Datatec Systems, Inc. Securities Purchase Agreement with Accredited Investors

 EXHIBIT 10.1 THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER STATE SECURITIES LAWS AND ARE SUBJECT TO RESTRICTION ON TRANSFERABILITY AND RESALE AND MAY NOT BE PLEDGED, TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND SUCH LAWS PURSUANT TO A REGISTRATION STATEMENT OR EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC"), ANY STATE SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING DOCUMENTS. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. IT IS INTENDED THAT THE UNITS OFFERED HEREBY WILL BE MADE AVAILABLE ONLY TO ACCREDITED INVESTORS, AS DEFINED IN SECTION 2(15) OF THE SECURITIES ACT, AND RULE 501 THEREUNDER. THE UNITS OFFERED HEREBY ARE BEING OFFERED PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. SUCH EXEMPTIONS LIMIT THE NUMBER AND TYPES OF INVESTORS TO WHICH THE OFFERING WILL BE MADE AND RESTRICT SUBSEQUENT TRANSFER OF THE UNITS. SECURITIES PURCHASE AGREEMENT This Subscription Agreement (this "Agreement") is made between Datatec Systems, Inc., a Delaware corporation (the "Company"), and the undersigned prospective purchaser (the "Purchaser") who is subscribing hereby for units of the Company's securities (the "Units"), each Unit consisting of two shares of the Company's common stock, par value $0.001 per share (the "Common Stock"), and one warrant, in the form of Exhibit A attached hereto (each a "Warrant" and collectively the "Warrants"), to purchase one share of Common Stock with an exercise price at a premium of 30% to the Stock Purchase Price (as defined below). The Company desires to offer and sell (the "Offering") 2,000,000 Units (the "Offering Amount"), with each Unit having a purchase price per Unit equal to two times the Stock Purchase Price (as hereinafter defined) (the "Offering Price"); provided, however, that the Company and Fahnestock & Co. Inc., the placement agent for this Offering (the "Placement Agent") may, by mutual agreement, increase the Offering Amount to an amount not to exceed 2,500,000 Units. For purposes of this Agreement, "Stock Purchase Price" shall mean $1.25 ($2.50 purchase price for Units), which has been determined by mutual agreement of the Company and the Placement Agent at the closing of the Offering (the "Closing"). The shares of Common Stock, the Warrants and the shares of Common Stock issuable upon exercise of the Warrants (the "Warrant Shares") are sometimes herein collectively referred to as the "Securities."  NOW, THEREFORE, in consideration of the mutual covenants and agreements contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which is hereby acknowledged, the Company and the Purchaser agree as follows: A. SUBSCRIPTION (1) The Purchaser, intending to be legally bound, hereby irrevocably subscribes for and agrees to purchase Units in the amount indicated on the signature page hereto (the "Subscription Amount"). The Purchaser shall deliver the Subscription Amount within five (5) business days of the date of this Agreement by certified or bank cashier's check payable to "Datatec Systems, Inc." or by wire transfer to the Placement Agent's escrow agent in accordance with the wire transfer instructions attached hereto as Schedule A and shall be held in the manner described in paragraph (2) below. The Purchaser acknowledges that the actual number of Units that the Purchaser will be issued at the Closing will be equal to the Subscription Amount divided by the Offering Price, rounded down to the nearest whole number of Units. (2) All payments for Units made by the Purchaser as contemplated by paragraph (1) above will be deposited as soon as practicable for the undersigned's benefit in a non-interest bearing escrow account. The payment will be returned promptly, without interest or deduction, if the undersigned's subscription is rejected or the Offering is terminated for any reason. The Company shall hold the Closing at any time during the period beginning after subscriptions for 2,000,000 Units have been accepted, but no later than April 28, 2003 (the "Termination Date"). Furthermore, upon the mutual agreement of the Company and the Placement Agent following written notice to the Purchaser and receipt of the Purchaser's written consent, the Company may accept subscriptions aggregating fewer than 2,000,000 Units. Subsequent closings may be held at any time after the Closing and on or before the Termination Date (each, a "Subsequent Closing") without regard to the aggregate amount of subscriptions for Units received by the Company. The Company may, with the consent of the Placement Agent, terminate the Offering within ninety (90) days from the date of the Memorandum (as defined below). (3) At the Closing, the Company shall: (i) prepare for delivery to the Purchaser stock certificates representing the shares of Common Stock and warrant certificates representing the Warrants contained in the Units purchased under this Agreement against payment in full by the undersigned of the aggregate subscription amount therefor; (ii) deliver to the Purchaser a certificate stating that the representations and warranties made by the Company in Section C of this Agreement were true and correct in all material respects when made and are true and correct in all material respects on the date of the Closing relating to the Units subscribed for pursuant to this Agreement as though made on and as of the date of such Closing; (iii) cause to be delivered to the Purchaser an opinion of Olshan Grundman Frome Rosenzweig & Wolosky LLP in the form of Exhibit C hereto;. and (iv) the Company shall have issued the public announcement referenced in Section D6 of this Agreement. (4) The Purchaser acknowledges and agrees that this Agreement shall be binding upon the Purchaser upon the submission to the Company or the Placement Agent of the Purchaser's signed counterpart signature page to this Agreement unless and until the Company or the Placement Agent shall reject the subscription being made hereby by the Purchaser. 2  (5) The Purchaser acknowledges and agrees that the purchase of Units by the Purchaser pursuant to the Offering is subject to all the terms and conditions set forth in this Agreement as well as in the Memorandum (as defined below). B. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER Each of the Purchasers hereby represents and warrants to the Company and the Placement Agent, and agrees with the Company as follows: (1) The Purchaser has been furnished with and has carefully read the Company's Confidential Private Placement Memorandum dated February 6, 2003, as supplemented (together with all documents and filings attached thereto, the "Memorandum") and this Agreement (collectively the "Offering Documents"), and is familiar with and understands the terms of the Offering. The Purchaser has carefully considered and has discussed with the Purchaser's professional legal, tax, accounting and financial advisors, to the extent the Purchaser has deemed necessary, the suitability of an investment in the Units for the Purchaser's particular tax and financial situation and has determined that the Units being subscribed for by the Purchaser are a suitable investment for the Purchaser. (2) The Purchaser acknowledges that (i) the Purchaser has had the right to request copies of any documents, records, and books pertaining to this investment and (ii) any such documents, records and books that the Purchaser requested have been made available for inspection by the Purchaser, the Purchaser's attorney, accountant or advisor(s). (3) The Purchaser and the Purchaser's advisor(s) have had a reasonable opportunity to ask questions of and receive answers from representatives of the Company or persons acting on behalf of the Company concerning the Offering and all such questions have been answered to the full satisfaction of the Purchaser. (4) The Purchaser is not subscribing for Units as a result of or subsequent to any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or meeting. (5) The Purchaser has not been furnished with any oral representation or oral information in connection with the offering of the Units that is not contained in the Offering Documents. (6) If the Purchaser is a natural person, the Purchaser has reached the age of majority in the state in which the Purchaser resides, has adequate means of providing for the Purchaser's current financial needs and contingencies, is able to bear the substantial economic risks of an investment in the Units for an indefinite period of time, has no need for liquidity in such investment and could afford a complete loss of such investment. (7) The Purchaser has sufficient knowledge and experience in financial, tax and business matters to enable the Purchaser to utilize the information made available to the Purchaser in connection with the Offering to evaluate the merits and risks of an investment in the Units and to make an informed investment decision with respect to an investment in the Units on the terms described in the Offering Documents. 