NEPHROS, INC. SUBSCRIPTION AGREEMENT
Exhibit
10.1
Name
of
Subscriber:
NEPHROS,
INC.
Nephros,
Inc.
0000
Xxxxxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
Ladies
and Gentlemen:
1. Subscription. (a) The
undersigned, intending to be legally bound, hereby irrevocably subscribes to
purchase from Nephros, Inc., a Delaware corporation (the “Company”), the
principal amount of Series A 10% Secured Convertible Notes due 2008 (the
“Notes”), of the Company, set forth on the signature page hereof (the
“Subscription Amount”), for a purchase price equal to the Subscription
Amount. The Company, intending to be legally bound, hereby accepts
the foregoing subscription and agrees to sell and issue to the undersigned
a
Note having a principal amount equal to the Subscription Amount for a purchase
price equal to the Subscription Amount. This subscription is made in
accordance with and subject to the terms and conditions described in this
Subscription Agreement (this “Agreement”). The terms of the
Notes shall be substantially as set forth in the form of Series A 10% Secured
Convertible Note due 2008 attached hereto as Exhibit A (the “Form of
Note”).
(b) The
Notes
that are the subject of this Agreement are part of an offering by the Company
(the “Offering”) of up to fifteen million dollars ($15,000,000) aggregate
principal amount of Notes (the “Maximum Amount”) convertible into shares
of the Company’s common stock, par value $0.001 per share (the “Common
Stock”), at a per share conversion price (subject to adjustment as set forth
in the Form of Note) of $0.706, and Class D warrants for the purchase of shares
of Common Stock (the “Warrants”), in the form attached hereto as
Exhibit B (the “Form of Warrant”). The Company is
offering Notes until September 28, 2007, although the Company reserves the
right, in its sole discretion, to extend the Offering period until some later
date (such date, as the same may be extended, the “Expiration
Date”). The undersigned and each person purchasing Notes in the
Offering (collectively, the “Purchasers”) shall enter into a registration
rights agreement among the Company and the Holders (as defined therein), in
substantially the form attached hereto as Exhibit C (the “Registration
Rights Agreement”).
2. Closing.
(a) Subject
to the satisfaction of the conditions and upon the terms set forth in this
Agreement, the first closing of the transactions contemplated by this Agreement
(the
“First
Closing”) shall occur at any time on or prior to the Expiration Date with
the execution and delivery of this Agreement by the parties
hereto. The First Closing shall be conducted at the offices of Xxxxxx
Xxxxx Xxxxxxxx & Xxxxxxx LLP, 1177 Avenue of the Americas, New York, New
York or such other location as the parties shall mutually agree.
(b) Following
the First Closing, the Company may continue to sell Notes up to the Maximum
Amount and may conduct closings from time to time for additional Notes sold
(each an “Additional Closing”, and the First Closing and each Additional
Closing shall be considered a “Closing”). A final closing will
be held promptly on the earlier to occur of (i) the Expiration Date and (ii)
acceptance of subscriptions for sale of the Maximum Amount.
(c) The
undersigned acknowledges that, concurrently with the consummation of the First
Closing, the Company will exchange its 6% Secured Convertible Notes due 2012
(“Old Notes”) with the holders thereof and all accrued but unpaid
interest and obligations thereon, for new Series B 10% Secured Convertible
Notes
due 2008 in an aggregate principal amount of $5,300,000 (the “New Notes”
and together with the Notes, the “2007 Notes”). The terms of
the New Notes shall be substantially as set forth in the form of Series B 10%
Secured Convertible Note due 2008 attached as an exhibit to the Exchange
Agreement (as defined below) (the “Form of New Note”). The New
Notes will be convertible into shares of the Company’s Common Stock at a per
share conversion price (subject to adjustment as set forth in the Form of New
Note) of $0.706 per share and are not included in the Maximum
Amount.
(d) The
obligations of the Company hereunder in connection with the Closing are subject
to the following conditions being satisfied:
(i) each
of the representations and
warranties of the undersigned shall be true and correct in all material respects
as of the date when made and as of the Closing as though made at that time,
except for representations and warranties that speak as of a particular date,
which shall be true and correct in all material respects as of such
date;
(ii) the
undersigned shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the undersigned at or prior to the Closing;
(iii) at
the First Closing, the Company will
have received, in the aggregate, not less than ten million dollars ($10,000,000)
pursuant to executed acceptances of subscriptions from Purchasers in the
Offering;
(iv) to
the extent not already delivered,
the tender of delivery at the Closing by the undersigned of the items set forth
in Section 2(g) of this Agreement; and
(v) no
statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated, endorsed or threatened or is pending by or before any governmental
authority of competent jurisdiction which prohibits or threatens to prohibit
the
consummation of any of the transactions contemplated by the Transaction
Documents (as defined below) or the Exchange Agreement.
(e) The
obligations of the undersigned hereunder in connection with the Closing are
subject to the following conditions being satisfied:
(i) each
of the representations and
warranties of the Company shall be true and correct in all material respects
as
of the date when made and as of the Closing as though made at that time, except
for representations and warranties that speak as of a particular date, which
shall be true and correct in all material respects as of such date;
(ii) the
Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing;
(iii) to
the extent not already delivered,
the tender of delivery at the Closing by the Company of the items set forth
in
Section 2(f) of this Agreement;
(iv) the
Company and the holders of the Old
Notes shall have duly executed and delivered the Exchange Agreement in the
form
attached hereto as Exhibit D (the “Exchange Agreement”) and the
Investor Rights Agreement in the form attached hereto as Exhibit E (the
“Investor Rights Agreement”), and the transactions contemplated by the
Exchange Agreement shall be consummated simultaneous with the First
Closing;
(v) the
holders of a majority of the
outstanding Common Stock as of the First Closing shall have executed and
delivered to the Company written consents, in a form reasonably acceptable
to
the undersigned (the “Stockholder Consents”), consenting to (x) the
issuance of the 2007 Notes, the Common Stock and Warrants issuable upon the
conversion of the 2007 Notes and the Common Stock issuable upon the exercise
of
the Warrants, and (y) approving an amendment to the Company’s Certificate of
Incorporation to increase the number of shares of Common Stock that it is
authorized to issue to 60,000,000 shares (the “Certificate of
Amendment”);
(vi) (x)
two individuals designated by
Lambda Investors LLC (“Lambda”) (such individuals hereafter known as the
“New Directors”) shall be duly elected to the board of
directors of the Company (the “Board of Directors”) effective at the
First Closing; (y) Lambda shall have consented to the election of any new
members of the Board of Directors of the Company or the Subsidiary elected
in
connection with the First Closing; and (z) no more than four members of the
Board of Directors of the Company that Lambda has requested to resign shall
have
submitted resignations to the Company (which resignations shall include releases
in a form reasonably satisfactory to Lambda) with such resignations to become
effective at the First Closing;
(vii) at
the First Closing, the Company shall
have received an extension, until October 4, 2007, to serve its opposition
to
the motion of the Receiver for Lancer Offshore, Inc. to enforce the Company’s
settlement agreement with the Receiver and for entry of final default judgment;
and
(viii) no
statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated, endorsed or threatened or is pending by or before any governmental
authority of competent jurisdiction which prohibits or threatens to prohibit
the
consummation of any of the transactions contemplated by the Transaction
Documents (as defined below) or the Exchange Agreement.
(f) At
the
Closing, the Company shall deliver or cause to be delivered to the undersigned
the following (to the extent not previously delivered):
(i) an
executed acceptance of subscription
relating to this Agreement;
(ii) a
Note in the principal amount of the
Subscription Amount, registered in the name of the undersigned;
(iii) the
Registration Rights Agreement duly
executed by the Company and all other parties thereto other than the Purchasers,
and the Investor Rights Agreement duly executed by the Company and all other
parties thereto other than the Purchasers;
(iv) a
certificate, duly executed by the
Chief Executive Officer of the Company, to the effect that the conditions set
forth in clauses (i), (ii), (iv), (v), (vi), (vii) and (viii) of Section 2(e)
have been satisfied;
(v) copies
of the duly executed Exchange
Agreement, Stockholder Consents and resignations of directors; and
(vi) waivers
from Xxxx X. Xxxx, M.D., Xxxxxx
X. Xxxxx, Xxxxxxx X. Xxx and Xxxxxxxx Xxxxxxxx waiving any right held by such
persons pursuant to agreements entered into prior to the date hereof to have
securities of the Company registered under the Registration Rights
Agreement.
(g) At
the
Closing, the undersigned shall deliver or cause to be delivered to the Company
the following (to the extent not previously delivered):
(i) an
executed copy of the signature page
of and Exhibit F to this Agreement and the Investor Rights Agreement duly
executed by the undersigned;
(ii) immediately
available funds in the
amount of the Subscription Amount, delivered by wire transfer to the following
account:
| Bank: | Bank of America |
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ABA
No.:
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000000000
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Account
Name:
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Nephros,
Inc.
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Account
No.:
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94293
70902
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Apply
To:
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Nephros,
Inc.
|
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Attention:
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Client
Manager
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(iii) an
executed copy of the signature page,
or counterpart signature page, to the Registration Rights Agreement;
and
(iv) a
certificate, duly executed by a duly
authorized officer, manager or member of the undersigned, to the effect that
the
conditions set forth in clauses (i) and (ii) of Section 2(d) have been
satisfied.
3. Representations
and Warranties of the Company. The Company represents and
warrants to the undersigned as follows, in each case as of the date hereof
and
in all material respects as of the date of any Closing, except, where the
following representations and warranties are made or deemed to be made after
the
First Closing, for any changes resulting solely from any Closing that has
previously been consummated or the consummation of the transactions contemplated
by the Exchange Agreement:
(a) The
Company is duly organized, validly existing and in good standing under the
laws
of the jurisdiction of its organization with full power and authority to own,
lease, license and use its properties and assets and to carry out the business
in which it proposes to engage. Nephros International
Limited (the “Subsidiary”) is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization with full
power and authority to own, lease, license and use its properties and assets
and
to carry out the business in which it proposes to engage. Each of the
Company and the Subsidiary is duly qualified to conduct business and is in
good
standing as a foreign corporation or other entity in each jurisdiction in which
the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in
good
standing, as the case may be, could not have or reasonably be expected to result
in a (x) material adverse effect on the legality, validity or
enforceability of any Transaction Document (as defined below) or the Exchange
Agreement, (y) material adverse effect on the results of operations,
assets, business, prospects or condition (financial or otherwise) of the Company
and the Subsidiary, taken as a whole, or (z) material adverse effect on the
Company’s ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (as defined below) or the Exchange
Agreement (any of (x), (y) or (z), a “Material Adverse
Effect”). The Company owns all of the capital stock or other
equity interests of the Subsidiary free and clear of any liens or encumbrances,
other than Permitted Liens, and all of the issued and outstanding shares of
capital stock of the Subsidiary are validly issued and are fully paid,
non-assessable and free of preemptive and similar rights to subscribe for or
purchase securities. The Company does not own, and never has owned,
any capital stock of or equity interest in any entity other than the
Subsidiary. Neither the Company nor the Subsidiary is in violation or
default of any of the provisions of its respective certificate or articles
of
incorporation, bylaws or other organizational or charter documents.
(b) The
Company has all requisite corporate power and authority to execute, deliver
and
perform its obligations under this Agreement and to issue and sell the Notes
subscribed for hereunder, the shares of Common Stock and Warrants issuable
upon
conversion thereof, and the shares of Common Stock issuable upon exercise of
the
Warrants (collectively, the “Subject Securities”). Subject to
the Stockholder Consents becoming effective, all necessary proceedings of the
Company have been duly taken to authorize the execution, delivery, and
performance of this Agreement, the Notes, the Warrants, the Registration Rights
Agreement and the Investor Rights Agreement (collectively, the “Transaction
Documents”), the Exchange Agreement and the New Notes. The
Transaction Documents and Exchange Agreement have been duly authorized by the
Company and, when executed and delivered by the Company will
constitute
the legal, valid and binding obligation of the Company enforceable against
the
Company in accordance with their terms except as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization, moratorium
and
other laws of general application affecting enforcement of creditors’ rights
generally. The Common Stock issuable upon conversion of the 2007
Notes and the Common Stock issuable upon exercise of the Warrants, when issued
in compliance with the provisions of the Transaction Documents, will be validly
issued, fully paid and nonassessable and free of any liens or encumbrances
other
than any liens or encumbrances created by the undersigned. The 2007
Notes are duly authorized, and when issued pursuant to the Transaction Documents
and the Exchange Agreement, will be validly issued. The Warrants are
duly authorized, and when issued, pursuant to the Transaction Documents, will
be
validly issued.
