EXHIBIT 10.3
EVCI CAREER COLLEGES INCORPORATED
SUBSCRIPTION AND REGISTRATION RIGHTS AGREEMENT
EVCI Career Colleges Incorporated
00 Xxxx Xxxxxx Xxxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxx Xxxx 00000
Ladies and Gentlemen:
I understand the EVCI Career Colleges Incorporated ("EVCI" or the
"Company") is offering to accredited investors, in a private placement (the
"Offering") 19 Units (each, a "Unit" and collectively, the "Units") that are
each comprised of an EVCI Convertible Promissory Note, due July 15, 2003 and in
the principal amount of $______________ (each a "Note" and collectively, the
"Notes"), and an EVCI Common Stock Purchase Warrant to purchase ___________
shares of EVCI's common stock (each a "Warrant" and collectively the
"Warrants"). The price of each Unit equals the principal amount of the Note
included in the Unit (the "Purchase Price"). A summary of the terms of the
Offering is set forth in the Term Sheet attached as Exhibit A to this Agreement
(the "Term Sheet"). The Form of Note and Form of Warrant are Exhibits B and C to
this Agreement. References below to the "Securities" include the Units, Notes,
Warrants and the Common Stock of EVCI issuable upon conversion of the Note and
in payment of interest on the Notes (the "Conversion Shares") and exercise of
the Warrants (the "Warrant Shares"), unless the context requires otherwise.
1. Subscription. I hereby tender to EVCI this subscription and full payment
of the Purchase Price for that number of Units (a minimum of one Unit per
subscriber unless the Company, in its sole discretion, otherwise agrees)
specified on the signature page to this Agreement, by check payable to EVCI
Career Colleges Incorporated.
2. Subscriber's Representations and Warranties. I hereby represent and
warrant to the Company as follows:
(a) I understand that the Securities have not been registered under
the Securities Act of 1933, as amended ("Securities Act"), or any state
securities laws in reliance on exemptions for private offerings; the Securities
cannot be resold or otherwise disposed of unless they are subsequently
registered under the Securities Act and applicable state securities laws or an
exemption from registration is available, and that the Securities will bear a
restrictive legend to such effect; I will have no rights to require that the
Securities be registered under the Securities Act or any state securities laws,
except as provided below; I may have to hold the Securities indefinitely and it
may not be possible for me to liquidate my investment in the Company.
(b) I understand that my purchase of the Securities is a speculative
investment which involves a high degree of risk, including the potential loss of
my entire investment in the Company.
(c) I have completed and returned to the Company the Accredited
Investor Questionnaire (the "Questionnaire") relating to my qualifications as an
"accredited investor" and my general ability to bear the risks of an investment
in the Company, and I hereby affirm the correctness of my answers in the
Questionnaire.
(d) I, myself, or, together with my advisor(s), if any, have such
knowledge and experience in financial matters, including investments in
securities that are restricted as to their transferability, that, alone or
together with such advisor(s), I am capable of evaluating the risks and merits
of an investment in the Securities and of making an informed investment
decision.
(e) The address set forth below is my correct home address or, if I am
other than an individual, the correct address of my principal office and I have
no present intention of changing such address. If an individual, I am at least
21 years old.
(f) If I am a corporation, partnership or other entity, I am duly
authorized to purchase and hold the Securities.
(g) All documents, records and other materials pertaining to an
investment in the Company which were requested by me or my advisor(s) have been
made available or delivered as requested.
(h) I have reviewed and understand the Term Sheet. I or my advisor(s)
have had an opportunity to ask questions of and receive answers from
representatives of the Company concerning the terms and conditions of the
Offering and the financial condition and prospects of the Company and to obtain
any additional information necessary to verify the accuracy of the information
provided to me or my advisor(s) by the Company.
(i) I am subscribing for the Securities solely for my own account, for
investment and not with a view to or for the resale, assignment, distribution,
subdivision or fractionalization thereof. No other person has a direct or
indirect beneficial interest in the Securities.
(j) I understand that the documents delivered to me by the Company in
connection with the Offering (collectively, the "Offering Materials") have not
been approved or disapproved by the Securities and Exchange Commission (the
"SEC") or any state securities SEC nor has any such SEC passed upon the accuracy
or adequacy of the Offering Materials or the fairness of the Offering. Any
representation to the contrary is unlawful.
(k) I am relying upon my own counsel, accountant and/or business
advisor(s) concerning legal, tax, business and related aspects of my
subscription hereunder and my investment in the Company.
(l) My overall commitment to investments which are not readily
marketable is not disproportionate to my net worth and my investment in the
Securities will not cause such overall commitment to become excessive.