3  (8) The Purchaser is not relying on any statements or representations made by the Company, the Placement Agent or any of their respective affiliates with respect to economic considerations involved in an investment in the Units. (9) The Purchaser will not sell or otherwise transfer the Units or the component Securities without registration under the Securities Act of 1933, as amended (the "Securities Act"), or applicable state securities laws or an exemption therefrom. The Purchaser acknowledges that neither the offer or sale of the Units or the component Securities have been registered under the Securities Act or under the securities laws of any state. The Purchaser represents and warrants that the Purchaser is acquiring the Units, including the component Securities, for the Purchaser's own account as principal, not as a nominee or agent, for investment purposes only and not with a view toward resale or distribution within the meaning of the Securities Act and, where the Purchaser is a natural person, no other person has a direct or indirect beneficial interest in such Units. Further, the Purchaser does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person with respect to any of the Units for which the Purchaser is subscribing. The Purchaser has not offered or sold the Units or the component Securities being acquired nor does the Purchaser have any present intention of selling, distributing or otherwise disposing of such Units or the component Securities either currently or after the passage of a fixed or determinable period of time or upon the occurrence or non-occurrence of any predetermined event or circumstances in violation of the Securities Act. The Purchaser is aware that the Units and the component Securities are not currently eligible for sale in reliance upon Rule 144 promulgated under the Securities Act. (10) The Purchaser recognizes that an investment in the Units involves substantial risks, including the possible loss of the entire amount of such investment, and has determined that the Units are a suitable investment for the Purchaser. The Purchaser has carefully read and considered the Memorandum and all exhibits attached thereto and has taken full cognizance of and understands all of the risks related to the purchase of the Units. (11) The Purchaser acknowledges that the certificates representing the Securities comprising the Units shall be stamped or otherwise imprinted with a legend substantially in the following form: "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT OR AN EXEMPTION FROM REGISTRATION, WHICH, IN THE OPINION OF COUNSEL TO THE CORPORATION, IS AVAILABLE." (12) If this Agreement is executed and delivered on behalf of a partnership, corporation, trust or estate: (i) such partnership, corporation, trust or estate has the full legal right and power and all authority and approval required (a) to execute and deliver this Agreement and all other instruments executed and delivered by or on behalf of such partnership, corporation, trust or estate in connection with the purchase of its Units, and (b) to purchase and hold such Units; (ii) the signature of the party signing on 4  behalf of such partnership, corporation, trust or estate is binding upon such partnership, corporation, trust or estate; and (iii) such partnership, corporation or trust has not been formed for the specific purpose of acquiring such Units, unless each beneficial owner of such entity is qualified as an accredited investor within the meaning of Rule 501(a) of Regulation D promulgated under the Securities Act and has submitted information substantiating such individual qualification. (13) If the Purchaser is a retirement plan or is investing on behalf of a retirement plan, the Purchaser acknowledges that an investment in the Units poses additional risks including the inability to use losses generated by an investment in the Units to offset taxable income. (14) The information contained in the questionnaire in the form of Exhibit D attached hereto delivered by the Purchaser in connection with this Agreement (the "Questionnaire") is complete and accurate in all respects. The Purchaser shall indemnify and hold harmless the Company and each officer, director or control person of any such entity, who is or may be a party or is or may be threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of or arising from any actual or alleged misrepresentation or misstatement of facts or omission to represent or state facts made or alleged to have been made by the Purchaser to the Company or omitted or alleged to have been omitted by the Purchaser, concerning the Purchaser or the Purchaser's authority to invest or financial position in connection with the Offering, including, without limitation, any such misrepresentation, misstatement of omission contained in the Agreement or any other document submitted by the Purchaser, against losses, liabilities and expenses for which the Company or any officer, director or control person of any such entity has not otherwise been reimbursed (including attorney's fees, judgments, fines and amounts paid in settlement) actually and reasonably incurred by the Company or such officer, director or control person in connection with such action, suit or proceeding. (15) No representations or warranties have been made to the Purchaser by the Company, or any officer, employee, agent, affiliate or subsidiary of the Company, other than the representations of the Company contained herein, and in subscribing for the Units the Purchaser is not relying upon any representations other than those contained in the Memorandum or in this Agreement. (16) The Purchaser represents and warrants, to the best of its knowledge, that other than the Placement Agent and its soliciting dealers, which include Cardinal Securities, LLC amongst others, no finder, broker, agent, financial advisor or other intermediary, nor any purchaser representative or any broker-dealer acting as a broker, is entitled to any compensation in connection with the transactions contemplated by this Agreement. C. REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to the Purchaser and the Placement Agent that: 5  (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 full corporate power and authority to conduct its business as currently conducted. The Company is duly qualified to do business as a foreign corporation and is in good standing in all jurisdictions in which the character of the property owned or leased or the nature of the business transacted by it makes qualification necessary except where the failure to be so qualified would not have a material adverse effect on the business, properties, prospects, financial condition or results of operations of the Company (a "Material Adverse Effect"). (2) CAPITALIZATION. The authorized capital stock of the Company consists of the following: (i) 75,000,000 shares of Common Stock, $0.001 par value per share, of which there were 36,688,906 shares issued and outstanding as of April 8, 2003; and (ii) 4,000,000 shares of Preferred Stock, $0.001 par value per share, of which there were no shares issued and outstanding as of April 8, 2003. As of April 8, 2003, the Company had reserved 4,519,458 shares of Common Stock subject to outstanding, unexercised options and 435,000 shares of Common Stock subject to outstanding warrants. In addition, the Company has agreed to issue to the Placement Agent a warrant (the "Placement Agent Warrant") to purchase an amount of shares of Common Stock equal to 8% of the number of as converted shares of Common Stock underlying the Units sold in the Offering. Other than as set forth above or as contemplated in this Agreement, there are no other options, warrants, calls, rights, commitments or agreements of any character to which the Company is a party or by which either the Company is bound or obligating the Company to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any shares of the capital stock of the Company or obligating the Company to grant, extend or enter into any such option, warrant, call, right, commitment or agreement. (3) ISSUANCE. The issuance of the shares of Common Stock included in the Units has been duly and validly authorized by all necessary corporate and shareholder action and, when issued and paid for pursuant to this Agreement, will be validly