(c) No
consent of any party to any contract, agreement, instrument, lease or license
to
which the Company or the Subsidiary is a party or to which any of the Company’s
or the Subsidiary’s properties or assets are subject is required for the
execution, delivery or performance by the Company of its obligations under
any
of the Transaction Documents or the Exchange Agreement or the issuance and
sale
of the Subject Securities. The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or other
governmental authority or other person or entity in connection with the
execution, delivery and performance by the Company of the Transaction Documents
and Exchange Agreement, other than (i) the filing with the Securities and
Exchange Commission (the “Commission”) of the registration statement or
registration statements pursuant to the Registration Rights Agreement, a
Schedule 14C information statement and a Form 8-K and related press release
announcing the Offering and changes in directors and officers of the Company,
(ii) the notice and/or application(s) to the American Stock Exchange for
the issuance and sale of the Subject Securities and the listing for trading
thereon in the time and manner required thereby, (iii) the filing of Form D
with the Commission and such filings as are required to be made under applicable
state securities laws, (iv) the Stockholder Consents, and (v) the filing
with the Delaware Secretary of State of the Certificate of
Amendment.
(d) Except
as
disclosed on Schedule 3(d), the execution, delivery and performance of the
Transaction Documents and the Exchange Agreement and the issuance of the Subject
Securities will not (i) violate or result in a breach of, or entitle any party
(with or without the giving of notice or the passage of time or both) to
terminate, amend, accelerate, cancel or call a default under any contract or
agreement to which the Company or the Subsidiary is a party or result in the
creation of any lien, charge or encumbrance upon any of the properties or assets
of the Company or the Subsidiary, other than the liens, charges or encumbrances
created by the undersigned, (ii) conflict with, violate or result in a breach
of
any term of the certificate of incorporation or by-laws of the Company or the
Subsidiary, or (iii) violate any law, rule, regulation, order, judgment or
decree binding upon the Company or the Subsidiary or to which any of their
respective operations, businesses, properties or assets are subject, except,
in
the case of a breach, termination, violation or default referenced in clauses
(i) or (iii), would not reasonably be expected to have a Material Adverse
Effect.
(e) The
capitalization of the Company is as set forth on Schedule 3(e), which
Schedule 3(e) shall also include the number of shares of Common Stock
owned
beneficially,
and of record, by officers or directors of the Company or holders of 5% or
more
of the outstanding Common Stock, in each case as of the date
hereof. The Company has not issued any capital stock since its most
recently filed periodic report under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), other than shares of Common Stock issued
pursuant to the exercise of employee stock options under the Company’s stock
option plans. No person or entity has any right of first refusal,
preemptive right, right of participation, or any similar right to participate
in
the transactions contemplated by the Transaction Documents. Except as
a result of the purchase and sale of the Subject Securities or as set forth
on
Schedule 3(e), there are no outstanding options, warrants, scrip rights
to subscribe to, calls or commitments of any character whatsoever relating
to,
or securities, rights or obligations convertible into or exercisable or
exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of Common Stock or other capital stock or securities of the Company,
or contracts, commitments, understandings or arrangements by which the Company
is or may become bound to issue additional shares of Common Stock or other
capital stock or securities of the Company. The issuance and sale of
the Subject Securities will not obligate the Company to issue shares of Common
Stock or other capital stock or securities of the Company to any person or
entity (other than the Purchasers and the holders of the Old Notes) and will
not
result in a right of any holder of Company securities to adjust the exercise,
conversion, exchange or reset price under any of such securities. All
of the outstanding shares of capital stock of the Company are validly issued,
fully paid and nonassessable, have been issued in compliance with all federal
and state securities laws, and none of such outstanding shares was issued in
violation of any preemptive rights or similar rights to subscribe for or
purchase securities. There are no stockholders agreements or voting
agreements with respect to the Company’s capital stock to which the Company is a
party or, to the knowledge of the Company, between or among any of the Company’s
stockholders.
(f) Except
as
set forth on Schedule 3(f), there are no brokerage commissions, finder’s
fees or similar fees or commissions payable by the Company in connection with
the transactions contemplated by the Transaction Documents or Exchange Agreement
based on any agreement, arrangement or understanding with or known to the
Company. The Purchasers will have no obligation with respect to any
brokerage commissions, finder’s fees or similar fees or commissions described on
Schedule 3(f).
(g) Except
as
disclosed on Schedule 3(g), as disclosed in the reports, schedules,
forms, statements and other documents filed by the Company under the Exchange
Act on or after April 10, 2007 (the “Current SEC Filings”) or as would
not reasonably be expected to have a Material Adverse Effect, neither the
Company nor the Subsidiary is in violation or default of any provisions of
any
instrument, judgment, order, writ or decree, or any provision of any contract
or
agreement, to which it is a party or by which it is bound or of any provision
of
statute, rule or regulation of any country, state, province or other local
governmental unit applicable to the Company, the Subsidiary or their respective
businesses.
(h) Except
as
disclosed on Schedule 3(h), neither the Company nor the Subsidiary is a
party to any litigation, action, suit, proceeding or investigation, and, to
the
knowledge of the Company, no litigation, action, suit, proceeding or
investigation has been threatened against the Company or the
Subsidiary. There has not been, and to the knowledge of the Company,
there is not pending or contemplated, any investigation by the Commission
involving the Company or any current or former director or officer of the
Company. The
Commission
has not issued any stop order or other order suspending the effectiveness of
any
registration statement filed by the Company under the Exchange Act or the
Securities Act of 1933, as amended (the “Securities
Act”). Except as disclosed on Schedule 3(g) or in the
Current SEC Filings, since January 1, 2007 there has been no material adverse
effect on the products of the Company, the prospects of the products of the
Company or the status of the regulatory approval of the products of the
Company.
(i) Each
of
the Company and the Subsidiary has good and marketable title to its properties
and assets (including without limitation those assets
pledged as collateral pursuant to this Agreement) held in each case free and
clear of all liens, pledges, security interests, encumbrances, attachments
or
charges of any kind (each a “Lien”), except for (i) Liens for taxes that
are not yet due and payable, (ii) Liens that do not or are not reasonably likely
to result in a Material Adverse Effect, or (iii) Liens disclosed in the Current
SEC Filings (including the Liens securing the Old Notes, which Liens shall
be
released at the First Closing) or arising under the Offering (Liens described
in
clauses (i), (ii) and (iii) are referred to as “Permitted
Liens”). Neither the Company nor the Subsidiary owns, or has ever
owned, any real property. With respect to the property and assets it
leases, except as would not reasonably be expected to have a Material Adverse
Effect or as disclosed on Schedule 3(i), the Company is in compliance
with such leases and, to the best of the Company’s knowledge, the Company holds
valid leasehold interests in such property and assets free and clear of any
Liens of any other party other than the lessors of such property and assets,
except for Permitted Liens. The properties and assets owned and
leased by the Company and the Subsidiary are sufficient to enable the Company
and the Subsidiary to conduct their respective business as presently
conducted.
(j) Neither
the Company nor the Subsidiary has any liability or obligation of any nature
whatsoever (whether absolute, accrued, contingent, or otherwise and whether
due
or to become due) which would be required to be reflected on a balance sheet
or
in the notes thereto prepared in accordance with GAAP, except for (i) those
liabilities that are fully reflected or reserved against on the financial
statements included in the Current SEC Filings, described in the notes to such
financial statements, or expressly described elsewhere in the Current SEC
Filings, including without limitation, under the headings “Management’s
Discussion and Analysis or Plan of Operation” and “Controls and Procedures” in
the applicable Current SEC Filings, (ii) liabilities and obligations which
have
been incurred since June 30, 2007 in the ordinary course of business which
are not material in nature or amount, or (iii) liabilities and obligations
described on Schedule 3(j).
(k) Except
as
disclosed in the Current SEC Filings, each of the Company and the Subsidiary
owns, free and clear of all Liens, other than Permitted Liens, or is licensed
or
otherwise possesses legally enforceable rights to use, all patents, patent
applications, trademarks, trademark applications, trade names, service marks,
copyrights, know-how, trade secrets, inventions and similar rights necessary
to
permit the Company and the Subsidiary to conduct its respective business as
described in the Current SEC Filings (collectively, “Intellectual
Property”). To the Company’s knowledge, the Intellectual Property
does not violate or infringe upon the rights of any other person or entity,
and
neither the Company nor the Subsidiary has received a notice (written or
otherwise) claiming such infringement. To the knowledge of the
Company, all Intellectual Property is enforceable and there is no existing
infringement by another person or entity of any of the Intellectual
Property. The Company and
the
Subsidiary have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties, except where
failure to do so would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
(l) The
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by the Company under the Securities Act and the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, since September
20, 2004 (the reports, schedules, forms, statements and other documents filed
pursuant to the Securities Act and the Exchange Act on or after September 20,
2004, including the exhibits thereto and documents incorporated by reference
therein, being collectively referred to herein as the “Nephros SEC
Filings”). Except for the Company’s Annual Report on Form 10-KSB
for the year ended December 31, 2005, each Nephros SEC Filing that is an Annual
Report on Form 10-KSB, a Quarterly Report on Form 10-QSB or a Current Report
on
Form 8-K (other than a Current Report on Form 8-K that is required solely
pursuant to Item 1.01, 1.02, 2.03, 2.04, 2.05, 2.06, 4.02(a) or 5.02(e) of
Form
8-K) was filed on a timely basis or the Company received a valid extension
of
such time of filing and has filed such Nephros SEC Filing prior to the
expiration of such extension. Except as disclosed on Schedule
3(l), as of their respective dates, the Nephros SEC Filings complied in all
material respects with the requirements of the Securities Act and the Exchange
Act, as applicable, and none of the Nephros SEC Filings, when filed, 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 the light of the circumstances under which they were made, not
misleading. Except as disclosed on Schedule 3(l), the
financial statements of the Company included in the Nephros SEC Filings complied
in all material respects with applicable accounting requirements and the rules
and regulations of the Commission with respect thereto as in effect at the
time
of filing. Such financial statements have been prepared in accordance
with United States generally accepted accounting principles applied on a
consistent basis during the periods involved (“GAAP”), except as may be
otherwise specified in such financial statements or the notes thereto and except
that unaudited financial statements may not contain all footnotes required
by
GAAP, and fairly present in all material respects the financial position of
the
Company and the Subsidiary as of and for the dates thereof and the results
of
operations and cash flows for the periods then ended, subject, in the case
of
unaudited statements, to normal year-end audit adjustments.
(m) The
Company is in material compliance with all provisions of the Xxxxxxxx-Xxxxx
Act
of 2002 which are applicable to it as of the First Closing. Except as
disclosed in the Current SEC Filings, the Company and the Subsidiary maintain
a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management’s general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP 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. Except as disclosed in the Current
SEC Filings, the Company has established disclosure controls and procedures
(as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
designed such disclosure controls and procedures to ensure that information
required to be disclosed by the Company in the reports it files or submits
under
the Exchange Act is recorded, processed, summarized and reported, within the
time periods
specified
in the Commission’s rules and forms. The Company’s certifying
officers have evaluated the effectiveness of the Company’s disclosure controls
and procedures as of the end of the period covered by the Company’s most
recently filed periodic report under the Exchange Act (such date, the
“Evaluation Date”). The Company presented in its most recently
filed periodic report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures
based
on their evaluations as of the Evaluation Date. Since the Evaluation
Date, there have been no changes in the Company’s internal control over
financial reporting (as such term is defined in the Exchange Act) that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
(n) No
material labor dispute exists or, to the knowledge of the Company, is imminent
with respect to any of the employees of the Company which could reasonably
be
expected to result in a Material Adverse Effect. None of the
Company’s or the Subsidiary’s employees is a member of a union that relates to
such employee’s relationship with the Company, and neither the Company nor the
Subsidiary is a party to a collective bargaining agreement, and the Company
and
the Subsidiaries believe that their relationships with their employees are
good. No executive officer, to the knowledge of the Company, is, or
is now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement
or
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does
not
subject the Company or any of its Subsidiaries to any liability with respect
to
any of the foregoing matters. The Company and its Subsidiaries are in compliance
with all federal, state, local and foreign laws and regulations relating to
employment and employment practices, terms and conditions of employment and
wages and hours, except where the failure to be in compliance could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(o) The
Company and the Subsidiary possess all certificates, authorizations and permits
issued by the appropriate federal, state, local or foreign regulatory
authorities necessary to conduct their respective businesses as described in
the
Current SEC Filings, except where the failure to possess such permits could
not
have or reasonably be expected to result in a Material Adverse Effect
(“Material Permits”), and neither the Company nor the Subsidiary has
received any notice of proceedings relating to the revocation or modification
of
any Material Permit.