3. Company's Representations and Warranties. The Company hereby represents
and warrants to me as follows:
The Company represents and warrants to me that:
(a) Organization and Qualification. The Company and its subsidiaries
are corporations duly organized and validly existing in good standing under the
laws of the jurisdiction in which they are incorporated, and have the requisite
corporate power to own their properties and to carry on their businesses 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 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. "Material Adverse
Effect" means any material adverse effect on (i) the business, properties,
operations, condition (financial or otherwise), or results of operations of the
Company and its subsidiaries, taken as a whole, or (ii) on the ability of the
Company to perform its obligations hereunder, or under the Notes or the
Warrants.
(b) Authorization; Enforcement; Compliance with Other Instruments. The
Company has the requisite corporate power and authority to enter into and
perform this Agreement, to issue, sell and perform its obligations with respect
to the Notes and Warrants in accordance with the terms hereof, and to issue the
Conversion Shares and Warrant Shares upon conversion of the Notes and exercise
of the Warrants, respectively, in accordance with the Notes and Warrants,
respectively. The execution and delivery of this Agreement by the Company and
the consummation by it of the transactions contemplated hereby, including,
without limitation, the issuance of the Notes and the Warrants and the
reservation for issuance and the issuance of the Conversion Shares Warrant
Shares, have been duly authorized by the Company's Board of Directors and no
further consent or authorization is required by the Company, its Board of
Directors or its stockholders. This Agreement constitutes and, upon their
issuance and delivery, the Notes and the Warrants will 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 laws relating to, or affecting generally, the
enforcement of creditors' rights and remedies and except to the extent
enforcement of the indemnification and contribution provisions contained in this
Agreement may be limited by applicable securities laws.
(c) Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of 20,000,000 shares of Common Stock, of which, as
of June 25, 2002, 4,813,466 shares were issued and outstanding, and 1,000,000
shares of preferred stock, of which 130,000 shares are issued and outstanding.
All of such outstanding shares have been validly issued and are fully paid and
nonassessable. No shares of Common Stock or preferred stock are subject to
preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company. Except as disclosed in Schedule 3(c) to
this Agreement or in EVCI's Form 10-QSB for the quarter ended March 31, 2002 and
as contemplated by this Agreement, as of the date thereof, there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments relating to, or securities or rights convertible into, any shares of
capital stock of the Company or contracts, commitments, understandings or
arrangements by which the Company is or may become bound to issue additional
shares of capital stock of the Company. Except as contemplated by this Agreement
and with respect to securities registered from resale under effective
registration statements, there are no agreements or arrangements under which the
Company is obligated to register the sale of any of its securities under the
Securities Act.
(d) Issuance of Securities. The Notes and Warrants are duly authorized
and, upon issuance in accordance with the terms hereof, the Warrants will be
validly issued, fully paid and non-assessable, and the Notes and Warrants will
be free from all taxes, liens and charges with respect to the issue thereof. The
number of shares of Common Stock necessary to provide for the issuance of the
Conversion Shares and the Warrant Shares (assuming such conversion or exercise
took place upon their original issuance) in accordance with the terms of this
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Agreement, the Notes and the Warrants have been duly authorized and reserved for
issuance upon conversion of the Notes and exercise of the Warrants. Upon
conversion or exercise in accordance with the Notes and Warrants, as applicable,
the Conversion Shares and Warrant Shares will be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof, with the holders being entitled to all rights accorded to a
holder of Common Stock.
(e) No Conflicts; Compliance. The execution, delivery and performance
of this Agreement, the performance by the Company of its obligations under the
Notes and Warrants and the consummation by the Company of the transactions
contemplated hereby and thereby will not (i) result in a violation of the
Company's Certificate of Incorporation or By-laws or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, or,
assuming the accuracy of the representations and warranties made to the Company
by all of the subscribers for Units, result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and the rules and regulations of the NASDAQ SmallCap
Market) applicable to the Company or any of its subsidiaries or by which any of
their property or assets. Except as required under the Securities Act and
applicable state securities laws, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental or regulatory or self-regulatory agency in order for it to
execute, deliver or perform any of its obligations contemplated by this
Agreement, the Notes or the Warrants or in accordance with the terms hereof or
thereof. The Company is not in violation of the listing requirements of the
Nasdaq SmallCap Market. Except as described in the Forward-Looking Statements
and Risk Factors referenced to in the Term Sheet, the Company and its
subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing or to delisting of the Common Stock by the Nasdaq SmallCap
Market.
(f) SEC Documents; Financial Statements. Since January 1, 2001, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange 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"). As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied during the
periods involved (except (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).
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(g) Absence of Certain Changes. Since March 31, 2002, there has been
no material adverse change and no material adverse development in the business,
properties, operations, financial condition or results of operations of the
Company and its subsidiaries; provided, however, no representation or warranty
is made regarding ICTS, Inc.
(h) Absence of Litigation. Except as disclosed on Schedule 3(h) to
this Agreement, as of the date thereof, 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
Company or any of its subsidiaries, threatened against or affecting the Company
or its subsidiaries or their respective directors or officers, or the Common
Stock, wherein an unfavorable decision, ruling or finding could individually or
in the aggregate have a Material Adverse Effect.
