EXHIBIT 99.2
EA INDUSTRIES, INC.
REGULATION D SUBSCRIPTION AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE OR OTHER SECURITIES AUTHORITIES. THEY
MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE
SECURITIES LAWS.
THIS SUBSCRIPTION AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES DESCRIBED
HEREIN BY OR TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. THESE SECURITIES HAVE NOT BEEN RECOMMENDED
BY ANY FEDERAL OR STATE SECURITIES AUTHORITIES, NOR HAVE SUCH AUTHORITIES
REVIEWED OR DETERMINED THE ACCURACY OF THIS DOCUMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK.
SUBSCRIBERS MUST RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND
ASSESSMENT OF THE RISKS INVOLVED. SEE THE RISK FACTORS SET FORTH IN THE
ATTACHED DISCLOSURE DOCUMENTS AS EXHIBIT E.
SEE ADDITIONAL LEGENDS AT SECTIONS 3.7 and 9.
THIS REGULATION D SUBSCRIPTION AGREEMENT (this "Agreement" or
"Subscription Agreement") is made as of the date at the end of this
Agreement, by and between EA Industries, Inc., a corporation duly organized and
existing under the laws of the State of New Jersey (the "Company"), and the
undersigned Subscribers executing this Agreement ("Subscriber", together with
the other subscriber executing this agreement, collectively referred to as the
"Subscribers").
THE PARTIES HEREBY AGREE AS FOLLOWS:
This Agreement is executed by Subscriber and the Company in connection with
the offer and sale by the Company and the purchase by Subscriber of 6%
Convertible Notes (the "Convertible Notes"), of the Company in the initial
amount set forth in Subscriber's signature block at the end of this Agreement.
The Convertible Notes are being offered at a purchase price equal to the
principal amount thereof, with a minimum aggregate offering amount of Two
Million Dollars ($2,000,000) (the "Minimum Amount"), and up to a maximum
aggregate amount of Four Million Five Hundred Thousand Dollars ($4,500,000) (the
"Maximum Amount") (collectively, the "Offering"). The terms of the Convertible
Notes, including the terms on which the Convertible Notes may be converted into
common stock of the Company (the "Common Stock"), are set forth in the form of
Convertible Note (the "Convertible Notes"), in the form attached hereto as
Exhibit A. Each
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Convertible Note is accompanied by a warrant or warrants, to be designated
as the Company's Series D Warrants (the "Warrants"), to purchase a number of
shares of Common Stock of the Company equal to Two Hundred Thousand (200,000)
shares of Common Stock for each One Million Dollars ($1,000,000) of the
aggregate purchase price of the Subscriber's Convertible Notes, exercisable for
a three (3) year term at a price equal to one hundred fifteen percent (115%) of
the average Closing Bid Price for the five (5) trading days preceding the first
Closing. The terms of the Warrants, including the terms on which the Warrants
may be exercised for Common Stock, are set forth in the form of the Warrant
attached hereto as Exhibit K. The solicitation of the purchase and sale of the
Convertible Notes and, if accepted by the Company, the offer and sale of the
Convertible Notes are being made in reliance upon the provisions of Rule 506 of
Regulation D ("Regulation D") promulgated under the Securities Act of 1933, as
amended ("the Act"). The Convertible Notes and the Common Stock issuable upon
conversion thereof (the "Conversion Shares"), the Warrants and Common Stock
issuable upon exercise thereof (the "Warrant Shares") are sometimes referred to
herein singularly as "Security" and collectively as the "Securities."
It is agreed as follows:
1. Closing
1.1 Offer to Purchase; Purchase Price and Closing; and Placement Fees.
Subject to satisfaction of the conditions to closing set forth in Section 1.2
below, Subscriber hereby agrees to purchase Convertible Notes, for the aggregate
purchase price in the amount set forth in Subscriber's signature block at the
end of this Agreement (the "Initial Principal Amount") in accordance with the
terms and conditions of this Agreement. Assuming that the Minimum Amount and
corresponding Subscription Agreements accepted by the Company are received into
the Company's designated escrow account for this Offering established pursuant
to the Escrow Agreement and Instructions (the "Escrow Agreement") by and among
the Company, First Union National Bank of Georgia (the "Escrow Agent") and the
Placement Agent (as defined below) (the "Escrow Account"), prior to the
termination of the offering, the closing of a sale and purchase of Convertible
Notes and accompanying Warrants as to the Subscribers (the "Closing") shall be
deemed to occur when this Agreement has been executed by all Subscribers and the
Company and full payment shall have been made by each Subscriber, by wire
transfer to the Escrow Account as set forth in Section 7.1(a) for payment in
consideration for the Company's delivery of certificates representing the
Convertible Notes subscribed for and the conditions to each Subscriber's
obligations set forth in Section 1.2 have been satisfied.