(p) The
Company and the Subsidiary are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which the Company and the Subsidiary are
engaged, including, but not limited to, directors and officers insurance
coverage at least equal to $7,000,000. Neither the Company nor the
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 without a significant increase in cost.
(q) Except
as
set forth in the Current SEC Filings, none of the officers or directors of
the
Company and, to the knowledge of the Company, none of the employees of the
Company is presently a party to any transaction with the Company or the
Subsidiary,
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 entity in which any officer,
director, or any such employee has a substantial interest or is an officer,
director, trustee or partner, in each case in excess of $120,000 other than
for
(i) payment of salary or consulting fees for services rendered,
(ii) reimbursement for expenses incurred on behalf of the Company and
(iii) other employee benefits, including stock option agreements under any
stock option plan of the Company.
(r) Neither
the Company nor any person or entity acting on its behalf has offered or sold
any of the Subject Securities by any form of general solicitation or general
advertising. The Company has offered the Subject Securities for sale
only to the Purchasers and certain other “accredited investors” within the
meaning of Rule 501 under the Securities Act. Assuming the accuracy
of the undersigned’s representations and warranties set forth in Section 4
(and corresponding representations made by other Purchasers), no registration
under the Securities Act is required for the offer and sale of the Subject
Securities by the Company to the Purchasers as contemplated by the
Offering. Neither the Company, nor any of its affiliates, nor any
person or entity acting on its or their behalf has, directly or indirectly,
made
any offers or sales of any security or solicited any offers to buy any security,
under circumstances that would cause the Offering to be integrated with prior
offerings by the Company for purposes of the Securities Act or any applicable
shareholder approval provision of the American Stock
Exchange. Subject to the Stockholder Consents becoming effective and
the filing of an additional shares listing application with the American Stock
Exchange, the issuance and sale of the Subject Securities does not contravene
the rules and regulations of the American Stock Exchange.
(s) The
Company is not, and is not an affiliate of, and immediately after receipt of
payment for the Notes, will not be or be an affiliate of, an “investment
company” within the meaning of the Investment Company Act of 1940, as amended.
The Company shall conduct its business in a manner so that it will not become
subject to the Investment Company Act of 1940, as amended.
(t) Except
as
disclosed on Schedule 3(t), as of the First Closing, no Person will have
any right to cause the Company to effect the registration under the Securities
Act of any securities of the Company except pursuant to the Registration Rights
Agreement.
(u) The
Company’s Common Stock is registered pursuant to Section 12(b) of the
Exchange Act, and the Company has taken no action designed to, or which to
its
knowledge is likely to have the effect of, terminating the registration of
the
Common Stock under the Exchange Act nor has the Company received any
notification that the Commission is contemplating terminating such
registration. The Company’s outstanding Common Stock is listed for
trading on the American Stock Exchange and, since January 1, 2007, the trading
of the Company’s Common Stock on the American Stock Exchange has not been
de-listed or suspended. The Company has taken no action for the
purpose of de-listing the Common Stock from the American Stock Exchange or
suspending the trading of the Common Stock on the American Stock
Exchange. Except as described in the Current SEC Filings, the Company
has not, in the 12 months preceding the date hereof, received written notice
from the American Stock
Exchange
to the effect that the Company is not in compliance with the listing or
maintenance requirements of the American Stock Exchange or that the American
Stock Exchange is considering suspending the trading of or de-listing the
Company’s Common Stock from the American Stock Exchange.
(v) The
Company and its Board of Directors have taken all necessary action, if any,
in
order to render inapplicable any control share acquisition, business
combination, shareholder rights plan (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Company’s
certificate of incorporation (or similar charter documents) or the laws of
its
state of incorporation (including without limitation Section 203 of the Delaware
General Corporation Law) that is or could become applicable to the Purchasers
as
a result of the Purchasers and the Company fulfilling their obligations or
exercising their rights under the Transaction Documents and the Exchange
Agreement, including without limitation as a result of the Company’s issuance of
the Subject Securities and the Purchasers’ ownership of the Subject
Securities.
(w) All
disclosure furnished by or on behalf of the Company in writing to the Purchasers
regarding the Company, its business and the transactions contemplated hereby,
including the Schedules to this Agreement, with respect to the representations
and warranties contained herein is true and correct in all material respects
with respect to such representations and warranties and does not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading. The press releases
disseminated by the Company during the twelve months preceding the date of
this
Agreement taken as a whole do not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements made therein, in light of the circumstances
under which they were made and when made, not misleading.
(x) Based
on
the financial condition of the Company as of the First Closing, after giving
effect to the receipt by the Company of not less than ten million dollars
($10,000,000) from the Purchasers at the First Closing, and assuming
(counterfactually) that all of the 2007 Notes issued at the First Closing were
converted as of such date, (i) the fair saleable value of the Company’s
assets exceeds the amount that will be required to be paid on or in respect
of
the Company’s existing debts and other liabilities (including known contingent
liabilities) as they mature; (ii) the Company’s assets do not constitute
unreasonably small capital to carry on its business as now conducted and as
proposed to be conducted including its capital needs taking into account the
particular capital requirements of the business conducted by the Company, and
projected capital requirements and capital availability thereof; and
(iii) the current cash flow of the Company, together with the proceeds the
Company would receive, were it to liquidate all of its assets, after taking
into
account all anticipated uses of the cash, would be sufficient to pay all amounts
on or in respect of its liabilities when such amounts are required to be
paid. The Company has no knowledge of any facts or circumstances
which lead it to believe that it will file for reorganization or liquidation
under the bankruptcy or reorganization laws of any jurisdiction within one
year
from the First Closing. Schedule 3(x) sets forth as of the
date hereof all outstanding secured and unsecured Indebtedness of the Company
or
the Subsidiary, or for which the Company or the Subsidiary has
commitments. For the purposes of this Agreement,
“Indebtedness” means (a) any liabilities for borrowed money (other
than trade accounts payable
incurred
in the ordinary course of business), (b) every obligation of the Company
evidenced by bonds, debentures, notes or other similar instruments, (c) 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 (d) the present value
of any lease payments due under leases required to be capitalized in accordance
with GAAP. Except as set forth on Schedule 3(x), neither the
Company nor the Subsidiary is in default with respect to any
Indebtedness.
(y) Except
for matters that would not, individually or in the aggregate, have or reasonably
be expected to result in a Material Adverse Effect, the Company and the
Subsidiary have filed all necessary federal, state, local and foreign income,
franchise, employment and other tax returns and have paid or accrued all taxes
shown as due thereon, and the Company has no knowledge of a tax deficiency
which
has been asserted or threatened against the Company or the
Subsidiary.
(z) Neither
the Company nor the Subsidiary, nor to the knowledge of the Company, any agent
or other person or entity acting on behalf of the Company or the Subsidiary,
has
(i) directly or indirectly, used any funds for unlawful contributions,
gifts, entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully
any contribution made by the Company or the Subsidiary (or made by any person
or
entity acting on behalf of the Company or the Subsidiary) which is in violation
of law, or (iv) violated in any material respect any provision of the
Foreign Corrupt Practices Act of 1977, as amended.
(aa) The
Company’s accounting firm is Xxxxxxxxx Xxxx & Company, P.C. To
the knowledge of the Company, (i) such accounting firm is a registered public
accounting firm as required by the Exchange Act, and (ii) has been engaged
by the Company’s Audit Committee to conduct procedures to provide its opinion
with respect to the financial statements to be included in the Company’s Annual
Report on Form 10-KSB for the year ending December 31, 2007.
(bb) Immediately
following the First Closing, no Indebtedness or other claim against the Company
is senior to the Notes in right of payment, whether with respect to interest
or
upon liquidation or dissolution, or otherwise, other than indebtedness secured
by purchase money security interests (which is senior only as to underlying
assets covered thereby) and capital lease obligations (which is senior only
as
to the property covered thereby).
(cc) There
are
no disagreements of any kind presently existing, or reasonably anticipated
by
the Company to arise, between the Company and the accountants and lawyers
formerly or presently employed by the Company, and except as set forth on
Schedule 3(cc) the Company is current with respect to any fees owed to
its accountants and lawyers.
(dd) The
Company acknowledges and agrees that each of the Purchasers is acting solely
in
the capacity of an arm’s length purchaser with respect to the
Transaction
Documents and the transactions contemplated thereby. The Company
further acknowledges that no Purchaser is acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to the
Transaction Documents and the transactions contemplated thereby and any advice
given by any Purchaser or any of their respective representatives or agents
in
connection with the Transaction Documents and the transactions contemplated
thereby is merely incidental to the Purchasers’ purchase of the Subject
Securities. The Company further represents to each Purchaser that the
Company’s decision to enter into this Agreement and the other Transaction
Documents has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its
representatives.
(ee) The
Company has not, and to its knowledge no one acting on its behalf has,
(i) taken, directly or indirectly, any action designed to cause or to
result in the stabilization or manipulation of the price of any security of
the
Company to facilitate the sale or resale of any of the Subject Securities,
(ii) sold, bid for, purchased, or paid any compensation for soliciting
purchases of, any of the securities of the Company, or (iii) paid or agreed
to pay to any person or entity any compensation for soliciting another to
purchase any other securities of the Company, other than, in the case of clauses
(ii) and (iii), compensation paid to the Company’s placement agent in
connection with the Offering.
(ff) The
Company (i) is in compliance with any and all Environmental Laws (as
hereinafter defined), (ii) has received all permits, licenses or other
approvals required of it under applicable Environmental Laws to conduct its
business and (iii) is in compliance with all terms and conditions of any
such permit, license or approval where, in each of the foregoing clauses (i),
(ii) and (iii), the failure to so comply would be reasonably expected to
have, individually or in the aggregate, a Material Adverse Effect. The term
“Environmental Laws” means all federal, state, local or foreign laws
relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata), including, without limitation, laws relating
to
emissions, discharges, releases or threatened releases of chemicals, pollutants,
contaminants, or toxic or hazardous substances or wastes (collectively,
“Hazardous Materials”) into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials, as well as all authorizations,
codes, decrees, demands or demand letters, injunctions, judgments, licenses,
notices or notice letters, orders, permits, plans or regulations issued,
entered, promulgated or approved thereunder.
(gg) In
accepting the subscription and entering into this Agreement, the Company is
not
relying on any representations and warranties of the undersigned other than
those in this Agreement.
(hh) The
Company acknowledges that the representations, warranties and agreements made
by
the Company herein shall survive the execution and delivery of this Agreement
and the purchase of the Notes, the conversion of the Notes and the exercise
of
the Warrants.
(ii) The
Company has received the written consent from at least 50.1% of the
outstanding Common Stock as of the date hereof approving the Offering in
accordance with Rule 713 of the American Stock Exchange Company
Guide.
4. Representations,
Warranties and Covenants of the Subscriber. The undersigned
hereby represents and warrants to, and agrees with, the Company as
follows:
(a) The
undersigned is an Accredited Investor, as specifically indicated in Exhibit
F to this Agreement, which is being delivered to the Company
herewith.