(i) 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 under the Securities Act) in connection with the offer or sale of
any of the Units offered hereby.
(j) Employment Matters; ERISA Matters. The Company and its
subsidiaries are in compliance with all federal, state, local and foreign laws
and regulations respecting employment and employment practices, terms and
conditions of employment and wages and hours except where failure to be in
compliance would not have a Material Adverse Effect. There are no pending
investigations involving the Company or any of its subsidiaries by the U.S.
Department of Labor or any other governmental agency responsible for the
enforcement of such federal, state, local or foreign laws and regulations. There
is no unfair labor practice charge or complaint against the Company or any of
its subsidiaries pending before the National Labor Relations Board or any
strike, picketing, boycott, dispute, slowdown or stoppage pending or, to the
Company's knowledge, threatened against or involving the Company or any of its
subsidiaries. No representation question exists respecting the employees of the
Company or any of its subsidiaries, and no collective bargaining agreement or
modification thereof is currently being negotiated by the Company or any of its
subsidiaries. No grievance or arbitration proceeding is pending under any
expired or existing collective bargaining agreements of the Company or any of
its subsidiaries. No material labor dispute with the employees of the Company or
any of its subsidiaries exists or, to the knowledge of the Company, is imminent.
Except for 401(k) plans, the Company and its subsidiaries have no employee
benefit plans subject to the Employee Retirement Income Security Act of 1974, as
amended.
(k) Intellectual Property Rights. The Company and its subsidiaries own
or possess all material rights or licenses to use all trademarks, trade names,
service marks, service xxxx registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
business as now conducted.
(l) 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
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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.
(m) 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
except 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 and its subsidiaries and security interests granted to the holders of
the Company's Series B 7% Convertible Preferred Stock in the assets and stock of
Interboro Institute, Inc. ("Interboro") and that may be granted to the provider,
if any, of up to $2,000,000 of senior indebtedness to Interboro.
(n) Insurance. The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as is prudent and customary in the businesses in which the
Company and its subsidiaries are engaged. Neither the Company nor any such
subsidiary has any 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.
(o) Regulatory Permits; Compliance. The Company and its subsidiaries
possess all franchises, grants, authorizations, licenses permits, easements,
consents, certificates, approvals and orders necessary to own, lease and operate
their properties and to conduct their respective businesses as currently being
conducted (collectively, the "Company Permits"). There is no action pending, or
to the knowledge of the Company, threatened regarding the suspension or
cancellation of any of the Company Permits.
(p) Internal Accounting Controls. The Company and each of its
subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's board of directors, 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.
(q) Tax Status. The Company and each of its subsidiaries has made or
filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject (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. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
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(r) Certain Transactions. 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 grants 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 (other than for services as employees, officers and
directors and the month-to-month consulting arrangement with Xxxxxx X. Xxxxxx
disclosed in the Company's last proxy statement), 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.
4. Survival; Indemnification.
(a) Survival. The representations and warranties in this Agreement
shall survive the sale of the Unit(s) to me for a period of two years, when they
shall expire together with any right to indemnification in respect thereof,
except to the extent notice asserting a claim for breach of a representation or
warranty shall have been given to the indemnifying party prior to such
expiration.
(b) Indemnification. You and I agree to hold the other and the other's
officers, directors, employees, agents, counsel and controlling persons (and
their heirs, representatives, successors and assigns) harmless and to indemnify
them against all liabilities, costs and expenses (including reasonable
attorney's fees and expenses) incurred by them as a result of any breach of this
agreement by the other. The provisions of Section 5.4(c) shall apply with
respect to third party claims.
5. Registration Rights.
5.1 Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
"Common Stock" means the Common Stock, $.0001 par value, of the
Company, as constituted as of the date of this Agreement.
"Conversion Shares" means shares of Common Stock issued upon
conversion of the Notes and/or in payment of interest on the Notes.
"Investors" means the purchasers of the Units.
"Registration Statement" means a registration statement of the Company
filed on an appropriate form under the Securities Act providing for the
registration, and the sale on a continuous or delayed basis by the holders, of
all of the Restricted Stock pursuant to Rule 415 under the Securities Act,
including (unless the context requires otherwise) the prospectus contained
therein and forming a part thereof, any amendments to such registration
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statement and supplements to such prospectus, and all exhibits to and other
material incorporated by reference in such registration statement and
prospectus.
"Restricted Stock" means the Conversion Shares and Warrant Shares, and
any shares of capital stock issued or issuable to the Investors in payment of
interest on the Notes and with respect to such Conversion Shares and Warrant
Shares as a result of any adjustment made under the Notes and Warrants, until
they are (a) resold under and in accordance with the Securities Act pursuant to
the Registration Statement or (b) saleable without restriction pursuant to Rule
144(k) under the Securities Act.