The parties hereto acknowledge that Xxxxxx Investments, LLC is acting as
placement agent (the "Placement Agent") for this Offering and will be
compensated by the Company in cash and warrants to purchase Common Stock. The
Placement Agent has acted solely as placement agent in connection with the
Offering by the Company of the Convertible Notes pursuant to this Agreement. The
information and data contained in the Disclosure Documents (as defined in
Section 2.2.4) have not been subjected to independent verification by the
Placement Agent, and no representation or warranty is made by the Placement
Agent as to the accuracy or completeness of the information contained in the
Disclosure Documents.
1.2 Conditions to Subscriber's Obligations to Consummate the Closing.
Subscriber's obligations hereunder are conditioned upon all of the following:
(a) the following documents shall have been deposited with the Escrow
Agent: the Registration Rights Agreement, substantially in the
form attached hereto as Exhibit B (the "Registration Rights
Agreement") (executed by the Company), an opinion of counsel, in
the form attached hereto as Exhibit C (the "Opinion of Counsel")
(signed by the
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Company's counsel), the Irrevocable Instructions to Transfer
Agent, in the form attached hereto as Exhibit D (the "Irrevocable
Instructions to Transfer Agent")(executed by the Company and the
Company's transfer agent, the "Transfer Agent"); duly executed
Convertible Notes issued in the name of the Subscriber; and the
Warrants issued in the name of the Subscriber;
(b) the follHowing documents shall have been received by the
Subscriber: a Certificate of Good Standing dated within ten (10)
days of the Closing Date, Secretary's Certificate certifying the
Company's Articles, Bylaws and Resolutions, and a Certified Copy
of the Company's Articles;
(c) the Company's Common Stock (including all Conversion Shares)
shall be listed for and be actively trading on the New York Stock
Exchange ("NYSE");
(d) other than losses described in the Disclosure Documents (as
defined above) as of the Closing there have been no material
adverse changes in the Company's business, prospects or financial
condition since the date of the last balance sheet included in
the Disclosure Documents, including but not limited to incurring
material liabilities;
(e) the representations and warranties of the Company are true and
correct at the Closing as if made on such date, and the Company
shall deliver a certificate, signed by an officer of the Company,
to such effect to the Subscriber; and
(f) the Minimum Amount and corresponding subscription agreements
accepted by the Company shall have been received by the Escrow
Agent; and
(g) the Company shall have reserved for issuance a sufficient number
of shares of Common Stock to effect conversions of the
Convertible Notes and exercise of the Warrants, which number of
shares shall initially be equal to Five Million Two Hundred Fifty
Thousand (5,250,000) shares.
2. Representations and Warranties of Subscriber. Subscriber hereby
represents and warrants to the Company as follows:
2.1 Accredited Investor. Subscriber is an accredited investor, as
defined in Rule 501 of Regulation D, and agrees to check the applicable box
set forth in Section 10 of this Agreement .
2.2 Investment Experience; Access to Information; Independent
Investigation.
2.2.1 Access to Information. Subscriber or Subscriber's professional
advisor has been granted the opportunity to ask questions of and receive answers
from representatives of the Company, its officers, directors, employees and
agents concerning the terms and conditions of this Offering, the Company and its
business and prospects.
2.2.2 Reliance on Own Advisors. Subscriber has relied on the advice
of, or has consulted with, Subscriber's own personal tax, investment, legal
or other advisors and has not relied on the Company or any of its affiliates,
officers, directors, attorneys, accountants or any affiliates of any thereof and
each other person, if any, who controls any thereof, within the meaning of
Section 15 of the Act for any tax or legal advice (other than reliance on
information in the Disclosure Documents as defined in Section 2.2.4 below and on
the
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Opinion of Counsel). The foregoing, however, does not limit or modify
Subscriber's right to rely upon representations and warranties of the Company in
Section 4 of this Agreement.
2.2.3 Capability to Evaluate. Subscriber or Subscriber's advisor has
such knowledge and experience in financial and business matters so as to
enable such Subscriber to utilize the information made available to it in
connection with the Offering in order to evaluate the merits and risks of the
prospective investment, which are substantial, including without limitation
those set forth in the Disclosure Documents (as defined in Section 2.2.4 below).