(b) If
a
natural person, the undersigned is: a bona fide resident of the state or
non-United States jurisdiction contained in the address set forth on the
signature page of this Agreement as the undersigned’s home address; at least
twenty-one (21) years of age; and legally competent to execute the Transaction
Documents. If an entity, the undersigned has its principal offices or
principal place of business in the state or non-United States jurisdiction
contained in the address set forth on the signature page of this Agreement
and
the individual signing on behalf of the undersigned is duly authorized to
execute the Transaction Documents.
(c) When
executed and delivered by the undersigned, each of the Transaction Documents
to
which the undersigned is party will constitute the legal, valid and binding
obligation of the undersigned, enforceable against the undersigned in accordance
with its terms except as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights generally.
(d) Neither
the execution, delivery nor performance of the Transaction Documents by the
undersigned violates or conflicts with, creates (with or without the giving
of
notice or the lapse of time, or both) a default under or a lien or encumbrance
upon any of the undersigned’s assets or properties pursuant to, or requires the
consent, approval or order of any government or governmental agency or other
person or entity under (i) any note, indenture, lease, license or other
agreement to which the undersigned is a party or by which it or any of its
assets or properties is bound or (ii) any statute, law, rule, regulation or
court decree binding upon or applicable to the undersigned or its assets or
properties. If the undersigned is not a natural person, the
execution, delivery and performance by the undersigned of the Transaction
Documents have been duly authorized by all necessary corporate or other action
on behalf of the undersigned and such execution, delivery and performance does
not and will not constitute a breach or violation of, or default under, the
charter or by-laws or equivalent governing documents of the
undersigned.
(e) The
undersigned has received from the Company, or has been directed to, all
materials which have been requested by the undersigned and the Nephros SEC
Filings. The undersigned has had a reasonable opportunity to ask
questions of the Company and its representatives, and the Company has answered
to the satisfaction of the undersigned all inquiries that the undersigned or
the
undersigned’s representatives have put to it.
(f) The
undersigned or the undersigned’s purchaser representative has such knowledge and
experience in finance, securities, taxation, investments and other business
matters so as to be capable of evaluating the merits and risks of an investment
in the Subject Securities. The undersigned can afford to bear such
risks, including, without limitation, the risk of losing its entire
investment.
(g) The
undersigned acknowledges that no liquid market for the Notes and Warrants
presently exists and none may develop in the future and that the undersigned
may
find it impossible to liquidate the investment at a time when it may be
desirable to do so, or at any other time.
(h) The
undersigned has been advised by the Company and understands that none of the
Subject Securities have been registered under the Securities Act, that the
Subject Securities are being offered and issued on the basis of the statutory
exemption provided by Section 4(2) of the Securities Act, Regulation D
promulgated thereunder or both, relating to transactions by an issuer not
involving any public offering and under similar exemptions under certain state
securities laws; that this transaction has not been reviewed by, passed on
or
submitted to any United States Federal or state agency or self-regulatory
organization where an exemption is being relied upon; and that the Company’s
reliance thereon is based in part upon the representations made by the
undersigned in this Agreement.
(i) The
undersigned will acquire the Subject Securities for the undersigned’s own
account (or, if such individual is married, for the joint account of the
undersigned and the undersigned’s spouse either in joint tenancy, tenancy by the
entirety or tenancy in common) for investment and not with a view to the sale
or
distribution thereof or the granting of any participation therein, in each
case
in violation of applicable securities laws, and has no present intention of
distributing or selling to others any of such Subject Securities or granting
any
participation therein, in each case in violation of applicable securities
laws.
(j) In
subscribing for Notes, the undersigned is not relying on any representations
and
warranties of the Company other than those in this Agreement.
(k) The
undersigned acknowledges that the representations, warranties and agreements
made by the undersigned herein shall survive the execution and delivery of
this
Agreement and the purchase of the Notes, the conversion of the Notes and the
exercise of the Warrants.
(l) Except
as
set forth on the signature page hereto, the undersigned has not engaged any
broker or other person or entity that is entitled to a commission, fee or other
remuneration as a result of the execution, delivery or performance of this
Agreement.
(m) The
undersigned is not subscribing for Notes as a result of 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, or any solicitation of a subscription by a person other than a
representative of the Company with whom the undersigned had a pre-existing
relationship.
(n) The
undersigned is not with respect to the undersigned’s subscription a person or
entity (a “Person”) with whom a United States citizen, entity organized
under the laws of the United States or its territories or entity having its
principal place of business within the United States or any of its territories
(collectively, a “U.S. Person”), is prohibited from transacting business
of the type contemplated by this Agreement, whether such prohibition arises
under United States law, regulation or executive orders and lists published
by
the
Office of Foreign Assets Control, Department of the Treasury (“OFAC”)
(including those executive orders and lists published by OFAC with respect
to
Persons that have been designated by executive order or by the sanction
regulations of OFAC as Persons with whom U.S. Persons may not transact business
or must limit their interactions to types approved by OFAC “Specially
Designated Nationals and Blocked Persons”). Neither the
undersigned nor any Person who owns an interest in the undersigned
(collectively, a “Purchaser Party”) is a Person with whom a U.S. Person,
including a United States Financial Institution as defined in 31 U.S.C. Section
5312, as amended (“Financial Institution”), is prohibited from
transacting business of the type contemplated by this Agreement, whether such
prohibition arises under United States law, regulation or executive orders
and
lists published by the OFAC (including those executive orders and lists
published by OFAC with respect to Specially Designated Nationals and Blocked
Persons).
(o) To
the
actual knowledge of the undersigned, the funds used to pay to the Company the
purchase price for the Subject Securities were derived: (i) from transactions
that do not violate United States law or, to the extent such funds originate
outside the United States, do not violate the laws of the jurisdiction in which
they originated; and (ii) from permissible sources under United States law
and
to the extent such funds originate outside the United States, under the laws
of
the jurisdiction in which they originated.
(p) To
the
actual knowledge of the undersigned, neither the undersigned nor any Purchaser
Party, nor any Person providing funds to the undersigned: (i) is under
investigation by any governmental authority for, or has been charged with,
or
convicted of, money laundering, drug trafficking, terrorist related activities,
any crimes which in the United States would be predicate crimes to money
laundering, or any violation of any Anti-Money Laundering Laws (as hereinafter
defined in this Section 4(p)); (ii) has been assessed civil or criminal
penalties under any Anti-Money Laundering Laws; or (iii) has had any of its
funds seized or forfeited in any action under any Anti-Money Laundering
Laws. For purposes of this Section 4(p), the term
“Anti-Money Laundering Laws” shall mean laws, regulations and sanctions,
state and federal, criminal and civil, that: (i) limit the use of
and/or seek the forfeiture of proceeds from illegal transactions; (ii) limit
commercial transactions with designated countries or individuals believed to
be
terrorists, narcotics dealers or otherwise engaged in activities contrary to
the
interests of the United States; (iii) require identification and documentation
of the parties with whom a Financial Institution conducts business; or (iv)
are
designed to disrupt the flow of funds to terrorist
organizations. Such laws, regulations and sanctions shall be deemed
to include the USA PATRIOT Act of 2001, Pub. L. No. 107-56 (the “Patriot
Act”), the Bank Secrecy Act, 31 U.S.C. Section 5311 et. seq. (the “Bank
Secrecy Act”), the Trading with the Enemy Act, 50 U.S.C. Appendix, the
International Emergency Economic Powers Act, 50 U.S.C. Section 1701 et. seq.,
and the sanction regulations promulgated pursuant thereto by the OFAC, as well
as laws relating to prevention and detection of money laundering in 18 U.S.C.
Sections 1956 and 1957.
(q) The
undersigned is in compliance in all material respects with any and all
applicable provisions of the Patriot Act, including, without limitation,
amendments to the Bank Secrecy Act. If the undersigned is a Financial
Institution, it has established and is in compliance in all material respects
with all procedures, if any, required by the Patriot Act and the Bank Secrecy
Act.
(r) The
undersigned represents and warrants that, since July 15, 2007, the undersigned
has not engaged in any short sale of any equity security of the
Company.
5. Covenants
of the Company.
(a) Except
for the 2007 Notes, without the prior written consent of the Secured Party
(as
defined in Section 8 herein), the Company shall not create, issue, incur (by
conversion, exchange or otherwise), assume, guarantee or otherwise become or
remain directly or indirectly liable for any Indebtedness while the 2007 Notes
are outstanding. In addition, so long as the 2007 Notes are
outstanding, without the prior written consent of the 2007 Notes Majority
Holders (as defined in section 7(b) hereof) the Company shall not and shall
not
permit the Subsidiary to:
(i)
sell,
assign (by operation of law or otherwise), lease, license, exchange or otherwise
transfer or dispose of any Collateral (as defined in the Form of Note) other
than the sale of inventory in the ordinary course of business and the sale
or
other disposition of worn out or obsolete assets not necessary for the conduct
of its business;
(ii)
grant
any
Lien upon or with respect to any Collateral (as defined in the Form of Note)
or
create or suffer to exist any Lien upon or with respect to any Collateral (as
defined in the Form of Note) other than a Permitted Lien;
(iii) declare,
set aside, or pay any dividends on, make any other distributions in respect
of,
redeem or otherwise repurchase any of its capital stock or other securities,
other than dividends and distributions by the Subsidiary to the Company, or
redeem or repurchase any of its capital stock or other securities;
(iv) split,
combine or reclassify any of its capital stock;
(v) adopt
or
amend any employee benefit plan;
(vi) except
with respect to the compensation of Xxxxxx X. Xxxxx, xxxxx, award or enter
into
any compensation (including stock options or other awards under existing benefit
plans) or change of control arrangement with any employee or director of the
Company or the Subsidiary or amend the terms of employment or compensation
of
any employee or director of the Company or the Subsidiary; or
(vii) increase
the size of the Board of Directors of the Company or the Subsidiary or, except
with respect to the New Directors, appoint any new members to the Board of
Directors of the Company or the Subsidiary.
(b) No
later
than fifteen (15) business days after the First Closing, the Company will file
a
preliminary Schedule 14C information statement (the “Preliminary Schedule
14C”) with the Commission. The Company agrees to respond to the
initial and any subsequent Commission comments relating to the Preliminary
Schedule 14C as soon as practicable after receipt of such comments and to use
commercially reasonable efforts to address all of such Commission
comments. The Company agrees to file a definitive Schedule 14C
information
statement
with the Commission no later than the second business day after receiving
confirmation that the Commission has no further comments on the Preliminary
Schedule 14C.
(c) As
long
as any Purchaser owns Subject Securities and the Company is required to file
reports pursuant to the Exchange Act, the Company covenants to use commercially
reasonable best efforts to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed
by
the Company after the date hereof pursuant to the Exchange Act. As
long as any Purchaser owns Subject Securities, if the Company is not required
to
file reports pursuant to the Exchange Act, it will prepare and furnish to the
Purchasers and make publicly available in accordance with Rule 144(c) such
information as is required for the Purchasers to sell the Subject Securities
under Rule 144. The Company further covenants that it will take such further
action as any holder of Subject Securities may reasonably request, to the extent
required from time to time to enable such holder to sell such Subject Securities
without registration under the Securities Act within the requirements of the
exemption provided by Rule 144.
(d) The
Company shall not sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the
Securities Act) that would be integrated with the offer or sale of the Subject
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Purchasers or that would be integrated
with the offer or sale of the Securities for purposes of the rules and
regulations of the American Stock Exchange.
(e) Other
than in the case of a Form 8-K and any exhibits thereto, including any press
releases included therein, required to be filed with the Commission by the
Company, neither the Company nor the undersigned shall issue any press release
or otherwise make any public statement concerning the transactions contemplated
by the Transaction Documents and Exchange Agreement without the prior consent
of
the Company, with respect to any press release of the undersigned, or without
the prior consent of the undersigned, with respect to any press release of
the
Company or otherwise authorized by the Company, which consent shall not
unreasonably be withheld or delayed, except if such disclosure is required
by
law, in which case the disclosing party shall promptly provide the other party
with prior notice of such public statement or communication.
(f) No
claim
will be made or enforced by the Company or, with the consent of the Company,
any
other person or entity, that any Purchaser is an “acquiring person” or
“interested stockholder” under any control share acquisition, business
combination, shareholder rights plan (including any distribution under a rights
agreement) or similar anti-takeover plan or arrangement in effect or hereafter
adopted by or applicable to the Company (including without limitation
Section 203 of the Delaware General Corporation Law), or that any Purchaser
could be deemed to trigger the provisions of any such plan or arrangement,
by
virtue of receiving Subject Securities under the Transaction Documents or under
any other agreement between the Company and the Purchasers.