"Warrant Shares" means shares of Common Stock issued upon exercise of
Warrants.
5.2 Registration Procedures.
(a) The Company shall prepare and, on or prior to the 60th day
following the issuance of the Notes, file with the SEC a Registration Statement
on Form S-3 (or, if such form is unavailable for such a registration, on such
other form as is available for such a registration), covering the resale of all
of the Restricted Stock, which Registration Statement shall state that, in
accordance with Rule 416 under the Securities Act, it also covers such
indeterminate number of additional shares of Common Stock as may become issuable
upon conversion of the Notes and exercise of the Warrants to prevent dilution
resulting from stock splits, stock dividends, recapitalizations,
reclassifications or similar transactions. The Registration Statement shall
initially register for resale that number of shares of Common Stock equal to the
number of shares of Restricted Stock issuable as of the date immediately
preceding the date the Registration Statement is initially filed with the SEC as
if such date of registration was a date on which all the Notes were converted
and all the Warrants were exercised, subject to adjustment as provided therein.
Such registered shares of Common Stock shall be allocated among the Investors
pro rata based on the total number of shares of Restricted Stock issued or
issuable as of each date that a Registration Statement, as amended, relating to
the resale of the Restricted Stock is declared effective by the SEC.
(b) In connection with the Registration Statement, the Company shall:
(i) use its best efforts to cause the Registration Statement to
be declared effective within 60 days after its initial filing with the SEC the
and to remain effective for the period specified in Section 5.2(c);
(ii) prepare and file with the SEC such amendments and
supplements to the Registration Statement and the prospectus used in connection
therewith as may be necessary to keep the Registration Statement continuously
effective, pursuant to Rule 415, for the period specified in Section 5.2(c) and
comply with the provisions of the Securities Act with respect to the disposition
of all Restricted Stock covered by the Registration Statement in accordance with
the sellers' intended method of disposition set forth in the Registration
Statement for such period; provided, however, notwithstanding the foregoing
provisions of this Section 5.2(b)(ii), the Company may suspend the use of the
Registration Statement for a period not to exceed 45 days (whether or not
consecutive) in any 12-month period if the Board of Directors of the Company
determines in good faith (after consulting with the Company's counsel and, if
appropriate, its independent auditors) that because of valid and material
business developments (which, under applicable securities laws, would be
required to be disclosed in an amendment to the prospectus), including pending
mergers or other business combination transactions, the planned acquisition or
divestiture of assets, pending material corporate developments and similar
8
events, it is advisable to suspend such use, and prior to or contemporaneously
with suspending such use the Company provides the Investors with written notice
of such suspension, which notice need not specify the nature of the event giving
rise to such suspension; at the end of any such suspension period, the Company
shall provide the Investors with written notice of the termination of such
suspension;
(iii) permit each seller of Restricted Stock to review and
comment upon the Registration Statement and all amendments and supplements
thereto at least three days prior to their filing with the SEC;
(iv) furnish to each seller of Restricted Stock and to each
underwriter (to the extent that a majority of the holders of Restricted Stock
elect to use an underwriter) such number of copies of the Registration Statement
and the prospectus included therein (including each preliminary prospectus) as
such persons reasonably may request in order to facilitate the public sale or
other disposition of the Restricted Stock covered by the Registration Statement;
(v) use its best efforts to register or qualify the Restricted
Stock covered by the Registration Statement under the securities or "blue sky"
laws of such jurisdictions as the sellers of Restricted Stock or, in the case of
an underwritten public offering, the managing underwriter, reasonably shall
request; provided, however, that the Company shall not for any such purpose be
required to qualify generally to transact business as a foreign corporation in
any jurisdiction where it is not so qualified or to consent to general service
of process in any such jurisdiction;
(vi) promptly notify each seller of the Restricted Stock and each
underwriter (to the extent that a majority of the holders of Restricted Stock
elect to use an underwriter) participating in any distribution pursuant to the
Registration Statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event
of which the Company has knowledge and as a result of which the prospectus
contained in the Registration Statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing; and
(vii) make available for inspection by each seller of Restricted
Stock, any underwriter (to the extent that a majority of the holders of
Restricted Stock elect to use an underwriter) participating in any distribution
pursuant to the Registration Statement, and any attorney, accountant or other
agent retained by such seller or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors and employees to supply all information reasonably
requested by any such seller, underwriter, attorney, accountant or agent in
connection with the Registration Statement.
(c) For purposes of subsections 5.2(b)(i) and (ii), the period of
distribution of Restricted Stock in a firm commitment underwritten public
offering shall be deemed to extend until each underwriter has completed the
distribution of all securities purchased by it, and the period of distribution
of Restricted Stock in any other registration shall be deemed to extend until
the earliest of (i) the date as of which the Investors may sell all of the
Restricted Stock without restriction pursuant to Rule 144(k) promulgated under
the Securities Act (or successor thereto), (ii) the date on which (x) the
Investors shall have sold all the Restricted Stock and (y) none of the Warrants
is outstanding, or (iii) the date which is one year after the Warrants have been
exercised in full.
