight courier or such other address as may
hereafter be designated in writing by the addressee to the other parties:
if to the Company, to:
VSUS Technologies Incorporated
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇▇▇ ▇▇▇▇
with a copy to:
▇▇▇▇▇ & Schloss LLP
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇., ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
if to the Investors, to each of the Investors at the address listed on
SCHEDULE A.
with a copy to:
▇▇▇▇▇ & Schloss LLP
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇., ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
or, in any case, at such other address or addresses as shall have been furnished
in writing by such party to the other parties hereto. All such notices,
requests, consents and other communications
21
shall be deemed to have been received (a) in the case of personal delivery, on
the date of such delivery, (b) in the case of mailing, on the fifth business day
following the date of such mailing and (c) in the case of overnight courier, on
the second next business day.
9.3 CONFIDENTIALITY. Each party hereto agrees to and shall keep
strictly confidential and will not disclose or divulge (a) the information
required to be delivered by one party to the other party hereunder and (b) any
other confidential, proprietary or secret information which a party may obtain
from the other party hereto unless required to be disclosed by law or regulation
or pursuant to any judgment, order, subpoena or decree of any court having
competent jurisdiction, or unless such information is already known to such
party or is or becomes publicly known, or unless the other party hereto gives
its written consent to such party's release of such information, except that no
such written consent shall be required (and such party shall be free to release
such information) if such information is to be provided to such party's lawyer
or accountant, or to an officer or director of such party if such person is made
aware of the confidential nature of such information and agrees to maintain the
confidentiality of such information as required by this Section 9.3.
9.4 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York as they apply to contracts
entered into and to be wholly performed within such state, without regard to
conflicts of laws principles.
9.5 SUBMISSION TO JURISDICTION. (a) The Investors hereby irrevocably
submit to the nonexclusive jurisdiction of any federal or state court sitting in
the State of New York in any action or proceeding arising out of or relating to
this Agreement, and the Investors hereby irrevocably agree that all claims in
respect of such action or proceeding may be heard and determined in any such
court. The Investors irrevocably consent to the service of any and all process
in any such action by proceeding by the mailing via registered or certified mail
of copies of such process to the Investors at their addresses specified on
SCHEDULE A hereto.
(b) The Investors hereby irrevocably waive any objection
which they may now or hereafter have to the laying of venue of any suit, action
or proceeding arising out of or relating to this Agreement brought in any
federal or state court sitting in the State of New York and hereby further
irrevocably waives any claim that any such suit, action or proceeding brought in
any such court has been brought in any inconvenient forum.
9.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together constitute one and the same instrument.
9.7 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
9.8 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the respective successors and assigns of the
parties. Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto or their respective successors and
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement.
22
9.9 FUTURE EXPENSES; ATTORNEYS' FEES. If any action at law or in
equity is necessary, to enforce or interpret the terms of this Agreement, the
prevailing party shall be entitled to reasonable attorneys' fees, costs and
necessary disbursements in addition to any other relief to which such party may
be entitled.
9.10 FINDERS' FEES. Each Investor agrees to indemnify and hold
harmless the Company from any liability for any commission or compensation in
the nature of a finder's fee (and the costs and expenses of defending against
such liability or asserted liability) for which such Investor or any of its
officers, partners, employees or representatives is responsible. The Company
agrees to indemnify and hold harmless each Investor from any liability for any
commission or compensation in the nature of a finder's fee (and the costs and
expenses of defending against such liability or asserted liability) for which
the Company or any of its officers, employees or representatives is responsible.
9.11 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement, and the balance of this Agreement shall be interpreted as
if such provision were so excluded and shall be enforceable in accordance with
its terms.
9.12 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties contained herein shall survive the Closing until the second
anniversary of the date hereof, as applicable.
9.13 CURRENCY. Unless otherwise indicated, all dollar denominations
specified herein shall be in United States dollars.
9.14 WAIVER OF JURY TRIAL. THE COMPANY AND THE INVESTORS HEREBY
IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT. THE EXCLUSIVE FORUM FOR ANY ACTION BETWEEN THE
COMPANY AND INVESTORS ARISING OUT OF OR RELATED TO THIS AGREEMENT SHALL BE THE
STATE OR FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK, AND EACH PARTY AGREES
THAT SUCH COURTS HAVE JURISDICTION AND ARE A PROPER VENUE AND CONVENIENT FORUM
FOR ANY SUCH ACTION.
9.15 ENTIRE AGREEMENT. This Agreement and the other documents
delivered at the Closing constitute the full and entire understanding and
agreement between the parties with respect to the subject matter hereof and
supersede all prior agreements with respect to the subject matter hereof.
[THE REMAINDER OF THIS PAGE IS LEFT BLANK INTENTIONALLY]
23
COUNTERPART SIGNATURE PAGE TO THE SERIES A UNIT PURCHASE AGREEMENT, DATED AUGUST
31, 2004
IN WITNESS WHEREOF, the parties have executed this Agreement on
the date first above written.
VSUS TECHNOLOGIES INCORPORATED
By: _________________________________
Name: ▇▇▇▇▇▇ ▇▇▇▇
Title: Chief Executive Officer
By: _________________________________
Name: ▇▇▇▇▇ ▇▇▇▇▇
Title: President
SAFE MAIL INTERNATIONAL LTD.
By: _________________________________
Name: ▇▇▇▇▇▇ ▇▇▇▇
Title: Chief Executive Officer
SAFE MAIL DEVELOPMENT LTD.