(g) Except
as
set forth on Schedule 5(g), the Company shall use the net proceeds from
the sale of the Subject Securities for working capital purposes and shall
not
use
such
proceeds for the payment of any dividends or distributions or the redemption
or
repurchase of any Common Stock or other securities of the Company.
(h) Promptly
after the Stockholder Consents become effective, the Company shall file the
Certificate of Amendment with the Secretary of State of the State of
Delaware. Thereafter, the Company shall maintain a reserve from its
duly authorized shares of Common Stock, free of all preemptive or preferential
rights, for issuance pursuant to the Transaction Documents in such amount as
may
be required to fulfill its obligations in full under the Transaction
Documents. Promptly following the conversion of the Notes, the
Company shall: (i) in the time and manner required by the American Stock
Exchange (or any subsequent trading market which is the principal trading market
on which the Common Stock is listed or quoted, as applicable, the “Trading
Market”), prepare and file with the Trading Market an additional shares
listing application covering a number of shares of Common Stock equal to the
number of shares of Common Stock issued upon the Conversion of the Notes and
issuable upon the exercise of the Warrants, (ii) take all steps necessary
to cause such shares of Common Stock to be approved for listing on such Trading
Market as soon as possible thereafter, (iii) provide to the Purchasers
evidence of such listing, and (iv) maintain the listing of such Common
Stock on such Trading Market or another Trading Market.
(i) From
the
date hereof until 90 days after the date on which a registration statement
is
declared effective pursuant to the Registration Rights Agreement (the
“Effective Date”), neither the Company nor the Subsidiary shall issue
shares of Common Stock, any other capital stock or equity securities of the
Company or the Subsidiary, or any securities convertible into or exercisable
for
Common Stock, capital stock or equity securities of the Company or the
Subsidiary (collectively, “Equity Securities”); provided,
however, the 90 day period set forth in this Section 5(i) shall be
extended for the number of days during such period in which (i) trading in
the Common Stock is suspended by the Trading Market, or (ii) following the
Effective Date, the Registration Statement is not effective or the prospectus
included in the Registration Statement may not be used by the Purchasers for
the
resale of Common Stock. This Section 5(i) shall not apply to any
“Exempt Issuance” as such term is defined in the Warrant.
(j) From
the
Effective Date until the Cessation Date (as defined below), the Company will
not, directly or indirectly, effect any sale, issuance or exchange of any Equity
Securities (a “Subsequent Placement”) unless the Company shall have first
complied with this Section 5(j).
(i) The
Company shall deliver to each
Purchaser and holder of New Notes (collectively, the “2007 Holders”) a
written notice (the “Offer”) of any proposed or intended sale, issuance
or exchange of the securities being offered (the “Offered Securities”) in
a Subsequent Placement, which Offer shall (w) identify and describe the Offered
Securities, (x) describe the price and other terms upon which they are to be
sold, issued or exchanged, and the number or amount of the Offered Securities
to
be sold, issued or exchanged, (y) identify the persons or entities to which
or
with which the Offered Securities are to be offered, sold, issued or exchanged,
and (z) offer to sell and issue to or exchange with each 2007 Holder (A) a
pro
rata portion of the Offered Securities based on such 2007 Holder’s pro rata
portion of the aggregate principal amount of the 2007 Notes purchased or
received by such 2007 Holder (the “Basic Amount”), and (B) with respect
to each 2007 Holder that elects to purchase its Basic Amount,
any
additional portion of the Offered Securities attributable to the Basic Amounts
of other 2007 Holders as such 2007 Holder shall indicate it will purchase or
acquire should the other 2007 Holders subscribe for less than their Basic
Amounts (the “Undersubscription Amount”).
(ii) To
accept an Offer, in whole or in
part, a 2007 Holder must deliver a written notice to the Company prior to the
end of the 10 trading day period following receipt of the Offer, setting forth
the portion of the 2007 Holder’s Basic Amount that such 2007 Holder elects to
purchase and, if such 2007 Holder shall elect to purchase all of its Basic
Amount, the Undersubscription Amount, if any, that such 2007 Holder elects
to
purchase (in either case, the “Notice of Acceptance”). If the Basic
Amounts subscribed for by all 2007 Holders are less than the total of all of
the
Basic Amounts, then each 2007 Holder who has set forth an Undersubscription
Amount in its Notice of Acceptance shall be entitled to purchase, in addition
to
the Basic Amounts subscribed for, the Undersubscription Amount it has subscribed
for; provided, however, that if the Undersubscription Amounts subscribed for
exceed the difference between the total of all the Basic Amounts and the Basic
Amounts subscribed for (the “Available Undersubscription Amount”), each
2007 Holder who has subscribed for any Undersubscription Amount shall be
entitled to purchase only that portion of the Available Undersubscription Amount
as the Basic Amount of such 2007 Holder bears to the total Basic Amounts of
all
2007 Holders that have subscribed for Undersubscription Amounts.
(iii) The
Company shall have 10 trading days
from the expiration of the period set forth in Section 5(j)(ii) above to sell,
issue or exchange all or any part of such Offered Securities as to which a
Notice of Acceptance has not been given by the 2007 Holders (the “Refused
Securities”), but only to the offerees described in the Offer and only upon
terms and conditions (including, without limitation, unit prices and interest
rates), taken as a whole, that are not more favorable to the acquiring persons
or entities or less favorable to the Company than those set forth in the
Offer.
(iv) In
the event the Company shall propose
to sell less than all the Refused Securities (any such sale to be in the manner
and on the terms specified in Section 5(j)(iii) above), then each 2007 Holder
may, at its sole option and in its sole discretion, reduce the number or amount
of the Offered Securities specified in its Notice of Acceptance to an amount
that shall be not less than the number or amount of the Offered Securities
that
the 2007 Holder elected to purchase pursuant to Section 5(j)(ii) above
multiplied by a fraction, (i) the numerator of which shall be the number or
amount of Offered Securities the Company actually proposes to issue, sell or
exchange (including Offered Securities to be issued or sold to 2007 Holders
pursuant to Section 5(j)(ii) above prior to such reduction) and (ii) the
denominator of which shall be the original amount of the Offered
Securities. In the event that any 2007 Holder so elects to reduce the
number or amount of Offered Securities specified in its Notice of Acceptance,
the Company may not issue, sell or exchange more than the reduced number or
amount of the Offered Securities unless and until such securities have again
been offered to the 2007 Holders in accordance with Section 5(j)(i)
above.
(v) Upon
the closing of the sale, issuance
or exchange of all or less than all of the Refused Securities, the 2007 Holders
shall acquire from the Company, and the Company shall issue to the 2007 Holders,
the number or amount of Offered Securities specified in the Notices of
Acceptance, as reduced pursuant to Section 5(j)(iv) above if the 2007
Holders
have
so
elected, upon the terms and conditions specified in the Offer. The
purchase by the 2007 Holders of any Offered Securities is subject in all cases
to the preparation, execution and delivery by the Company and the 2007 Holders
of a purchase agreement relating to such Offered Securities reasonably
satisfactory in form and substance to the 2007 Holders, the Company and their
respective counsel. Notwithstanding anything to the contrary
contained in this Agreement, if the Company does not consummate the closing
of
the sale, issuance or exchange of all or less than all of the Refused Securities
within 7 trading days after the expiration of the period set forth in Section
5(j)(ii), the Company shall issue to the 2007 Holders the number or amount
of
Offered Securities specified in the Notices of Acceptance, as reduced pursuant
to Section 5(j)(iv) above if the 2007 Holders have so elected (which, in this
case may be reduced to zero), upon the terms and conditions specified in the
Offer.
(vi) The
Company and the 2007 Holders agree
that if any 2007 Holder elects to participate in the Offer, any registration
rights set forth in the agreement regarding the Subsequent Placement with
respect to such Offer or any other transaction documents related thereto
(collectively, the “Subsequent Placement Documents”) shall not entitle
the purchasers of any Offered Securities issued in such Subsequent Placement
to
participate in any registration statement filed under the Registration Rights
Agreement and shall not obligate the Company to file a registration statement
with respect to such Offered Securities unless one or more registration
statements covering all shares of Common Stock issued or issuable upon the
conversion of the 2007 Notes or the exercise of the Warrants are then
effective. The Subsequent Placement Documents shall not include any
term or provision whereby any 2007 Holder shall be required to agree to any
restrictions in trading as to any securities of the Company owned by such 2007
Holder prior to such Subsequent Placement if the 2007 Holders purchase all
of
the Offered Securities, and, in all other cases, such restrictions shall apply
only to 2007 Holders who participate in the Subsequent Placement and the period
of such restrictions shall not exceed ninety (90) days after the closing of
the
Subsequent Placement.
(vii) Notwithstanding
anything to the
contrary in this Section 5(j) and unless otherwise agreed to by the 2007 Notes
Majority Holders (as defined in section 7(b) hereof), the Company shall either
confirm in writing to the 2007 Holders that the transaction with respect to
the
Subsequent Placement has been abandoned or shall publicly disclose its intention
to issue the Offered Securities, in either case in such a manner such that
the
2007 Holders will not be in possession of material non-public information as
a
result of having information concerning the proposed Subsequent Placement,
by
the seventeenth (17th) trading day following delivery of the Offer. If by the
seventeenth (17th) trading day following delivery of the Offer no public
disclosure regarding a transaction with respect to the Offered Securities has
been made, and no notice regarding the abandonment of such transaction has
been
received by the 2007 Holders, such transaction shall be deemed to have been
abandoned and the 2007 Holders shall not be deemed to be in possession of any
material, non-public information with respect to the Company as a result of
having information concerning the proposed Subsequent Placement. Should the
Company decide to pursue such transaction with respect to the Offered
Securities, the Company shall provide each 2007 Holder with another Offer Notice
and each 2007 Holder will again have the right of participation set forth in
this Section 5(j). The Company shall not be permitted to deliver more than
one
such Offer to the 2007 Holders in any 60 day period.
(viii)
Any
Offered Securities not acquired by the 2007 Holders or the offerees in
accordance with Section 5(j)(iii) above may not be issued, sold or exchanged
until they are again offered to the 2007 Holders under the procedures specified
in this Agreement.
(ix) This
Section 5(j) shall not apply to any “Exempt Issuance” as such term is defined in
the Form of Warrant.
(x)
For
purposes of this Agreement, the term “Cessation Date” shall mean the
first day on which the Purchasers (including transferees treated as Purchasers
pursuant to Section 11(c)) no longer hold: (x) prior to the conversion of the
Notes, Notes representing at least 25% of the aggregate principal amount of
all
Notes issued in the Offering, and (y) after the conversion of the Notes, (A)
if
the Per Share Exercise Price (as such term is defined in the Warrants) is
greater than the closing price of the Common Stock last reported by the Trading
Market prior to such day, shares of Common Stock representing at least 25%
of
the aggregate shares of Common Stock issued upon the conversion of the Notes
or
previously issued upon the exercise of any Warrants, or (B) if the Per Share
Exercise Price is less than the closing price of the Common Stock last reported
by the Trading Market prior to such day, shares of Common Stock representing
at
least 25% of the aggregate shares of Common Stock issued upon the conversion
of
the Notes, previously issued upon the exercise of any Warrants, or issuable
upon
the future exercise of any Warrants (treating the Purchasers as holding any
shares of Common Stock that would be issuable upon the exercise of any Warrants
then held by Purchasers).
(k) The
Company acknowledges and agrees that the undersigned may from time to time
pledge pursuant to a bona fide margin agreement with a registered broker-dealer
or grant a security interest in some or all of the Subject Securities to a
financial institution that is an “accredited investor” as defined in Rule 501(a)
under the Securities Act and who agrees to be bound by the provisions of this
Agreement and the Registration Rights Agreement and, if required under the
terms
of such arrangement, the undersigned may transfer pledged or secured Subject
Securities to the pledgees or secured parties. Such a pledge or transfer would
not be subject to approval of the Company and no legal opinion of legal counsel
of the pledgee, secured party or pledgor shall be required in connection
therewith. Further, no notice shall be required of such
pledge. At the undersigned’s expense, the Company will execute and
deliver such reasonable documentation as a pledgee or secured party of Subject
Securities may reasonably request in connection with a pledge or transfer of
the
Subject Securities, including, if the Subject Securities are subject to
registration pursuant to the Registration Rights Agreement, the preparation
and
filing of any required prospectus supplement under Rule 424(b)(3) under the
Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of selling stockholders thereunder.