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(d) Each seller of Restricted Stock agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
subsection 5.2(b)(ii), such seller will immediately discontinue disposition of
Restricted Securities pursuant to the prospectus included in the Registration
Statement until such seller's receipt of the copies of the supplemented or
amended prospectus contemplated by subsection 5.2(b)(ii), and, if so directed by
the Company, such seller will deliver to the Company all copies, other than
permanent file copies then in such seller's possession, of the most recent
prospectus covering such Restricted Securities at the time of receipt of such
notice. If the Company shall give such notice, the Company shall extend the
period during which the Registration Statement shall be maintained effective by
the number of days during the period from and including the date of the giving
of notice pursuant to subsection 5.2(b)(ii) to the date when the Company shall
make available to such seller a prospectus supplemented or amended to conform
with the requirements of subsection 5.2(b)(ii).
(e) In connection with each registration hereunder, the sellers of
Restricted Stock will furnish to the Company in writing such information with
respect to themselves and the proposed distribution by them, as reasonably shall
be necessary and reasonably requested by the Company's counsel in writing, in
order to assure compliance with federal and applicable state securities laws.
(f) In the event the public offering of the Restricted Securities is
underwritten, the Company and each seller of Restricted Stock agrees to enter
into a written agreement with the managing underwriter selected by a majority of
the holders of Restricted Stock (assuming conversion of the outstanding Notes
and exercise of the outstanding Warrants as of the date the Registration
Statement is initially filed with the SEC) and approved by the Company which
approval shall not be unreasonably withheld or delayed, in such form and
containing such provisions as are customary in the securities business for such
an arrangement between such underwriter and companies of the Company's size and
investment stature.
(g) The Company understands that a breach of the Company's obligations
under Sections 5.2(a) could result in economic loss to the Investors. As
liquidated damages for such loss (and not as a penalty), the Company agrees to
pay to the Investors interest at the rate of an additional 9 percent per annum
on the principal amount of the Notes for the period of time that the Company is
late in filing the Registration Statement.
5.3 Expenses. All expenses incurred by the Company in complying with
Section 5.2, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including counsel fees) incurred
in connection with complying with state securities or "blue sky" laws, fees of
the National Association of Securities Dealers, Inc., transfer taxes, fees of
transfer agents and registrars, and costs of issuing Restricted Stock, but
excluding any Selling Expenses and fees and disbursements of any counsel, or any
accountant or agent of, a seller of Restricted Stock, are called "Registration
Expenses." All underwriting discounts and selling commissions applicable to the
sale of Restricted Stock are called "Selling Expenses."
The Company will pay all Registration Expenses and the sellers of
Restricted Stock will pay all Selling Expenses.
10
5.4 Indemnification and Contribution.
(a) In connection with the registration and sale of the Restricted
Stock pursuant to the Registration Statement, to the fullest extent permitted by
law, the Company will indemnify and hold harmless each seller of such Restricted
Stock thereunder together with such seller's officers, directors, partners,
employees and agents, each underwriter of such Restricted Stock thereunder and
each other person, if any, who controls such seller or underwriter within the
meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which such seller and such seller's officers,
directors, partners, employees and agents, underwriter or controlling person may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or (ii) the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or (iii) any violation or alleged violation by the Company of
the Securities Act, the Exchange Act, any other law, including, without
limitation, any state securities law, or any rule or regulation thereunder
relating to the offer or sale of the Restricted Stock pursuant to the
Registration Statement (but not such seller's failure to comply with the
prospectus delivery requirements or other rules and regulations under the
Exchange Act relating to such seller's conduct in offering and selling
Restricted Stock). The Company will promptly reimburse each such seller, each
such underwriter and each such controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
that the Company will not be liable in any such case if and to the extent that
any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission so
made in conformity with information furnished by any such seller, any such
underwriter or any such controlling person in writing specifically for use in
the Registration Statement or such prospectus. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the indemnified party.
(b) In connection with the registration and sale of Restricted Stock
pursuant to the Registration Statement, each seller of such Restricted Stock
thereunder, severally and not jointly, will indemnify and hold harmless the
Company, each person, if any, who controls the Company within the meaning of the
Securities Act, each officer of the Company who signs the Registration
Statement, each director of the Company, each underwriter and each person who
controls any underwriter within the meaning of the Securities Act, against all
losses, claims, damages or liabilities, joint or several, to which the Company
or such officer, director, underwriter or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
(i) any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereof, or (ii)
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will promptly reimburse the Company and each such officer, director, underwriter
and controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim, damage,
liability or action, provided, however, that such seller will be liable
hereunder in any such case if and only to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with information pertaining to such seller, as such, furnished
in writing to the Company by such seller specifically for use in the
Registration Statement or such prospectus, and provided, further, however, that
the liability of each seller hereunder shall be limited to the proportion of any
such loss, claim, damage, liability or expense which is equal to the proportion
11
that the public offering price of the shares sold by such seller under the
Registration Statement bears to the total public offering price of all
securities sold thereunder, but not in any event to exceed the net proceeds
received by such seller from the sale of Restricted Stock covered by such
registration statement.