issued, fully paid and non-assessable shares of Common Stock of the Company. The issuance of the Warrant Shares pursuant to the exercise of the Warrants included in the Units has been duly and validly authorized by all necessary corporate and shareholder action and, when issued and paid for pursuant to the terms of the Warrants, will be validly issued, fully paid and non-assessable shares of Common Stock of the Company. The issuance of the shares of Common Stock and the Warrants is being done in compliance with exemptions from registration under the Securities Act of 1933, as amended. (4) AUTHORIZATION; ENFORCEABILITY. The Company has all corporate right, power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. All corporate action on the part of the Company, its directors and stockholders necessary for the authorization, execution, delivery and performance of this Agreement by the Company, the authorization, sale, issuance and delivery of the Units contemplated herein and the performance of the Company's obligations hereunder has been taken. This Agreement has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, or similar laws relating to, or 6  affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application. The issuance and sale of the Units contemplated hereby will not give rise to any preemptive rights or rights of first refusal on behalf of any person. (5) NO CONFLICT; GOVERNMENTAL AND OTHER CONSENTS. (a) The execution and delivery by the Company of this Agreement and the consummation of the transactions contemplated hereby will not result in the violation of any law, statute, rule, regulation, order, writ, injunction, judgment or decree of any court or governmental authority to or by which the Company is bound, or of any provision of the Certificate of Incorporation or Bylaws of the Company, and will not conflict with, or result in a breach or violation of, any of the terms or provisions of, or constitute (with due notice or lapse of time or both) a default under, any lease, loan agreement, mortgage, security agreement, trust indenture or other agreement or instrument to which the Company is a party or by which it is bound or to which any of its properties or assets is subject, nor result in the creation or imposition of any lien upon any of the properties or assets of the Company. (b) No consent, approval, authorization or other order of any governmental authority or other third-party is required to be obtained by the Company in connection with the authorization, execution and delivery of this Agreement or with the authorization, issue and sale of the Units, except such filings as may be required to be made with the Securities and Exchange Commission (the "SEC"), Nasdaq and with any state or foreign blue sky or securities regulatory authority, and except for such required consents, if any, as have been obtained. (6) LITIGATION. There are no pending, or to the Company's knowledge threatened, legal or governmental proceedings against the Company which, if adversely determined, could have a Material Adverse Effect on the Company, other than as set forth in the Company's annual report on Form 10-K for the fiscal year ended April 30, 2002 (the "2002 Form 10-K"). (7) REPORTS. All reports required to be filed by the Company within the two years prior to the date of this Agreement (the "SEC Reports") under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), have been duly filed with the SEC, complied at the time of filing in all material respects with the requirements of their respective forms and, except to the extent updated or superseded by any subsequently filed report, were complete and correct in all material respects as of the dates at which the information was furnished and contained (as of such dates) no untrue statements of a material fact nor omitted to state any material fact necessary in order to make the statements contained therein, in light of the circumstances under which they were made, not misleading. (8) FINANCIAL INFORMATION. The Company's financial statements that appear in the Memorandum and in the SEC Reports have been prepared in accordance with United States generally accepted accounting principles (except that the financial statements that are not audited do not have notes thereto) applied on a consistent basis throughout the periods indicated and such financial statements fairly present (subject, in the case of the unaudited interim financial statements, to normal, recurring year-end audit adjustments) in all material respects the financial condition and results of operations of the Company as of the dates and for the periods indicated therein. 7  (9) ABSENCE OF CERTAIN CHANGES. Since the date of the Company's financial statements in the 2002 Form 10-K, there has not occurred any event that has caused a material adverse effect on the assets, liabilities, condition (financial or otherwise) or results of operations of the Company or any occurrence, circumstance or combination thereof that reasonably could be expected to result in such material adverse effect. (10) INVESTMENT COMPANY. The Company is not an "investment company" within the meaning of such term under the Investment Company Act of 1940, as amended, and the rules and regulations of the SEC thereunder. (11) SUBSIDIARIES. The SEC Reports set forth each subsidiary of the Company, showing the jurisdiction of its incorporation or organization and showing the percentage of each person's ownership of the outstanding stock or other interests of such subsidiary. For the purposes of this Agreement, "subsidiary" shall mean any company or other entity of which at least 50% of the securities or other ownership interest having ordinary voting power for the election of directors or other persons performing similar functions are at the time owned directly or indirectly by the Company or any of its other subsidiaries. Except as set forth in the SEC Reports, none of such subsidiaries is a "significant subsidiary" as defined in Regulation S-X. (12) INDEBTEDNESS. The SEC Reports set forth as of the date thereof all outstanding secured and unsecured Indebtedness of the Company or any subsidiary, or for which the Company or any subsidiary has commitments. For purposes of this Agreement, "Indebtedness" shall mean (a) any liabilities for borrowed money or amounts owed in excess of $25,000 (other than trade accounts payable incurred in the ordinary course of business), (b) all guaranties, endorsements and other contingent obligations in respect of Indebtedness of others, whether or not the same are or should be reflected in the Company's balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (c) the present value of any lease payments in excess of $25,000 due under leases required to be capitalized in accordance with GAAP. Neither the Company nor any subsidiary is in default with respect to any Indebtedness. (13) CERTAIN FEES. Other than fees payable to the Placement Agent, no brokers', finders' or financial advisory fees or commissions will be payable by the Company or any subsidiary with respect to the transactions contemplated by this Agreement. (14) MATERIAL AGREEMENTS. Except as set forth in the SEC Reports, neither the Company nor any subsidiary is a party to any written or oral contract, instrument, agreement, commitment, obligation, plan or arrangement, a copy of which would be required to be filed with the SEC as an exhibit to Form 10-K (each, a "Material Agreement"). The Company and each of its subsidiaries has in all material respects performed all the obligations required to be performed by them to date under the foregoing agreements, have received no notice of default and, to the best of the Company's knowledge are not in default under any Material Agreement now in effect, the result of which could reasonably be expected to cause a Material Adverse Effect. 