(l) Upon
the
terms and subject to the conditions hereof, the Company shall use its
commercially reasonable best efforts to take, or cause to be taken, all
appropriate actions and do, or cause to be done, all things necessary, proper
or
advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement (including, without limitation,
to
cause the conditions in clauses (i), (ii), (iv), (v), (vi), (vii) and (viii)
of
Section 2(e) to be satisfied) and to cooperate with the undersigned in
connection with the foregoing.
(m) From
the
date hereof until such time as no Purchaser holds any of the Subject Securities,
the Company will, at its own expense, maintain insurance (including, without
limitation, commercial general liability and property insurance, and directors
and officers liability insurance, including such directors and officers
liability insurance in respect of acts or omissions occurring prior to the
First
Closing covering each such person serving as an officer or director of the
Company immediately prior to the First Closing to the extent that such coverage
is in place as of the First Closing) in such amounts, against such risks, in
such form and with responsible and reputable insurance companies or associations
as is required by any governmental authority having jurisdiction with respect
thereto or as is carried generally in accordance with sound business practice
by
companies in similar businesses similarly situated and in any event, in amount,
adequacy, scope and with comparable insurance companies as the insurance in
place as of the date of this Agreement; provided, if the First Closing shall
not
have occurred prior to September 21, 2007 the directors and officers liability
coverage may be reduced to $7,000,000.
(n) Except
with respect to the material terms and conditions of the transactions
contemplated by the Transaction Documents and the Exchange Agreement, the
Company covenants and agrees that neither it nor any other person or entity
acting on its behalf will, following the Closing, provide any Purchaser or
its
agents or counsel with any information that the Company believes constitutes
material non-public information, unless prior thereto such Purchaser shall
have
executed a written agreement (which may be in the form of an e-mail or other
electronic confirmation) regarding the confidentiality and use of such
information. The Company understands and confirms that each Purchaser
shall be relying on the foregoing representations in effecting transactions
in
securities of the Company. This Section 5(n) shall not apply to any
information provided, or limit the ability of the Company to provide any
information, to any Purchaser to whom knowledge of a member of the Board of
Directors of the Company is attributable.
(o) From
the
date hereof until such time as no Purchaser holds any of the Subject Securities,
the Company shall not effect or enter into an agreement to effect any financing
involving a Variable Rate Transaction. “Variable Rate
Transaction” means a transaction in which the Company issues or sells
(i) any Equity Securities that are convertible into, exchangeable or
exercisable for, or include the right to receive additional shares of Common
Stock either (A) at a conversion, exercise or exchange rate or other price
that is based upon and/or varies with the trading prices of or quotations for
the shares of Common Stock at any time after the initial issuance of such Equity
Security, or (B) with a conversion, exercise or exchange price that is
subject to being reset at some future date after the initial issuance of such
Equity Security or upon the occurrence of specified or contingent events
directly or indirectly related to the business of the Company or the market
for
the Common Stock or (ii) enters into any agreement, including, but not
limited to, an equity line of credit, whereby the Company may sell securities
at
a future determined price.
(p) Notwithstanding
Section 6(b), the Company agrees to issue or reissue certificates of Common
Stock without a legend if at such time, prior to making any transfer of any
Common Stock, the undersigned shall give written notice to the Company making
such request and: (i) a registration statement covering the resale of
such Common Stock is effective under the Securities Act, or (ii) the
undersigned provides the Company or its counsel
with
reasonable assurances that such security can be sold pursuant to Rule 144
promulgated under the Securities Act or any successor or replacement rule (as
applicable, “Rule 144”) (which may include an opinion of counsel provided
by the Company), or (iii) the undersigned provides the Company or its
counsel with reasonable assurances that such security can be sold pursuant
to
section (k) of Rule 144 (or a corresponding successor or replacement section,
as
applicable, “Rule 144(k)”), or (iv) the Company has received other
evidence reasonably satisfactory to the Company that such legend is not required
under applicable requirements of the Securities Act and state securities laws
(including judicial interpretations and pronouncements issued by the staff
of
the Commission). The Company shall cause its counsel to issue a legal
opinion to its transfer agent, after the undersigned has provided the Company’s
counsel with all necessary documentation required by such counsel to issue
such
an opinion, if such legal opinion is required by the transfer agent to effect
the removal of the legend hereunder. If all or any portion of a Note
or Warrant is converted or exercised (as applicable) at a time when there is
an
effective registration statement to cover the resale of the Common Stock issued
upon such conversion or exercise, or if such shares of Common Stock may be
sold
under Rule 144(k) or if such legend is not otherwise required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission) then certificates
representing such shares of Common Stock shall be issued free of all
legends. The Company agrees that at such time as such legend is no
longer required under this Section 5(p) and the undersigned has complied
with this Section 5(p), it will, no later than three trading days following
the
delivery by the undersigned to the Company or the transfer agent of a
certificate representing shares of Common Stock issued with a restrictive
legend, deliver or cause to be delivered to the undersigned a certificate
representing such shares that is free from all restrictive and other legends.
The Company may not make any notation on its records or give instructions to
the
transfer agent that enlarge the restrictions on transfer set forth in this
Section 5(p). Certificates for shares of Common Stock subject to
legend removal hereunder shall, at the direction of the undersigned, be
transmitted by the transfer agent of the Company to the undersigned by crediting
the account of the undersigned’s prime broker with the Depository Trust Company
System.
(q) At
all
times until the Investor Rights Agreement has terminated in accordance with
its
terms (the “Designation Period”), the Company will cause two individuals
designated by Lambda (the individuals whom Lambda has so designated from time
to
time are referred to herein as the “Lambda Designees”) to be members of
the Board of Directors of the Company except to the extent that (i) Lambda
otherwise consents in writing, or (ii) a member of the Board of Directors
originally designated by Lambda resigns and Lambda has not yet designated a
successor. Without limiting the generality of the foregoing, during
the Designation Period the Company will cause the Lambda Designees to be elected
or nominated to the Board of Directors, to promptly remove any Lambda Designee
from the Board of Directors upon the written direction of Lambda, and to
promptly elect or appoint any successor designated by Lambda having reasonably
appropriate business experience and background to fill any vacancy caused by
any
Lambda Designee ceasing to be a member of the Board of Directors for any
reason.
(r) Prior
to
the Automatic Conversion Date (as defined in the Form of Note), the Company
will
not enter into any agreement for additional financing through equity or
equity-linked securities on terms that are materially different or more
beneficial to the purchasers
of
such
equity or equity-linked securities than those contained in this Agreement and
all exhibits hereto without the prior consent of the 2007 Notes Majority Holders
(as defined in section 7(b) hereof).
6. Covenants
of the Undersigned.
(a) The
undersigned agrees that no sale, assignment or transfer of any of the Subject
Securities acquired by the undersigned shall be valid or effective, and the
Company shall not be required to give any effect to such a sale, assignment
or
transfer, unless (i) the sale, assignment or transfer of such Subject Securities
is registered under the Securities Act, it being understood that the Subject
Securities are not currently registered for sale and that the Company has no
obligation or intention to so register the Subject Securities, except as
provided by the Registration Rights Agreement; (ii) the Subject Securities
are
sold, assigned or transferred in accordance with all the requirements and
limitations of an exemption from registration under the Securities
Act. Without limiting the generality of the foregoing, the
undersigned agrees that following the removal of the restrictive legend from
certificates representing Common Stock, the undersigned will sell any such
Common Stock pursuant to either the registration requirements of the Securities
Act, including any applicable prospectus delivery requirements, or an exemption
therefrom, and that if shares of Common Stock are sold pursuant to a
Registration Statement, they will be sold in compliance with the plan of
distribution set forth therein.
(b) The
undersigned agrees to the imprinting, so long as is required by
Section 6(a), of a legend on any of the Securities in the following or a
substantially similar form and such other legends as may be required by state
blue sky laws:
“THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO SUCH SECURITIES UNDER THE
SECURITIES ACT OR AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF
THE SECURITIES ACT. ANY SUCH TRANSFER MAY ALSO BE SUBJECT TO
COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS.”
(c) The
undersigned hereby agrees that from the date hereof and continuing until the
Cessation Date, the undersigned shall not, without the prior written consent
of
the Company, directly or indirectly, through related parties, affiliates or
otherwise, (i) sell “short” or “short against the box” (as those terms are
generally understood) any equity security of the Company or (ii) otherwise
engage in any transaction which involves hedging of the undersigned’s position
in any equity security of the Company, provided, however, that it shall not
be a
violation of this Section 6(c), if the undersigned places a sell order for
shares of Common Stock underlying the Notes or Warrants at or following the
time
of conversion or exercise of such Notes or Warrants and all conditions to
exercise of such Warrants have been satisfied, relies on the Company to deliver
such Common Stock in accordance with the Form of
Note
or
Warrants as the case may be, and completes the sale of such Common Stock before
the Company delivers the Common Stock to the undersigned.
(d) Upon
the
terms and subject to the conditions hereof, the undersigned shall use its
commercially reasonable best efforts to take, or cause to be taken, all
appropriate actions and do, or cause to be done, all things necessary, proper
or
advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement (including, without limitation,
to
cause the conditions in clauses (i) and (ii) of Section 2(d) to be satisfied
and
to execute and deliver at the First Closing the Registration Rights Agreement
and Investor Rights Agreement) and to cooperate with the Company in connection
with the foregoing.
(e) After
the
Closing, upon the request of the Company the undersigned shall provide to the
Company such additional information and documentation concerning the
undersigned’s legal or beneficial ownership, policies, procedures and sources of
funds as is reasonably necessary to enable the Company to comply with Anti-Money
Laundering Laws now in existence or hereafter enacted or amended.
7. Indemnification.
(a) General. The
Company shall indemnify and hold harmless the undersigned and each officer,
director, partner, employee, agent and controlling person of the undersigned
(within the meaning of Section 15 of the Securities Act and Section 20
of the Exchange Act), past, present or future (each, an “Indemnified
Party”), from and against any and all claims, losses, damages, liabilities,
judgments, fines, penalties, charges, costs, and expense, including reasonable
attorneys fees and disbursements including those incurred in enforcing this
Section 7(a) (collectively, “Losses”), due to or arising out of (i) a
breach of any representation, warranty, covenant or agreement by the Company
in
this Agreement or any other Transaction Document, or (ii) a claim against the
undersigned by a third party based on the transactions contemplated by the
Transaction Documents (other than a claim based on a breach by the undersigned
of any representation, warranty or covenant of the undersigned in the
Transaction Documents to which it is a party). No knowledge by the
undersigned of any breach or inaccuracy of any representation, warranty,
covenant or agreement by the Company in this Agreement shall impair, limit,
release or otherwise impair any rights of the undersigned pursuant to this
Section 7.
(b) Limitation
on Indemnification. The maximum amount payable by the Company to
all Indemnified Parties in respect of claims made for indemnification under
clause (i) of Section 7(a) shall not exceed, in the aggregate, the Subscription
Amount plus the Indemnified Parties’ reasonable out-of-pocket expenses incurred
in connection with (i) the Transaction Documents and the transactions
contemplated thereby, (ii) enforcing its rights under Section 7(a) and (iii)
defending itself against any claim related to the Transaction Documents or
the
transactions contemplated thereby. No Indemnified Party shall be
entitled to bring a claim with respect to Losses due to or arising out of a
breach by the Company of any representation or warranty contained in Sections
3(e) through (ii) (including a claim permitted by clause (i) or (ii) of Section
7(c)) unless such claim is brought by, or the bringing of such claim is
consented to in writing by, the 2007 Notes Majority Holders. For
purposes of this Section 7(b), the “2007 Notes
Majority
Holders” shall be (x) prior to the conversion of the 2007 Notes, holders of
2007 Notes having a principal amount greater than fifty percent (50%) of the
principal amount of all 2007 Notes then outstanding, and (y) after the
conversion of the 2007 Notes, the holders of a majority of the shares of Common
Stock that were issued upon the conversion of the 2007 Notes or were issued
or
are issuable upon the exercise of the Warrants (excluding from such analysis
any
shares of Common Stock that have been sold pursuant to an effective registration
statement or Rule 144 and the holders thereof). Once a claim has been
brought or approved by the 2007 Notes Majority Holders, each Indemnified Party
may continue to prosecute such claim even if the persons or entities bringing
or
approving such claim subsequently cease to constitute the 2007 Notes Majority
Holders.