(c) Promptly after receipt by an indemnified party hereunder of notice
of the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
such indemnified party other than under this Section 5.4 and shall only relieve
it from any liability which it may have to such indemnified party under this
Section 5.4 if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 5.4 for any legal expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so selected,
provided, however, that, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to it
which are different from or additional to those available to the indemnifying
party or if the interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party, the indemnified party
shall have the right to select a separate counsel and to assume such legal
defenses and otherwise to participate in the defense of such action, with the
expenses and fees of such separate counsel and other expenses related to such
participation to be reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any seller of
Restricted Stock pursuant to the Registration Statement, or any controlling
person of any such holder, makes a claim for indemnification pursuant to this
Section 5.4 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 5.4 provides
for indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any such selling holder or any such controlling
person in circumstances for which indemnification is provided under this Section
5.4, then, and in each such case, the Company and such holder will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so that such holder
is responsible for the portion represented by the percentage that the public
offering price of its Restricted Stock offered by the registration statement
bears to the public offering price of all securities offered by such
registration statement, and the Company is responsible for the remaining
portion; provided, however, that, in any such case, (A) no such holder will be
required to contribute any amount in excess of the public offering price of all
such Restricted Stock offered by it pursuant to such registration statement; and
(B) no person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) will be entitled to contribution
from any person or entity who was not guilty of such fraudulent
misrepresentation.
12
6. Market Standoff. In connection with an underwritten public offering by
the Company of at least $3 million in total offering price, if any, I hereby
agree to be subject to a lockup for up to 180 days following the effective date
of the Company's registration statement filed with the SEC in connection with
the offering as required by the underwriter(s) thereof. During such period, I
agree not to sell, transfer or hypothecate any securities of the Company without
the prior written consent of the underwriter(s); provided, however, such consent
shall not be required for sales, transfers and/or hypothecations, during any
calendar month, totaling not more than 10% of the Restricted Stock owned by me
on the effective date of such registration statement. This provision is
self-operating but I agree to execute and furnish directly to, and for the
express benefit of, the underwriter(s) any confirmation requested by the
underwriter(s).
7. Revocation. I agree that I cannot cancel, terminate or revoke this
Agreement or any of my agreements hereunder and that, if I am an individual,
this Agreement shall survive my death or disability, except as provided by any
applicable laws.
8. Miscellaneous.
(a) All notices or other communications given or made hereunder shall
be in writing and shall be delivered by hand, against written receipt (which
shall include delivery by Federal Express or similar service), or sent by
telecopier, receipt confirmed, or mailed by registered or certified mail, return
receipt requested, postage prepaid, to me at my address set forth below and to
the Company at its address set forth above, with a copy to Xxxxxxxxx Xxxxxxx
Xxxxxx Xxxxxxx, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, Attn: Xxxxxx X.
Xxxxxxx, Esq. Notices shall be deemed given on the date of receipt or, if
mailed, three business days after mailing, except notices of change of address,
which shall be deemed given when received.
(b) Notwithstanding the place where this Agreement may be executed by
me or the Company, we agree that all the terms and provisions hereof shall be
construed in accordance with and governed by the laws of the State of New York
without regard to principles of conflict of laws.
(c) This Agreement constitutes the entire agreement between us with
respect to the subject matter hereof and may be amended only by a writing
executed by each of us.
(d) This Agreement (including, but not limited to the provisions of
Section 7) shall be binding upon and inure to the benefit of each of us and our
respective heirs, legal representatives, successors and assigns.
(e) We each hereby submit to the exclusive jurisdiction of the courts
located in the County of Westchester with respect to any action or legal
proceeding commenced by either of us with respect to this Agreement or to the
Securities. Each of us irrevocably waives any objection it, he or she, now has
or hereafter may have respecting the venue of any such action or proceeding
brought in such a court or respecting the fact that such court is an
inconvenient forum and consents to the service of process in any such action or
proceeding by means of registered or certified mail, return receipt requested,
in care of the address set forth above or below or at such other address as
either of us shall furnish in writing to the other.
(f) We each hereby waive trial by jury in any action or proceeding
involving any matter (whether sounding in tort, contract, fraud or otherwise) in
any way arising out of or relating to this Agreement or to the Securities.