8  (15) TRANSACTIONS WITH AFFILIATES. Except as set forth in the SEC Reports, there are no loans, leases, agreements, contracts, royalty agreements, management contracts or arrangements or other continuing transactions with aggregate obligations of any party exceeding $60,000 between (a) the Company, any subsidiary or any of their respective customers or suppliers on the one hand, and (b) on the other hand, any officer, employee, consultant or director of the Company, or any of its subsidiaries, or any person who would be covered by Item 404(a) of Regulation S-K or any Company or other entity controlled by such officer, employee, consultant, director or person. (16) TAXES. The Company and each of the subsidiaries has prepared and filed all federal, state, local, foreign and other tax returns for income, gross receipts, sales, use and other taxes and custom duties ("Taxes") required by law to be filed by it, has paid or made provisions for the payment of all Taxes shown to be due and all additional assessments, and adequate provisions have been and are reflected in the financial statements of the Company and the subsidiaries for all current Taxes and other charges to which the Company or any subsidiary is subject and which are not currently due and payable, except for Taxes which, if unpaid, individually or in the aggregate, do not and would not have a Material Adverse Effect on the Company or its subsidiaries. None of such tax returns contains an inaccuracy that would, individually or in the aggregate, have a Material Adverse Effect on the Company or its subsidiaries. None of the federal income tax returns of the Company or any subsidiary for the past six years has been audited by the Internal Revenue Service. The Company has no knowledge of any additional assessments, adjustments or contingent tax liability (whether federal, state, local or foreign) pending or threatened against the Company or any subsidiary for any period, nor of any basis for any such assessment, adjustment or contingency. (17) ENVIRONMENTAL MATTERS. Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, (i) (a) the Company and each of its subsidiaries is in compliance with and not subject to any known liability under applicable Environmental Laws (as defined below) and (b) the Company is not aware of any fact, circumstance or condition that could reasonably be expected to cause the Company or any of its subsidiaries to be subject to liability under any applicable Environmental Law, (ii) the Company and each of its subsidiaries has made all filings and provided all notices required under all applicable Environmental Laws, and has, and is in compliance in all material respects with, all permits required under any applicable Environmental Laws, each of which is in full force and effect, (iii) (a) there are no pending proceedings with respect to any Environmental Laws affecting the Company, (b) none of the Company or any of its subsidiaries has received any demand, claim or notice of violation of any Environmental Laws, and (c) to the knowledge of the Company and its subsidiaries, there is no proceeding, notice or demand letter or request for information threatened against the Company or any of its subsidiaries under any Environmental Law, (iv) no Lien or restriction has been recorded under any Environmental Law with respect to any assets, facility or property owned, operated, leased or controlled by the Company or any of its subsidiaries, (v) none of the Company or any of its subsidiaries has received notice that it has been identified as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), or any comparable state law, (vi) no property or facility of the Company or any of its subsidiaries (a) is listed or, to the knowledge of the 9  Company and its subsidiaries, proposed for listing on the National Priorities List under CERCLA or (b) is listed in the Comprehensive Environmental Response, Compensation, Liability Information System List promulgated pursuant to CERCLA, or on any comparable list maintained by any state or local governmental authority. For purposes of this Agreement, "Environmental Laws" means all applicable federal, state and local laws or regulations, codes, orders, decrees, judgments or injunctions issued, promulgated, approved or entered thereunder, relating to pollution, protection of public or employee health and safety or the environment, including, without limitation, laws relating to (i) emissions, discharges, releases or threatened releases of Hazardous Materials (as defined below) into the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata), (ii) the manufacture, processing, distribution, use, generation, treatment, storage, disposal, transport or handling of Hazardous Materials, and (iii) underground and above ground storage tanks and related piping, and emissions, discharges, releases or threatened releases therefrom. The term "Hazardous Material" means (a) any "hazardous substance," as defined in the Comprehensive Environmental Response, the Resource Conservation and Recovery Act, as amended, (b) any "hazardous waste," as defined by the Resource Conservation and Recovery Act, as amended, (c) any petroleum or petroleum product, (d) any polychlorinated biphenyl, and (e) any pollutant or contaminant or hazardous, dangerous or toxic chemical, material, waste or substance. (18) INTELLECTUAL PROPERTY RIGHTS AND LICENSES. The Company and its subsidiaries own or have the right to use any and all information, know-how, trade secrets, patents, copyrights, trademarks, trade names, software, formulae, methods, processes and other intangible properties that are necessary or customarily used by them in their business ("Intangible Rights"). The Company (including its subsidiaries) has not received any notice that it is in conflict with or infringing upon the asserted intellectual property rights of others in connection with the Intangible Rights, and, to the Company's and its subsidiaries' knowledge, neither the use of the Intangible Rights nor the operation of the Company's businesses is infringing or has infringed upon any intellectual property rights of others. All payments have been duly made that are necessary to maintain the Intangible Rights in force. No claims have been made, and to the Company's and its subsidiaries knowledge, no claims are threatened, that challenge the validity or scope of any material Intangible Right of the Company or any of its subsidiaries. The Company and each of its subsidiaries have taken reasonable steps to obtain and maintain in force all licenses and other permissions under Intangible Rights of third parties necessary to conduct their businesses as heretofore conducted by them, and now being conducted by them, and as expected to be conducted, and neither the Company nor any of its subsidiaries is or has been in material breach of any such license or other permission. The Company and each of its subsidiaries have obtained and maintained all necessary agreements providing for assignment to them of all patentable inventions made by and copyright interest in works created by non-employees and employees for the Company and its subsidiaries. The Company and each of its subsidiaries have used all commercially reasonable efforts to maintain the confidentiality of all trade secrets and other confidential information owned by them or in their possession and have no knowledge of any misappropriation of any such trade secrets or other confidential information by any third party. 10  (19) LABOR, EMPLOYMENT AND BENEFIT MATTERS. (a) There are no strikes or other labor disputes against Company or any of its subsidiaries pending or, to the Company's or its subsidiaries' knowledge, threatened. Hours worked by and payment made to employees of the Company and its subsidiaries have been in compliance with the Fair Labor Standards Act or any other applicable labor or employment law (except such non-compliance as could not reasonably be expected to have a Material Adverse Effect). There is no organizing activity involving employees of the Company or any of its subsidiaries pending or, to the Company's or its subsidiaries' knowledge, threatened by any labor union or group of employees. There are no representation proceedings pending or, to the Company's or its subsidiaries' knowledge, threatened with the National Labor Relations Board, and no labor organization or group of employees of the Company or its subsidiaries has made a pending demand for recognition. There are no complaints or charges against the Company or any of its subsidiaries pending or, to the Company's or its subsidiaries' knowledge, threatened, to be filed with any Governmental Authority or arbitrator based on, arising out of or in connection with, or otherwise relating to, the employment or termination of employment by the Company or any of its subsidiaries of any individual. (b) Except as set forth in the SEC Reports, neither the Company nor any of its subsidiaries is, or during the five years preceding the date of this Agreement was, a party to any labor or collective bargaining agreement. (c) Each employee benefit plan is in compliance with all applicable law, except for such noncompliance that could not reasonably be expected to have a Material Adverse Effect. (d) Neither the Company nor any of its subsidiaries has any liabilities, contingent or otherwise, including without limitation, liabilities for retiree health, retiree life, severance or retirement benefits, which are not fully reflected on the Balance Sheet or fully funded. The