(c) Sole
Remedy. The parties hereto agree and acknowledge that the
indemnification rights provided in this Section 7 shall be the exclusive
remedy of the parties hereto for breaches of the representations and warranties
contained in this Agreement except with respect to (i) claims involving fraud
or
a knowing breach of the representations and warranties or (ii) any equitable
relief to which any party may be entitled, including without limitation,
rescission.
(d) Notice. With
respect to any Loss related to a claim by a third party, an Indemnified Party
shall give written notice thereof to the Company (in such capacity, the
“Indemnifying Party”) promptly after receipt of any written claim by such
third party and in any event not later than twenty (20) business days after
receipt of any such written claim (or not later than ten (10) business days
after the receipt of any such written claim in the event such written claim
is
in the form of a formal complaint filed with a court of competent jurisdiction
and served on the Indemnified Party), specifying in reasonable detail the
amount, nature and source of the claim, and including therewith copies of any
notices or other documents received from third parties with respect to such
claim; provided, however, that failure to give such notice
shall not limit the right of an Indemnified Party to recover indemnity or
reimbursement except to the extent that the Indemnifying Party suffers any
prejudice or harm with respect to such claim as a result of such
failure. The Indemnified Party shall also provide the Indemnifying
Party with such further information concerning any such claims as the
Indemnifying Party may reasonably request by written notice.
(e) Payment
of Losses. Within thirty (30) calendar days after receiving
notice of a claim for indemnification or reimbursement, the Indemnifying Party
shall, by written notice to the Indemnified Party, either (i) concede or deny
liability for the claim in whole or in part, or (ii) in the case of a claim
asserted by a third party, advise that the matters set forth in the notice
are,
or will be, subject to contest or legal proceedings not yet finally
resolved. If the Indemnifying Party concedes liability in whole or in
part, it shall, within twenty (20) business days of such concession, pay the
amount of the claim to the Indemnified Party to the extent of the liability
conceded. Any such payment shall be made in immediately available
funds equal to the amount of such claim so payable. If the
Indemnifying Party denies liability in whole or in part or advises that the
matters set forth in the notice are, or will be, subject to contest or legal
proceedings not yet finally resolved, then the Indemnifying Party shall make
no
payment (except for the amount of any conceded liability payable as set forth
above) until the matter is resolved in accordance with this
Agreement.
(f) Defense
of Claims. In the case of any third party claim, if within 20
days after receiving the notice described in the preceding Section 7(d), the
Indemnifying Party (i) gives written notice to the Indemnified Party stating
that the Indemnifying Party would be liable under the provisions hereof for
indemnity in the amount of such claim if such claim were valid and that the
Indemnifying Party disputes and intends to defend against such claim, liability
or expense at the Indemnifying Party’s own cost and expense, and (ii) provides
assurance reasonably acceptable to such Indemnified Party that such
indemnification will be paid fully and promptly if required and such Indemnified
Party will not incur cost or expense during the proceeding, then the
Indemnifying Party shall be entitled to assume the defense of such claim and
to
choose counsel for the defense (subject to the consent of such Indemnified
Party
which consent shall not be unreasonably withheld) and such Indemnified Party
shall not be required to make any payment with respect to such claim, liability
or expense as long as the Indemnifying Party is conducting a good faith and
diligent defense at its own expense; provided, however, that the assumption
of
the defense of any such matters by the Indemnifying Party shall relate solely
to
the claim, liability or expense that is subject or potentially subject to
indemnification. If the Indemnifying Party assumes such defense in
accordance with the preceding sentence, it shall have the right to settle
indemnifiable matters related to claims by third parties where (x) the only
obligation of the Indemnified Party and Indemnifying Party in connection with
such settlement is the payment of money damages and such money damages are
satisfied in full by the Indemnifying Party, and (ii) the settlement includes
a
complete release of the relevant Indemnified Party or Parties. Any
other settlement of a claim for which the Indemnifying Party has assumed the
defense shall require the prior written consent of the relevant Indemnified
Party or Parties, which consent shall not be unreasonably
withheld. No Indemnified Party shall settle any claim with respect to
which the Indemnifying Party has assumed the defense, without the prior written
consent of the Indemnifying Party. The Indemnifying Party shall keep
such Indemnified Party apprised of the status of the claim, liability or expense
and any resulting suit, proceeding or enforcement action, shall furnish such
Indemnified Party with all documents and information that such Indemnified
Party
shall reasonably request and shall consult with such Indemnified Party prior
to
acting on major matters, including settlement
discussions. Notwithstanding anything herein stated, such Indemnified
Party shall at all times have the right to participate in, but not control,
such
defense at its own expense directly or through counsel; provided,
however, if the named parties to the action or proceeding include
both
the Indemnifying Party and the Indemnified Party and representation of both
parties by the same counsel would be inappropriate under applicable standards
of
professional conduct, the reasonable expense of separate counsel for such
Indemnified Party shall be paid by the Indemnifying Party provided that such
Indemnifying Party shall be obligated to pay for only one such
counsel. If no such notice of intent to dispute and defend is given
by the Indemnifying Party, or if such diligent good faith defense is not being
or ceases to be conducted, such Indemnified Party may undertake the defense
of
(with counsel selected by such Indemnified Party, which selection shall require
the consent of the Indemnifying Party, which consent shall not be unreasonably
withheld, and paid by the Indemnifying Party), and shall have the right to
compromise or settle, such claim, liability or expense (exercising reasonable
business judgment) with the consent of the Indemnifying Party, which consent
shall not be unreasonably withheld. Such Indemnified Party shall make
available all information and assistance that the Indemnifying Party may
reasonably request and shall cooperate with the Indemnifying Party in such
defense.
8. Creation
of Security Interest.
(a) Grant
of Security Interest. The Company hereby grants and pledges to
Lambda (the “Secured Party”) a continuing security interest in the
Collateral (as defined in the Form of Note) in order to secure prompt payment
of
the principal of, interest on and all other amounts due and payable under the
2007 Notes (collectively, the “Obligations”). Such security
interest shall automatically terminate upon the (i) earlier of the payment
of
principal and interest on the 2007 Notes; (ii) such time as the Company
designates sufficient funds (which may be proceeds from the sale of Collateral)
for the payment of the 2007 Notes and (iii) the Automatic Conversion Date (as
defined in the Form of Note) (the “Security Interest Termination
Date”).
(b) Designation
of Secured Party as Agent. The undersigned hereby irrevocably
designates the Secured Party to act as Secured Party on the undersigned’s
behalf. The undersigned hereby irrevocably authorizes, and each
holder of any Subject Securities, by such holder’s acceptance of such Subject
Securities, shall be deemed irrevocably to authorize, the Secured Party to
take
such action on its behalf under the provisions of this Agreement and any other
instruments and agreements referred to herein or therein and to exercise such
powers and to perform such duties hereunder and thereunder as are specifically
delegated to, or required of, the Secured Party by the terms hereof or thereof
and such other powers as are reasonably incidental thereto. The
undersigned, on behalf of itself and future holders of the Subject Securities
issued to the undersigned, hereby authorizes and directs the Secured Party,
from
time to time in the Secured Party’s discretion, to take any action and promptly
to execute and deliver on the undersigned’s behalf any document or instrument
that the Company may reasonably request to effect, confirm or evidence the
provisions of this Section 8, the occurrence of the Security Interest
Termination Date, any subordination agreement, or otherwise. Pursuant
to Section 9-509(d) of the Uniform Commercial Code as in effect on the date
hereof in the State of New York, the Secured Party hereby authorizes the Company
to file a termination statement upon the occurrence of the Security Interest
Termination Date; the Secured Party agrees to provide any further authorizations
of such filing if requested by the Company. In no event shall the
Secured Party have any liability or other obligation to the Company or the
undersigned whatsoever as a result of any act or omission taken or failed to
be
taken in its capacity as the Secured Party, and the Company and the undersigned
hereby irrevocably release the Secured Party from any and all such liabilities
or other obligations.
(c) Delivery
of Additional Documentation Required. The Company shall from time
to time execute and deliver to Secured Party, at the request of Secured Party,
all financing statements and other documents that Secured Party may reasonably
request and take any action that Secured Party may reasonably request to perfect
and continue perfected Secured Party’s security interests in the
Collateral. Without limiting the generality of the foregoing, the
Company shall, upon the Secured Party’s written request, duly execute and
deliver any (i) assignment for security with respect to Intellectual
Property in a form reasonably requested by the Secured Party, and (ii) any
account control agreement with respect to any account holding Collateral in
a
form reasonably requested by the Secured Party. Notwithstanding the
foregoing, the Company need not deliver possession or control of any Collateral
to the Secured Party or take any action to perfect the security interest granted
hereby other than the filing of financing statements under the Uniform
Commercial Code, the delivery and filing of any assignments for
security
with respect to Intellectual Property and the entry into account control
agreements with respect to accounts holding Collateral. The Secured
Party may, at any time and from time to time, file financing statements,
continuation statements and amendments thereto that describe the Collateral
as
all assets of the Company or words of similar effect.
(d) Remedies
of Secured Party. If any Event of Default as defined in the Notes
shall have occurred and be continuing, the Secured Party may exercise in respect
of the Collateral, in addition to any other rights and remedies provided for
herein or otherwise available to it, all of the rights and remedies of a secured
party upon default under the Uniform Commercial Code (whether or not the Uniform
Commercial Code applies to the affected Collateral), and also may (i) take
absolute control of the Collateral, including, without limitation, transfer
into
the Secured Party’s name or into the name of its nominee or nominees (to the
extent the Secured Party has not theretofore done so) and thereafter receive,
for the benefit of the holders of 2007 Notes, all payments made thereon, give
all consents, waivers and ratifications in respect thereof and otherwise act
with respect thereto as though it were the outright owner thereof,
(ii) require the Company to, and the Company hereby agrees that it will at
its expense and upon request of the Secured Party forthwith, assemble all or
part of its respective Collateral as directed by the Secured Party and make
it
available to the Secured Party at a place or places to be designated by the
Secured Party that is reasonably convenient to both parties, and the Secured
Party may enter into and occupy any premises owned or leased by the Company
where the Collateral or any part thereof is located or assembled for a
reasonable period in order to effectuate the Secured Party’s rights and remedies
hereunder or under law, without obligation to the Company in respect of such
occupation, and (iii) without notice except as specified below and without
any obligation to prepare or process the Collateral for sale, (A) sell the
Collateral or any part thereof in one or more parcels at public or private
sale,
at any of the Secured Party’s offices or elsewhere, for cash, on credit or for
future delivery, and at such price or prices and upon such other terms as the
Secured Party may deem commercially reasonable and/or (B) lease, license or
dispose of the Collateral or any part thereof upon such terms as the Secured
Party may deem commercially reasonable. The Company agrees that, to
the extent notice of sale or any other disposition of its respective Collateral
shall be required by law, at least 10 days’ notice to the Company of the
time and place of any public sale or the time after which any private sale
or
other disposition of its Collateral is to be made shall constitute reasonable
notification. The Secured Party shall not be obligated to make any
sale or other disposition of any Collateral regardless of notice of sale having
been given. The Secured Party may adjourn any public or private sale
from time to time by announcement at the time and place fixed therefor, and
such
sale may, without further notice, be made at the time and place to which it
was
so adjourned. The Company hereby waives any claims against the
Secured Party and the holders of 2007 Notes arising by reason of the fact that
the price at which the Collateral may have been sold at a private sale was
less
than the price which might have been obtained at a public sale or was less
than
the aggregate amount of the Obligations, even if the Secured Party accepts
the
first offer received and does not offer such Collateral to more than one
offeree, and waives all rights that the Company may have to require that all
or
any part of such Collateral be marshaled upon any sale (public or private)
thereof. The Company hereby acknowledges that (x) any such sale of the
Collateral by the Secured Party shall be made without warranty, (y) the
Secured Party may specifically disclaim any warranties of title, possession,
quiet enjoyment or the like, and (z) such actions set forth in clauses
(x) and (y) above shall not adversely affect the commercial reasonableness
of any such sale of Collateral. In addition to the foregoing,
(A) upon written
notice
to
the Company from the Secured Party after and during the continuance of an Event
of Default, the Company shall cease any use of the Intellectual Property for
any
purpose described in such notice; (B) the Secured Party may, at any time
and from time to time after and during the continuance of an Event of Default,
upon 10 days’ prior notice to the Company, license, whether general,
special or otherwise, and whether on an exclusive or non-exclusive basis, any
of
the Intellectual Property, throughout the universe for such term or terms,
on
such conditions, and in such manner, as the Secured Party shall in its sole
discretion determine; and (C) the Secured Party may, at any time, pursuant
to the authority granted in Section 8 hereof (such authority being
effective upon the occurrence and during the continuance of an Event of
Default), execute and deliver on behalf of the Company, one or more instruments
of assignment of the Intellectual Property (or any application or registration
thereof), in form suitable for filing, recording or registration in any
country.