13
(g) In order to discourage frivolous claims, we agree that, unless the
one of us who is a claimant succeeds in obtaining a judgment against the other
in an action or proceeding, the other shall be entitled to recover all of his,
her or its legal costs and expenses relating to such action or proceeding and/or
incurred in preparation therefor.
(h) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(i) No waiver by either of us shall be valid unless in a writing
executed by the party to be changed. The waiver by either of us of a breach of
any provision of this Agreement shall not operate, or be construed, as a waiver
of any subsequent breach of any provision of this Agreement.
(j) We agree to execute and deliver all further documents, agreements
and instruments and to take such other further action as may be necessary or
appropriate to carry out the purposes and intent of this Agreement.
(k) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which shall together constitute
one and the same instrument.
[Signature page follows.]
14
320102.6
SIGNATURE PAGE TO SUBSCRIPTION AND REGISTRATION RIGHTS AGREEMENT
I have signed this Subscription and Registration Rights Agreement as
of the date indicated below.
Dated:__________________
________________________________________ ______________________________________
Signature of subscriber Signature of spouse, joint tenant,
tenant in common or other signature,
if required
________________________________________ ______________________________________
Type or print name of subscriber Type or print name or spouse, joint
tenant, tenant in common or other
signatory
________________________________________ ______________________________________
Address of subscriber Address of joint tenant, tenant in
common or other signatory
________________________________________ ______________________________________
Telecopier number of subscriber Telecopier number of joint tenant,
tenant in common or other signatory
________________________________________ ______________________________________
Social security or taxpayer Social security number of other
identification number of subscriber signatory
________________________________________ ______________________________________
Units subscribed for Total purchase price ($_______ x
number of Units subscribed for)
Subscription Accepted:
EVCI CAREER COLLEGES INCORPORATED
By: ____________________________________
Name:
Title:
Dated: __________________________________
SCHEDULE 3(c)
CAPITALIZATION
As of June 30, 2002
Outstanding Warrants Outstanding Options
Shares Exercise Price Shares Exercise Price
----------------------------------------- --------------------------------------------
500 $ 2.00 5,000 $ 1.063
1,000 4.00 5,000 1.530
1,000 4.00 5,000 1.063
100,000 4.00 5,000 1.530
500 4.00 5,000 1.530
2,500 4.00 100,000 7.000
5,000 4.00 10,000 31.310
1,000 4.00 10,000 1.000
3,000 4.00 8,000 1.000
2,500 4.00 15,000 1.000
2,500 4.00 7,500 1.000
25,455 6.00 11,500 1.000
18,296 6.00 30,000 1.000
24,727 6.00 25,000 1.000
6,796 6.00 120,000 1.200
-------
10,978 6.00 362,000
=======
2,000 6.00
40,000 21.27 Outstanding Convertible Preferred Stock
-----------------------------------------------------
21,818 6.00
10,909 6.00 Series B preferred is currently convertible
4,773 6.00 into 2,141,680 shares of common stock.
4,000 6.00
25,000 12.00
50,000 20.00
72,667 20.25
38,444 20.25
555,556 20.25
27,778 20.25
27,778 20.25
5,000 17.50
7,500 22.50
7,500 25.00
10,000 20.00
120,000 19.80
SCHEDULE 3(c)
CAPITALIZATION
As of June 30, 2002
Outstanding Warrants
Shares Exercise Price
-------------------------------------------
37,500 $5.44
5,000 25.00
50,000 12.00
25,000 16.09
41,667 1.00
83,333 1.00
83,333 1.00
41,667 1.00
33,333 3.00
33,333 3.00 Commitments to Issue
23,334 3.00 Warrants or Shares*
5,000 3.00 Shares Exercise Price
------------------------------------------------
5,000 3.00 22,500 $ 1.52
62,500 1.00 18,000 N/A
25,000 3.00
150,000 1.00 Contingent: Shares with a market value of 3.75%, plus
60,000 3.00 warrants to purchase 55,000 shares at $5.00 per share for
37,500 1.00 each $1 million, of gross proceeds raised by MidSouth
15,000 2.00 Capital
1,563 2.00
6,250 2.00 Contingent: Warrants to purchase 5,000 shares at $25 per
3,125 2.00 share for each $500,000 of EBITDA from operations of
1,563 2.00 Interboro during five consecutive years commencing the year
1,563 2.00 ended December 31, 2001. Warrant table includes 5,000
1,563 2.00 shares underlying warrants earned with respect to 2001.
3,125 2.00
3,125 2.00 Contingent: Warrants to purchase up to 200,000 shares of
EVCI's common stock at $6.75 or $13.50 if JIA, Inc. purchases
between $2 and $6 million of EVCI's e-learning content.
--------
* Concurrently with this offering, EVCI is seeking to obtain additional
debt or equity financing and, in connection therewith, expects it will be
required to issue shares, warrants and/or convertible securities and to register
for resale the shares of its common stock issued or issuable in connection with
such financing(s). EVCI will have no obligation to update this Schedule or make
any further disclosure to me regarding such other securities.