term "liabilities" used in the preceding sentence shall be calculated in accordance with reasonable actuarial assumptions. Such term shall also include any obligation owed to a governmental authority for the purpose of providing retiree health, retiree life, severance, retirement or other benefits. (e) None of the Company nor any of its subsidiaries has terminated any "employee pension benefit plan " as defined in Section 3(2) of ERISA (as defined below) or has incurred or expects to incur any outstanding liability under Title IV of the Employee Retirement Income Security Act of 1974, as amended and all rules and regulations promulgated thereunder ("ERISA"). (20) COMPLIANCE WITH LAW. The Company is in compliance in all material respects with all applicable laws, except for such noncompliance that could not reasonably be expected to have a Material Adverse Effect. The Company has not received any notice of, nor does the Company have any knowledge of, any violation (or of any investigation, inspection, audit or other proceeding by any governmental entity involving allegations of any violation) of any applicable law involving or related to the Company which has not been dismissed or otherwise disposed of. The Company has not received notice or otherwise has any knowledge that the Company is charged with, threatened with or under investigation with respect to, any violation of any applicable law, or has any 11  knowledge of any proposed change in any applicable law that would have a Material Adverse Effect. (21) OWNERSHIP OF PROPERTY. Each of Company and its subsidiaries has (i) good and marketable and insurable fee simple title to its owned real property, free and clear of all liens, except for liens which do not individually or in the aggregate interfere unreasonably with the use of the property by the Company or its subsidiaries, (ii) a valid and marketable leasehold interest in all leased real property, and each of such leases is valid and enforceable in accordance with its terms and is in full force and effect, and, (iii) good and marketable title to, or valid leasehold interests in, all of its other properties and assets free and clear of all liens, except for liens which do not individually or in the aggregate interfere unreasonably with the use of the property by the Company or its subsidiaries. D. UNDERSTANDINGS The Purchaser understands, acknowledges and agrees with the Company as follows: (1) The Company may, with the consent of the Placement Agent, terminate the Offering within ninety (90) days from the date of the Memorandum. The execution of this Agreement by the Purchaser or solicitation of the investment contemplated hereby shall create no obligation on the part of the Company or the Placement Agent to accept any subscription or complete the Offering. Moreover, the Company, by mutual agreement with the Placement Agent and after written notice to the Purchaser, may accept subscriptions aggregating fewer than 2,000,000 Units with the Purchaser's written consent. (2) The Purchaser hereby acknowledges and agrees that the subscription hereunder is irrevocable by the Purchaser, that, except as required by law, the Purchaser is not entitled to cancel, terminate or revoke this Agreement or any agreements of the Purchaser hereunder and that if the Purchaser is an individual, this Agreement shall survive the death or disability of the Purchaser and shall be binding upon and inure to the benefit of the parties and their heirs, executors, administrators, successors, legal representatives and permitted assigns. (3) No federal or state agency or authority has made any finding or determination as to the accuracy or adequacy of the Offering Documents or as to the fairness of the terms of the Offering nor any recommendation or endorsement of the Units. (4) The Offering is intended to be exempt from registration under the Securities Act by virtue of Section 4(2) of the Securities Act and the provisions of Regulation D thereunder, which is in part dependent upon the truth, completeness and accuracy of the statements made by the Purchaser herein and in the Questionnaire. (5) There can be no assurance that the Purchaser will be able to sell or dispose of the Units. The securities and/or any interest therein may be offered, sold, transferred, pledged or otherwise disposed of only pursuant to an effective registration under the Securities Act or an exemption from registration, which, in the opinion of counsel reasonably satisfactory to counsel to the Company, is available. It is further understood that in order not to jeopardize the Offering's exempt status under Section 4(2) of the Securities 12  Act and Regulation D, the Company may refuse to recognize the transfer of shares to any transferee who, in the Company's sole judgment, fails to fulfill the investor suitability requirements thereunder. (6) Upon public announcement of the Offering, which shall occur at or prior to 9:15am on April 23, 2003, the Company represents that the Purchaser shall not have any material non-public information and the Company covenants that it will not disclose any material non-public information to the Purchaser after the public announcement of the Offering. (7) The Company represents that it will not solicit the sale of additional Securities after the public announcement of the Offering and will close the Offering within a reasonable amount of time after the public announcement, which shall not extend beyond 3 business days after such public announcement. (8) Neither the Company or any of its affiliates or any person acting on its behalf has directly or indirectly made any offer or sale of any security or solicited any offers to buy any security, under circumstances that would cause the Offering to be integrated with prior offerings by the Company for purposes of the Securities Act of 1933, as amended, or any applicable stockholder approval provisions, including without limitation under the rules and regulations of any exchange or automated quote system on which any of the securities are listed or designated, nor will the Company take any such action or steps that would cause the Offering to be integrated with other offerings. E. REGISTRATION RIGHTS (1) CERTAIN DEFINITIONS. For purposes of this Section E, the following terms shall have the meanings ascribed to them below. (a) "PROSPECTUS" means the prospectus included in the Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. (b) "REGISTRABLE SECURITIES" shall means the shares of Common Stock included in the Units and the shares of Common Stock issuable upon exercise of the Warrants included in the Units or pursuant to the Placement Agent Warrant, together with any securities issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing. (c) "REGISTRATION STATEMENT" means each registration statement required to be filed under this Section E, including in each case the Prospectus, amendments and supplements to such registration statement or 13  Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. (2) SHELF REGISTRATION (a) As promptly as possible, and in any event on or prior to the 45th day following the Closing (the "Filing Date"), the Company shall prepare and file with the Commission a "Shelf" Registration Statement covering the resale of all Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415. The Registration Statement shall be on Form S-3 (except if the Company is not then eligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall be on another appropriate form in accordance herewith as the Purchasers may consent). (b) The Company shall use its commercially reasonable best efforts to cause the Registration Statement to be declared effective by the Commission as promptly as possible after the filing thereof, but in any event prior to the date that is the 90th day following the Closing (the "Required Effectiveness Date"), and shall use its best efforts to keep the Registration Statement continuously effective under the Securities Act until the fifth anniversary of the Effective Date or such earlier date when all Registrable Securities covered by such Registration Statement have been sold (the "Effectiveness Period"). (c) The Company shall notify each Purchaser in writing promptly (and in any event within two business day) after receiving notification from the SEC that the Registration Statement has been declared effective. Provided the Registration Statement has been declared effective or the Securities have become eligible for resale under an exemption from registration in accordance with the Securities Act of 1933, as amended, then upon sale of the Registrable Securities and delivery of the Prospectus to a subsequent purchaser, the