(e) Benefits
to Holders of 2007 Notes. The rights of the Secured Party are for
the ratable benefit of the holders of the 2007 Notes (including the Secured
Party). Any proceeds or other Collateral received or recovered by the
Secured Party in its capacity as such shall, in the sole discretion of the
Secured Party, either (i) be held (or sold, liquidated or otherwise converted
into another form of proceeds or other Collateral that is held) by the Secured
Party for the ratable benefit of the holders of the 2007 Notes, as collateral
security for the Obligations (whether matured or unmatured), (ii) after and
during the continuance of an Event of Default, be retained by the Secured Party
to reimburse the Secured Party for its reasonable costs and expenses, including
attorneys fees and disbursements, incurred in serving as the Secured Party,
and/or (iii) after and during the continuance of an Event of Default, be
distributed to the holders of the 2007 Notes on a pro rata basis based on the
respective amounts then due and owing to the respective holders of the 2007
Notes. After and during the continuance of an Event of Default, the Secured
Party shall distribute any cash Collateral then held by the Secured Party in
accordance with clause (iii) of the proceeding sentence to the extent that
such
cash Collateral exceeds the costs or expenses described in clause (ii) of the
preceding sentence that have already been incurred or are reasonably expected
by
the Secured Party to be incurred unless the Secured Party has determined, upon
the advice of counsel, that it is not entitled to distribute such cash
Collateral at such time, in which case the Secured Party shall make such
distributions as soon as practicable after the Secured Party determines that
it
is entitled to distribute such cash Collateral.
9. Confidentiality. The
undersigned acknowledges and agrees that all information, written and oral,
concerning the Company furnished from time to time to the undersigned and
identified as confidential has been and is provided on a confidential basis
pursuant to a confidentiality agreement between the undersigned and the
Company.
10. Expenses. The
Company shall pay, in connection with the preparation, execution and delivery
of
this Agreement, the other Transaction Documents and the consummation of the
transactions contemplated hereby and thereby, all reasonable fees and out of
pocket expenses incurred by Lambda in connection with the Offering up to an
aggregate maximum amount of $75,000, whether or not the transactions
contemplated by the Transaction Documents are consummated.
11. Miscellaneous.
(a) This
Agreement, including the exhibits hereto, sets forth the entire understanding
of
the parties with respect to the undersigned’s purchase of Notes from the
Company, supersedes all existing agreements among them concerning such subject
matter, and, subject to paragraph (h) below, may be modified, and the provisions
hereof may be waived, only by a written instrument duly executed by the party
to
be charged; provided, however, the obligations of the Company
under Sections 5(b), (e), (g), (i), (j), (m) and (o) may be amended or
waived following the First Closing by the 2007 Notes Majority Holders;
provided, further, that any amendment or waiver to any of such
Sections by the 2007 Notes Majority Holders must apply to the corresponding
Sections of all of the subscription agreements entered into by the Company
in
connection with the Offering and the corresponding Sections of the Exchange
Agreement.
(b) Except
as
otherwise specifically provided herein, any notice or other communication
required or permitted to be given hereunder shall be in writing and shall be
mailed by certified mail, return receipt requested, or by Federal Express,
Express Mail or similar guaranteed overnight delivery or courier service or
delivered in person against receipt to the party to whom it is to be
given,
(i)
if
to the
Company,
Nephros,
Inc.
0000
Xxxxxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
Attn: President
(ii)
with
a copy to,
Xxxxxx
Xxxxx Xxxxxxxx & Xxxxxxx LLP
0000
Xxxxxx xx xxx Xxxxxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
Attention: Xxxxxx
X. Xxxxxxxx, Esq.
(ii)
if
to the undersigned, at the address set forth on the signature page
hereof,
or
in
either case, to such other address as the party shall have furnished in writing
in accordance with the provisions of this Section 11(b). Any notice
given by means permitted by this Section 11(b) shall be deemed given at the
time
of receipt thereof at the address specified in this Section 11(b).
(c) This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The Company may not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the undersigned or, after the Closing, the Majority
Holders. The undersigned may assign any or all of its rights under
this Agreement to any person or entity to whom the undersigned assigns or
transfers any Subject Securities, provided that such transferee agrees in
writing to be bound, with respect to the transferred Subject Securities, by
the
provisions of the Transaction Documents that
apply
to
such Subject Securities. In the event of any assignment pursuant to
this Section 11(c), the transferee shall be treated as the “undersigned” and a
“Purchaser” to the same extent as if such transferee were the original party to
this Agreement. Notwithstanding anything in this Section 11(c) to the
contrary, in the event of any assignment pursuant to this Section 11(c), the
undersigned shall not be entitled to assign any rights under this Agreement
to a
purchaser of shares of Common Stock sold by the undersigned pursuant to an
effective registration statement or Rule 144.
(d) The
headings in this Agreement are solely for convenience of reference and shall
be
given no effect in the construction or interpretation of this
Agreement.
(e) This
Agreement may be executed in any number of counterparts, each of which shall
be
deemed an original, but all of which together shall constitute one and the
same
instrument.
(f) This
Agreement shall be governed by and construed in accordance with the laws of
the
State of New York, without giving effect to principles governing conflicts
of
law that would defer to the substantive law of another
jurisdiction.
(g) In
the
event that any provision of this Agreement shall be determined to be illegal
or
unenforceable, that provision will be limited or eliminated to the minimum
extent necessary so that this Agreement shall otherwise remain in full force
and
effect and enforceable.
(h) This
Agreement does not create, and shall not be construed as creating, any rights
enforceable by any person not a party to this Agreement other than the Secured
Party and each Indemnified Party. The Company and the undersigned
acknowledge that the Secured Party’s consent to serve in such capacity is based
in part on the effectiveness of the provisions in Section 8 of this Agreement,
and the Company and the undersigned agree that the provisions of Section 8
of
this Agreement may be enforced by, and may not be modified or waived, without
the prior written consent of the Secured Party.
(i) Each
party hereto consents and submits to the exclusive jurisdiction of any state
court sitting in the County of New York or federal court sitting in the Southern
District of the State of New York in connection with any dispute arising out
of
or relating to this Agreement, and agrees that all suits, actions and
proceedings brought by such party hereunder shall be brought only in such
jurisdictions. Each party hereto waives any objection to the laying
of venue in such courts and any claim that any such action has been brought
in
an inconvenient forum. To the extent permitted by law, any judgment
in respect of a dispute arising out of or relating to this Agreement may be
enforced in any other jurisdiction within or outside the United States by suit
on the judgment, a certified copy of such judgment being conclusive evidence
of
the fact and amount of such judgment. Each party hereto agrees that
personal service of process may be effected by any of the means specified in
Section 12(b), addressed to such party. The foregoing shall not limit
the rights of any party to serve process in any other manner permitted by
law.
(j) In
the
event of any litigation or other proceeding concerning this Agreement or the
transactions contemplated hereby, including any such litigation or proceeding
with respect to the enforcement of this Agreement against any defaulting party,
the prevailing party in such litigation or proceeding shall be entitled to
reimbursement from the party opposing such prevailing party for all attorneys’
fees and costs incurred by such prevailing party in such litigation or
proceeding.
[Signature
page follows immediately]
SIGNATURE
PAGE
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year this subscription has been accepted by the Company as set
forth
below.
Aggregate
principal amount of Notes subscribed from (and purchase
price):
Print
Name of
Subsicriber:
$____________________ ________________________________
_________________________________
Social
Security Number
or
other
Taxpayer ID
Number
By:
______________________________
(Signature of Subscriber
or Authorized Signatory)
Name:
_____________________________
Title:
__________________________
Address:
___________________________
___________________________
Telephone:__________________________
Fax:___________________________________
If
the
Notes will
be
held as
joint
tenants, tenants
in common, or
community property,
please complete
the following:
_________________________________
Print
name of spouse
or other co-subscriber
_________________________________
Signature
of spouse
or other co-subscriber
_________________________________
Social
Security Number or other Taxpayer ID Number
_________________________________
Print
manner in which
shares will be held
If
the
Notes have been purchased through a broker or other intermediary, please
identify such entity:
[Please
complete Signature Page for each subscriber.]
ACCEPTANCE
OF SUBSCRIPTION
_____________________________
Name
of
Subscriber
ACCEPTED
BY:
NEPHROS,
INC.
By:
____________________________
Name: Xxxxxx
X. Xxxxx
Title:
President and Chief Executive Officer
Date:
_______________________, 2007
Accepted
for $ __________________________ principal amount of
Notes
EXHIBIT
A
(Form
of
Note)
EXHIBIT
B
(Form
of
Warrant)
EXHIBIT
C
(Form
of
Registration Rights Agreement)
EXHIBIT
D
(Form
of
Exchange Agreement)
EXHIBIT
E
(Form
of
Investor Rights Agreement)
EXHIBIT
F
ACCREDITED
INVESTOR STATUS
The
subscriber represents that it is an Accredited Investor on the basis that it
is
(check all that apply):
_____(i) A
bank as defined in Section 3(a)(2) of the Act, or a savings and loan association
or other institution as defined in Section 3(a)(5)(A) of the Act, whether acting
in its individual or fiduciary capacity; a broker dealer registered pursuant
to
Section 15 of the Securities Exchange Act of 1934; an insurance company as
defined in Section 2(13) of the Act; an investment company registered under
the
Investment Company Act of 1940 (the “Investment Company Act”) or a
business development company as defined in Section 2(a)(48) of the Investment
Company Act; a Small Business Investment Company licensed by the U.S. Small
Business Administration under Section 301(c) or (d) of the Small Business
Investment Act of 1958; a plan established and maintained by a state, its
political subdivisions or any agency or instrumentality of a state or its
political subdivisions for the benefit of its employees, if such plan has total
assets in excess of $5,000,000; an employee benefit plan within the meaning
of
the Employee Retirement Income Security Act of 1974 (“ERISA”), if the
investment decision is made by a plan fiduciary, as defined in Section 3(21)
of
ERISA, which is either a bank, savings and loan association, insurance company,
or registered investment advisor, 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.
_____(ii) A
private business development company as defined in Section 202(a)(22) of the
Investment Advisers Act of 1940.
_____(iii) 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.
_____(iv) A
director or executive officer of the Company.
_____(v) A
natural person whose individual net worth, or joint net worth with that person’s
spouse, at the time of his or her purchase exceeds $1,000,000.
_____(vi) 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 that person’s 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.
_____(vii) 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 as described in Rule 506(b)(2)(ii) (i.e., a person who
has
such knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the prospective
investment).
_____(viii) An
entity in which all of the equity owners are accredited
investors. (If this alternative is checked, the undersigned must
identify each equity owner and provide statements signed by each demonstrating
how each is qualified as an accredited investor. Further, the
undersigned represents that it has made such investigation as is reasonably
necessary in order to verify the accuracy of this alternative.)