SCHEDULE 3(c)
CAPITALIZATION
As of June 30, 2002
Outstanding Warrants
Shares Exercise Price
-------------------------------------------
3,125 2.00
6,250 2.00
6,250 2.00
3,125 2.00
1,563 2.00
1,563 2.00
6,250 2.00
3,125 2.00
9,375 2.00
9,375 2.00
3,125 2.00
1,563 2.00
1,313 2.00
6,230 2.00
---------
2,138,084
=========
SCHEDULE 3(h)
ABSENCE OF LITIGATION
As of June 30, 2002
ICTS is being sued by several former venders and a former landlord for
approximately $85,000. There is also approximately $120,000 owed to former ICTS
venders that is being pursued by third-party collection agencies. An additional
approximately $600,000 of ICTS payables is more than 90 days past due. In
addition, approximately $400,000 in ICTS student refunds is over 60 days past
due and could become the subject of litigation or regulatory action.
In connection with the foregoing, EVCI believes it has valid claims, totaling at
least $1.5 million, against the former owners of ICTS for breaches of
representations and warranties relating to student refunds and unearned revenue,
as offsets to the forgoing claims.
EXHIBIT A
Term Sheet
For Offering to Accredited Investors of
Convertible Promissory Notes and Common Stock Purchase Warrants of
EVCI Career Colleges Incorporated
July 8, 2002
About EVCI: o as indicated in the Subscription
and Registration Rights Agreement
to which this Term Sheet is
attached as Exhibit A, EVCI will
provide prospective subscribers
with copies of EVCI's SEC filings,
without cost.
o subscribers should review EVCI's
Form 10-KSB for its year ended
December 31, 2001, Form 10-QSB for
the quarter ended March 31, 2002
and the "Forward-Looking
Statements and Risk Factors"
beginning on page 5 of the
prospectus dated April 19, 2002
that is included in EVCI's most
recent Form S- 3.
Offering: 19 Units, each consisting of a Note
and a Warrant.
Offering Price: 100% of the principal amount of the
Note.
Principal Amount of Notes: the product of 475,000 multiplied by
the initial conversion price.
Conversion Price: initially the higher of
o the average of the closing bid
prices of EVCI's common, as
reported by NASDAQ, for the 10
consecutive trading days ending on
the date subscriptions are
accepted by EVCI and
o the closing bid price of EVCI's
common stock, as reported by
NASDAQ, on the trading day
immediately prior to the date
subscriptions are accepted by
EVCI.
Total Note Conversion Shares: 475,000 shares of EVCI's common
stock plus any shares of EVCI's
common stock issued in payment of
interest under the Notes.
Total Warrant Shares: 475,000 shares of EVCI's common
stock.
Each Note: o principal amount equal to the
product of 25,000 multiplied by
the initial conversion price.
o convertible at holder's option in
full prior to automatic
conversion.
o automatic conversion will occur on
the effective date of the
registration statement referred to
below.
o due July 15, 2003.
o bears interest at 4% per annum
payable at maturity; at the
holder's option, interest is
payable in cash or shares of
EVCI's common stock.
o subordinated to all present and
future EVCI debt for money
borrowed.
o non-negotiable.
Each Warrant: o expires after 2.5 years of time in
which the registration statement
referred to below has been kept
effective, unless EVCI accelerates
expiration after the average of
the closing bid prices for EVCI's
common stock is at least 250% of
the then current exercise price of
the Warrant for any 10 consecutive
days while such registration
statement is effective.
o exercisable at the same price as
the conversion price under the
Notes.
Registration Rights: o within 60 days after closing, a
registration statement must be
filed with the SEC covering the
resale of the EVCI common stock
underlying the Notes and Warrants;
if late, interest rate on the
Notes increases to 12% per annum
for the time EVCI is late in
filing.
o EVCI must use best efforts to have
the registration statement
declared effective within 60 days
after its initial filing with the
SEC.
o EVCI will pay all its expenses of
registering common stock but not
underwriting discounts and selling
commissions.
Anti-Dilution Adjustments: o Note conversion price and Warrant
exercise price subject to
customary anti-dilution
adjustments for stock splits and
dividends, recapitalizations,
mergers and reclassifications.
Expenses: Each party pays its own expenses
relating to the offering of the
Units, except as provided above with
respect to registration rights.
Closing: o subscriptions for all Units due
not later than 5:00 p.m. New York
City time on July 22, 2002.
o subscribers checks will be held by
EVCI until the earlier of the
expiration of the offering or when
all subscriptions received.
o minimum subscription is one Unit,
unless EVCI permits otherwise.
EXHIBITS B and C intentionally omitted
because they are included as EXHIBITS 4.2 and 4.3
to registrant's Form 10-QSB
for the quarter ended June 30, 2002.