By: _________________________________
Name: ▇▇▇▇▇▇ ▇▇▇▇
Title: Chief Executive Officer
INVESTOR:
Name: _______________________________
Aggregate Principal Amount of Units:
_________________
Aggregate Purchase Price: _________________
24
----------------------------------------------
SERIES A UNIT PURCHASE AGREEMENT
DATED:
AUGUST 31, 2004
----------------------------------------------
25
TABLE OF CONTENTS
Page
1. PURCHASE AND SALE OF UNITS............................................1
1.1 Sale and Issuance of Series A Units...........................1
1.2 Closing.......................................................1
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................1
2.1 Organization, Good Standing and Qualification.................2
2.2 Capitalization................................................2
2.3 Subsidiaries..................................................2
2.4 Power and Authority...........................................2
2.5 Valid Issuance of Shares Warrants and Underlying Shares.......3
2.6 Governmental Consents.........................................3
2.7 Litigation....................................................3
2.8 Intellectual Property.........................................4
2.9 Intentionally Omitted.........................................4
2.10 Compliance With Other Instruments.............................4
2.11 Disclosure....................................................5
2.12 Material Agreements; Actions..................................5
2.13 Title to Property and Assets..................................5
2.14 Brokers or Finders............................................6
2.15 Registration Rights, Voting Rights............................6
2.16 Employees.....................................................6
2.17 Stockholders, Directors and Officers; Indebtedness............6
2.18 Employment Benefit Plans......................................6
2.19 Tax Returns and Payments......................................6
2.20 Proprietary Information and Invention Agreements..............7
2.21 Permits.......................................................7
2.22 Absence of Certain Changes....................................7
2.23 Financial Statements..........................................8
2.24 Accounting....................................................8
2.25 Insurance.....................................................8
2.26 Environmental Laws............................................8
2.27 No General Solicitation.......................................9
2.28 No Integrated Offering........................................9
2.29 Exemption from Registration...................................9
2.30 Transactions With Affiliates..................................9
2.31 SEC Documents.................................................9
2.32 Foreign Corrupt Practices....................................10
2.33 No Investment Company........................................10
i
2.34 Acknowledgment Regarding Investor's Purchase of Securities...10
2.35 Minute Books.................................................11
2.36 Labor Agreements and Actions; Employee Arrangements..........11
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.......................11
3.1 Authorization................................................11
3.2 Sophistication and Suitability...............................11
3.3 Access to Information........................................12
3.4 Purchase Entirely for Own Account............................12
3.5 Restricted Securities........................................12
3.6 Residency....................................................13
3.7 Legend.......................................................13
3.8 Accreditation................................................13
3.9 Investor's Review............................................13
3.10 Brokers or Finders...........................................14
4. CONDITIONS OF THE INVESTORS' OBLIGATIONS AT THE CLOSING..............14
4.1 Representations and Warranties...............................14
4.2 Performance..................................................14
4.3 Registration Rights Agreement................................14
4.4 Certificate of Designation...................................14
4.5 Compliance Certificate.......................................14
4.6 Officer's Certificate........................................14
4.7 Lock-Up Agreements...........................................14
4.8 Qualifications...............................................15
4.9 Intentionally Omitted........................................15
4.10 Stock Certificates...........................................15
4.11 Additional Documents.........................................15
4.12 Appointment of Series A Observer.............................15
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT THE CLOSING...............15
5.1 Representations and Warranties...............................15
5.2 Payment of Purchase Price....................................15
5.3 Securities Laws Qualification................................15
5.4 Performance..................................................15
6. COVENANTS OF THE COMPANY.............................................16
6.1 Corporate Existence..........................................16
6.2 Inspection...................................................16
6.3 Payment of Taxes and Maintenance of Property.................16
ii
6.4 Insurance....................................................16
6.5 Compliance with Laws.........................................17
6.6 Proprietary Information and Invention Agreements.............17
6.7 Form D; Blue Sky Laws........................................17
6.8 Reporting Status; Eligibility to Use Form S-3................17
6.9 Use of Proceeds..............................................17
6.10 Future Offerings ............................................18
6.11 Reservations of Shares.......................................19
6.12 No Further Issuance of Additional Securities.................19
6.13 Listing......................................................19
6.14 Corporate Existence..........................................19
6.15 No Integration...............................................20
6.16 Binding Agreement............................................20
7. TRANSFER AGENT INSTRUCTIONS..........................................20
8. LEGAL FEES...........................................................21
9. MISCELLANEOUS........................................................21
9.1 Amendments and Waivers.......................................21
9.2 Notices......................................................21
9.3 Confidentiality..............................................22
9.4 Governing Law................................................22
9.5 Submission to Jurisdiction...................................22
9.6 Counterparts.................................................22
9.7 Titles and Subtitles.........................................22
9.8 Successors and Assigns.......................................22
9.9 Future Expenses; Attorneys' Fees.............................23
9.10 Finders' Fees................................................23
9.11 Severability.................................................23
9.12 Survival of Representations and Warranties...................23
9.13 Currency.....................................................23
9.14 Waiver of Jury Trial.........................................23
9.15 Entire Agreement.............................................23
iii
APPENDICES
----------
-------------------------- -----------------------------------------------------
SCHEDULE A Schedule of Investors
-------------------------- -----------------------------------------------------
SCHEDULE B Company Disclosure Schedule
-------------------------- -----------------------------------------------------
-------------------------- -----------------------------------------------------
EXHIBIT A Certificate of Designation
-------------------------- -----------------------------------------------------
EXHIBIT B Financial Statements
-------------------------- -----------------------------------------------------
EXHIBIT C Registration Rights Agreement
-------------------------- -----------------------------------------------------
EXHIBIT D Lock-Up Agreement
-------------------------- -----------------------------------------------------
EXHIBIT E Irrevocable Transfer Agent Instructions
-------------------------- -----------------------------------------------------
iv