Company will use its reasonable efforts to instruct its transfer agent to issue the Registrable Securities without a restrictive legend. (d) Upon the occurrence of any Event (as defined below) and on every monthly anniversary thereof while the applicable Event remains uncured, as partial relief for the damages suffered therefrom by the Purchasers (which remedy shall not be exclusive of any other remedies are available at law or in equity), the Company shall be obligated to pay to each Purchaser an amount in cash, as liquidated damages and not as a penalty, equal to 1.5% of the aggregate purchase price paid by such Purchaser hereunder. Such liquidated damages shall not be cumulative if more than one Event has occurred simultaneously and remains uncured. The liquidated damages payable pursuant to the terms hereof shall be applied on a pro-rata basis for any portion of a month in which the applicable Event is uncured. Payment of such liquidated damages shall be made within five (5) business days of the occurrence of the applicable Event and by the fifth business day following each monthly anniversary while the applicable Event remains uncured. For such purposes, each of the following shall constitute an "Event": (i) the Registration Statement is not filed on or prior to the Filing Date or is not declared effective on or prior to the Required Effectiveness Date; 14  (ii) after the Effective Date, a Purchaser is not permitted to sell Registrable Securities under the Registration Statement (or a subsequent Registration Statement filed in replacement thereof) for any reason for ten or more trading days (whether or not consecutive) within a six month period; (iii) the Common Stock is not listed or quoted on Nasdaq for a period of three consecutive trading days or is suspended from trading on Nasdaq; or (iv) the Company fails for any reason to deliver a certificate evidencing any Units to a Purchaser within three trading days after delivery of such certificate is required pursuant to any Offering Document. (3) Registration Procedures. In connection with the Company's registration obligations hereunder, the Company shall: (a) Not less than three trading days prior to the filing of a Registration Statement or any related Prospectus or any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), the Company shall (i) furnish to counsel for the Placement Agent copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such counsel for the Placement Agent, and (ii) cause its officers and directors, counsel and independent certified public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of counsel for the Placement Agent, to conduct a reasonable investigation within the meaning of the Securities Act. The Company shall not file a Registration Statement or any such Prospectus or any amendments or supplements thereto to which counsel for the Placement Agent shall reasonably object. (b) (i) Prepare and file with the SEC such amendments, including post-effective amendments, to each Registration Statement and the Prospectus used in connection therewith as may be necessary to keep the Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with the SEC such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424; and (iii) respond as promptly as reasonably possible to any comments received from the SEC with respect to the Registration Statement or any amendment thereto and as promptly as reasonably possible provide the Purchasers and counsel for the Placement Agent true and complete copies of all correspondence from and to the SEC relating to the Registration Statement. (c) Notify the Purchasers of Registrable Securities to be sold as promptly as reasonably possible, and (if requested by any such Purchaser) confirm such notice in writing no later than one trading day thereafter, of any of the following events: (i) the SEC notifies the Company whether there will be a "review" of any Registration Statement; (ii) the SEC comments in writing on any Registration Statement (in which case the Company shall deliver to each Purchaser a copy of such comments and of all written responses thereto); (iii) the SEC or any other Federal or state governmental authority requests any 15  amendment or supplement to any Registration Statement or Prospectus or requests additional information related thereto; (iv) the SEC issues any stop order suspending the effectiveness of any Registration Statement or initiates any action, claim, suit, investigation or proceeding (a "Proceeding") for that purpose; (v) the Company receives notice of any suspension of the qualification or exemption from qualification of any Registrable Securities for sale in any jurisdiction, or the initiation or threat of any Proceeding for such purpose; or (vi) the financial statements included in any Registration Statement become ineligible for inclusion therein or any statement made in any Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference is untrue in any material respect or any revision to a Registration Statement, Prospectus or other document is required so that it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (d) Use its best efforts to avoid the issuance of or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of any Registration Statement or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment. (e) Furnish to each Purchaser, without charge, at least one conformed copy of each Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits to the extent requested by such person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the SEC. (f) Promptly deliver to each Purchaser, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such persons may reasonably request. The Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Purchasers in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto. (g) (i) In the time and manner required by Nasdaq, prepare and file with Nasdaq an additional shares listing application covering all of the Registrable Securities; (ii) take all steps necessary to cause such Registrable Securities to be approved for listing on Nasdaq as soon as possible thereafter; (iii) provide to the Purchasers evidence of such listing; and (iv) maintain the listing of such Registrable Securities on Nasdaq. (h) Prior to any public offering of Registrable Securities, use its best efforts to register or qualify or cooperate with the selling Purchasers in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or "blue sky" laws of such jurisdictions within the United States as any Purchaser requests in writing, to keep each such registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by a Registration Statement. 16  (i) Upon the occurrence of any event described in Paragraph (c)(vi) above, as promptly as reasonably possible, prepare a supplement or amendment, including a post-effective amendment, to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither the Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (j) Comply with all applicable rules and regulations of the SEC. (4) REGISTRATION EXPENSES. The Company shall pay all fees and expenses incident to the performance of or compliance with this Agreement by the Company, including without limitation (a) all registration and filing fees and expenses, including without limitation those related to filings with the SEC, Nasdaq and in connection with applicable state securities or "Blue Sky" laws, (b) printing expenses (including without limitation expenses of printing certificates for Registrable Securities and of printing prospectuses requested by the Purchasers), (c) messenger, telephone and delivery expenses, (d) fees and disbursements of counsel for the Company and counsel for the Placement Agent (with respect to the Registration Statement) up to a maximum of $2,000 and (e) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement. (5) INDEMNIFICATION (a) INDEMNIFICATION BY THE COMPANY. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Purchaser, the officers, directors, partners, members, agents, brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge or any failure to perform under a margin call of Common Stock), investment advisors and employees of each of them, each Person who controls any such Purchaser (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, partners, members, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, settlement costs and expenses, including without limitation costs of preparation and reasonable attorneys' fees (collectively, "Losses"), as incurred, arising out of or relating to any untrue or alleged untrue statement of a material fact contained in the Registration Statement, any Prospectus or form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that (i) such untrue statements or omissions are based solely upon information regarding such Purchaser furnished in writing to the Company by such Purchaser expressly for use therein, or to the extent that such information related to such Purchaser or such Purchaser's proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Purchaser expressly for use in the Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto or (ii) in 17  the case of an occurrence of an event of the type specified in Paragraph (3)(c)(iv)-(vi) above the use by such Purchaser of an outdated or defective Prospectus after the Company has notified such Purchaser in writing that the Prospectus is outdated or defective and prior to the receipt by such Purchaser of the Advice contemplated in Paragraph (6) below. The Company shall notify the Purchasers promptly of the institution, threat or assertion of any Proceeding of which the Company is aware in connection with the transactions contemplated by this Agreement. (b) INDEMNIFICATION BY PURCHASERS. Each Purchaser shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses (as determined by a court of competent jurisdiction in a final judgment not subject to appeal or review) arising solely out of or based solely upon any untrue statement of a material fact contained in any Registration Statement, any Prospectus, or any form of prospectus or in any amendment or supplement thereto, or arising solely out of or based upon any omission of a material fact required to be stated therein or necessary to make the statements therein not misleading t the extent, but only to the extent, that such untrue statement or omission is contained in any information so furnished in writing by such Purchaser to the Company specifically for inclusion in such Registration Statement or such Prospectus or to the extent that (i) such untrue statements or omissions are based solely upon information regarding such Purchaser furnished in writing to the Company by such Purchaser expressly for use therein, or to the extent that such information related to such Purchaser or such Purchaser's proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Purchaser expressly for use in the Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto or (ii) in the case of an occurrence of an event of the type specified in Paragraph (3)(c)(iv)-(vi), the use by such Purchaser of an outdated or defective Prospectus after the Company has notified such Purchaser in writing that the Prospectus is outdated or defective and prior to the receipt by such Purchaser of the Advice contemplated in Paragraph (6). In no event shall the liability of any selling Purchaser hereunder be greater in amount than the dollar amount of the net proceeds received by such Purchaser upon the sale of the Registrable Securities giving rise to such indemnification obligation. (c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an "Indemnified Party"), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the "Indemnifying Party") in writing, and the Indemnifying Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof, provided, that the failure of any Indemnified party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have proximately and materially adversely prejudiced the Indemnifying Party. 18  An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (i) the Indemnifying Party has agreed in writing to pay such fees and expenses; or (ii) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (iii) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall have been advised by counsel that a conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and such counsel shall be at the expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such Proceeding affected without its written consent, which consent shall not be unreasonably withheld. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding. All fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten trading days of written notice thereof to the Indemnifying Party (regardless of whether it is ultimately determined that an Indemnified Party is not entitled to indemnification hereunder; provided, that the Indemnifying Party may require such Indemnified Party to undertake to reimburse all such fees and expenses to the extent it is finally judicially determined that such Indemnified Party is not entitled to indemnification hereunder). (d) CONTRIBUTION. If a claim for indemnification under Paragraph (5)(a) or (b) is unavailable to an Indemnified Party (by reason of public policy or otherwise), then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or related to information supplied by, such Indemnifying Party or Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in Paragraph (5)(c), any reasonable attorneys' or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Paragraph was available to such party in accordance with its terms. 19  The parties hereto agree that it would not be just and equitable if contribution pursuant to this Paragraph (5)(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provision of this Paragraph (5)(d), no Purchaser shall be required to contribute, in the aggregate, any amount in excess of the amount by which the proceeds actually received by such Purchaser from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that such Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties. (6) DISPOSITIONS. Each Purchaser agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to the Registration Statement. Each Purchaser further agrees that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Paragraphs (3)(c)(iv), (v) or (vi), such Purchaser will discontinue disposition of such Registrable Securities under the Registration Statement until such Purchaser's receipt of the copies of the supplemented Prospectus and/or amended Registration Statement contemplated by Paragraph (3)(i), or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement. The Company may provide appropriate stop orders to enforce the provision of this paragraph. (7) PIGGYBACK ON REGISTRATIONS. In the event the Company's registration statement currently on file with the SEC (the "Existing Registration Statement") has not yet been declared effective on or prior to the date fifteen (15) business days after the Closing, the Company shall use its reasonable efforts to include the Registrable Securities in the Existing Registration Statement. In the event the Registrable Securities are not included in the Existing Registration Statement, the Company may not include securities of the Company in the Registration Statement other than the Registrable Securities without the approval of the Placement Agent. Such approval of the Placement Agent shall not be unreasonably withheld. (8) SURVIVAL. The provisions of this Section E shall survive the Closing of the Offering and any subsequent termination of this Agreement F. EXCHANGE RIGHT In the event that the Company completes a sale of Common Stock, equity linked securities or any combination thereof (the "Subsequent Securities") within 90 days of the Closing resulting in aggregate net proceeds to the Company of not less than $5 million, each Purchaser shall have a one-time 20  right to exchange, in whole but not in part, all Units purchased hereunder for the aggregate amount or number of Subsequent Securities that such Purchaser would have received had the consideration used to purchase the Units been used to purchase such Subsequent Securities. For purposes of this exchange right, equity linked securities shall mean securities convertible into, or exchangeable for, Common Stock or securities which include a significant number of warrants to purchase Common Stock. The Company shall be required to give written notice of the closing of the sale of Subsequent Securities prior to or as soon as reasonably practicable following such closing, and the Purchasers may exercise such right within ten (10) business days thereafter by giving written notice to the Company. This exchange right shall be to acquire the Subsequent Securities only and shall not extend to other rights that the purchasers of Subsequent Securities may receive including, but not limited to, information and observation rights. The Company reserves the right to take all necessary action to comply with rules imposed by its principal trading market prior to the issuance of Subsequent Securities to the Purchasers pursuant to their exercise of this exchange right. G. MISCELLANEOUS (1) All pronouns and any variations thereof used herein shall be deemed to refer to the masculine, feminine, singular or plural, as identity of the person or persons may require. (2) Any notice or other document required or permitted to be given or delivered to the Purchaser shall be in writing and sent (i) by fax if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), or (b) by registered or certified mail with return receipt requested (postage prepaid) or (c) by a recognized overnight delivery service (with charges prepaid). (a) if to the Company, at Datatec Systems, Inc. 23 Madison Road Fairfield, NJ 07004 Attn: Isaac J. Gaon Tel: 973 ###-###-####; Fax ###-###-#### or such other address as it shall have specified to the Purchaser in writing, with a copy (which shall not constitute notice) to Olshan Grundman Frome Rosenzweig & Wolosky LLP 505 Park Avenue New York, NY 10022 Attn: Robert H. Friedman, Esq. Tel: 212 ###-###-####; Fax ###-###-#### (b) if to the Purchaser, at its address set forth on the signature page to this Agreement, or such other address as it shall have specified to the Company in writing, with a copy (which shall not constitute notice) to 21  Reed Smith LLP One Riverfront Plaza, Suite 1000 Newark, NJ 07102 Attn: Gerard S. DiFiore, Esq. Tel: 973. 621.3179; Fax ###-###-#### (3) Failure of the Company to exercise any right or remedy under this Agreement or any other agreement between the Company and the Purchaser, or otherwise, or delay by the Company in exercising such right or remedy, will not operate as a waiver thereof. No waiver by the Company will be effective unless and until it is in writing and signed by the Company. (4) This Agreement shall be enforced, governed and construed in all respects in accordance with the laws of the State of New York, as such laws are applied by the New York courts to agreements entered into and to be performed in New York by and between residents of New York, and shall be binding upon the Purchaser, the Purchaser's heirs, estate, legal representatives, successors and assigns and shall inure to the benefit of the Company, its successors and assigns. (5) If any provision of this Agreement is held to be invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed modified to conform with such statute or rule of law. Any provision hereof that may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provisions hereof. (6) The parties understand and agree that money damages would not be a sufficient remedy for any breach of the Agreement by the Company or the Purchaser and that the party against which such breach is committed shall be entitled to equitable relief, including injunction and specific performance, as a remedy for any such breach. Such remedies shall not be deemed to be the exclusive remedies for a breach by either party of the Agreement but shall be in addition to all other remedies available at law or equity to the party against which such breach is committed. (7) This Agreement, together with the agreements and documents executed and delivered in connection with this Agreement, constitutes the entire agreement between the parties hereto with respect to the subject matter hereof. H. SIGNATURE The signature page of this Agreement is contained as part of the applicable subscription package, entitled "Signature Page". 22  SIGNATURE PAGE The Purchaser hereby subscribes for such number of Units as shall equal the Subscription Amount as set forth below divided by the Offering Price and agrees to be bound by the terms and conditions of this Agreement. PURCHASER 1. Dated: _________, 2003 2. Subscription Amount: $__________ _________________________________ __________________________________ Signature of Purchaser Signature of Joint Purchaser (and title, if applicable) (if any) _________________________________ __________________________________ Taxpayer Identification or Social Taxpayer Identification or Social Security Number Security Number of Joint Purchaser (if any) _________________________________ __________________________________ Name (please print as name will Name of Joint Purchaser (please print if any) appear on certificate) _________________________________ __________________________________ Number and Street Number and Street _________________________________ __________________________________ City State Zip Code City State Zip Code ACCEPTED BY: DATATEC SYSTEMS, INC. By: Name: ________________________ Title: ________________________ Dated: ________________________ 23  EXHIBIT A TO DATATEC SYSTEMS, INC. SUBSCRIPTION AGREEMENT FORM OF WARRANT 24  EXHIBIT B TO DATATEC SYSTEMS, INC. SUBSCRIPTION AGREEMENT WIRE TRANSFER INSTRUCTIONS [INSERT WIRE TRANSFER INSTRUCTIONS] 25  EXHIBIT C TO DATATEC SYSTEMS, INC. SUBSCRIPTION AGREEMENT FORM OF LEGAL OPINION 26  EXHIBIT D TO DATATEC SYSTEMS, INC. SUBSCRIPTION AGREEMENT PURCHASER QUESTIONNAIRE  CONFIDENTIAL PURCHASER QUESTIONNAIRE ----------------------- Before any sale of securities in the above-captioned Company can be made to you, this Questionnaire must be completed and returned to FAHNESTOCK & CO. INC., Attn: Investment Banking Dept., 125 Broad St., New York, NY 10004. The purpose of this Questionnaire is to determine whether you meet the standards imposed by Section 4(6) of the Securities Act of 1933, as amended (the "Securities Act"). (1) Name:______________________________________________________________________ (2) Address: (a) Home: _____________________________________________________________ _____________________________________________________________ Telephone: ( ) ________________________________________________________ (b) Business: _________________________________________________________ _________________________________________________________ Telephone: ( ) ________________________________________________________ (3) Social Security Number: - - ____________________________________________________ (4) Occupation: ____________________________________________________ (5) Age: ____________________________________________________ (6) The following information is required to ascertain whether you would be deemed an "accredited investor" as defined in Rule 501 of Regulation D under the Securities Act. Please check whether you are any of the following: (a) A bank as defined in Section 3(a)(2) of the Securities Act, or any savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934, as amended; any insurance company as defined in Section 2(13) of the Securities Act; any investment company registered under the Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of that act; any Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a D-1  state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefits of its employees if such plan has total assets in excess of $5,000,000; any employee benefit plan within the meaning of Title I of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors; Yes____ No____ (b) A private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940; Yes____ No____ (c) An organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000. Yes____ No____ (d) A director, executive officer, or general partner of the Company; Yes____ No____ (e) A natural person whose individual net worth, or joint net worth with your spouse, at the time of your purchase exceeds $1,000,000; Yes____ No____ (f) A natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with your spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year; Yes____ No____ (g) A trust, with total assets in excess of $5,000,000 not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person; or Yes____ No____ (h) Any entity in which all of the equity owners are accredited investors. Yes____ No____ D-2  (7) Investment, business, and educational experience: (a) Educational background: ___________________________________________________ ___________________________________________________ (b) Principal employment positions held during last five years: ___________________________________________________ ___________________________________________________ ___________________________________________________ (c) Frequency of prior investment (check one in each column): Venture Capital Stocks and Bonds Investments ---------------- ----------- Frequently ________________ _____________________ Occasionally ________________ _____________________ Never ________________ _____________________ (8) Please list the name and address of your: (a) Bank ________________________________________________ _____________________________________________________ (b) Accountant___________________________________________ _____________________________________________________ I represent that the foregoing information is true and correct. Dated:______________________________, 2003 ____________________________________ (Name of Investor - Please Print) ____________________________________ (Signature) ____________________________________ (Print Name) (Title) D-3