2.2.4 Disclosure Documents. Subscriber, in making Subscriber's
investment decision to subscribe for the Securities hereunder, represents
that (a) Subscriber has received and had an opportunity to review (i) the
Company's Annual Report on Form 10-K for the year ended December 31, 1997 (ii)
the Company's quarterly report on Form 10-Q for the quarter ended Xxxxx 00,
0000, (xxx) the Risk Factors, attached as Exhibit E, (iv) the Capitalization
Schedule, attached as Exhibit F, (the "Capitalization Schedule") and (v) the Use
of Proceeds Schedule, attached as Exhibit G, (the "Use of Proceeds Schedule")
(b) Subscriber has read, reviewed, and relied solely on the documents described
in (a) above, the Company's representations and warranties and other information
in this Agreement, including the exhibits, any other written information
prepared by the Company which has been specifically provided to Subscriber in
connection with this Offering (the documents described in Section 2.2.4 (a) and
(b) are collectively referred to as the "Disclosure Documents"), and an
independent investigation made by Subscriber and Subscriber's representatives,
if any; (c) Subscriber has, prior to the date of this Agreement, been given an
opportunity to review material contracts and documents of the Company which have
been filed as exhibits to the Company's filings under the Act and the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and has had an opportunity
to ask questions of and receive answers from the Company's officers and
directors; and (d) is not relying on any oral representation of the Company or
any other person, nor on any written representation or assurance from the
Company which has been superseded in a writing from the Company prior to the
Subscriber signing this Agreement. The foregoing, however, does not limit or
modify Subscriber's right to rely upon representations and warranties of the
Company in Section 4 of this Agreement. Subscriber acknowledges and agrees that
the Company has no responsibility for, does not ratify, and is under no
responsibility whatsoever to comment upon or correct any reports, analyses or
other comments made about the Company by any third parties, including, but not
limited to, analysts' research reports or comments (collectively, "Third Party
Reports"), and Subscriber has not relied upon any Third Party Reports, including
any provided by the Placement Agent, in making the decision to invest.
2.2.5 Investment Experience; Fend for Self. Subscriber has
substantial experience in investing in securities and he, she or it has
made investments in securities other than those of the Company. Subscriber
acknowledges that Subscriber has the ability to bear the economic risk of
Subscriber's investment pursuant to this Agreement. Subscriber has not been
organized for the purpose of investing in securities of the Company, although
such investment is consistent with Subscriber's purposes.
2.3 Exempt Offering Under Regulation D.
2.3.1 Investment; No Distribution. Subscriber is acquiring the
Securities to be issued and sold hereunder for his, her or its own account
(or a trust account if such Subscriber is a trustee) for investment and not as a
nominee and not with a present view to the distribution thereof except for sales
exempt from registration under the Act or sold pursuant to an effective
registration statement. Subscriber is aware that there are legal limits on
Subscriber's ability to sell or dispose of the Securities and, therefore, that
Subscriber may be required to bear the economic risk of the investment for an
indefinite period of time and has adequate means of providing for Subscriber's
current needs and possible personal contingencies. Subscriber's commitment to
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illiquid investments is reasonable in relation to Subscriber's net worth. By
making the representations in this Section 2.3.1, the Subscriber does not agree
to hold the Securities for any minimum or other specific term and reserves the
right to dispose of the Securities at any time in accordance with or pursuant to
a registration statement or an exemption from registration under the Act, except
as otherwise limited or required by Section 5(a) of the Convertible Notes and
Section 6 of the Registration Rights Agreement.
2.3.2 [Intentionally Omitted].
2.3.3 Restricted Securities. Subscriber understands that the
Convertible Notes and the Warrants issued at Closing, are, and the
Conversion Shares and the Warrant Shares will be, characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from the Company in a transaction not involving a public offering and
that under such laws and applicable regulations such securities may not be
transferred or resold without registration under the Act or pursuant to an
exemption therefrom. In this connection, Subscriber represents that Subscriber
is familiar with Rule 144 under the Act, as presently in effect, and understands
the resale limitations imposed thereby and by the Act.
2.3.4 Disposition. Without in any way limiting the representations
set forth above, Subscriber further agrees not to make any disposition
(except for any pledge in connection with a margin account of Subscriber) of all
or any portion of the Securities unless and until:
(a) There is then in effect a registration statement under the
Act covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
(b) (i) Subscriber shall have notified the Company of the
proposed disposition and shall have furnished the Company with a
statement of the circumstances surrounding the proposed disposition,
and (ii) if reasonably requested by the Company, Subscriber shall have
furnished the Company with an opinion of counsel, reasonably
satisfactory to the Company, that such disposition will not require
registration of the Securities under the Act. It is agreed that no
prior notice will be required other than for the filing of a Form 144,
if necessary, and the Company will not require opinions of counsel for
transactions made pursuant to Rule 144.
2.4 Due Authorization.
2.4.1 Authority. The person executing this Agreement, if executing
this Agreement in a representative or fiduciary capacity, has the full
power and authority to execute and deliver this Agreement and each other
document included herein for which a signature is required in such capacity and
on behalf of the subscribing individual, partnership, trust, estate, corporation
or other entity for whom or which Subscriber is executing this Agreement.
2.4.2 Due Authorization. If Subscriber is a corporation, Subscriber
is duly and validly organized, validly existing and in good tax and corporate
standing as a corporation under the laws of the jurisdiction of its
incorporation with full power and authority to purchase the Securities to be
purchased by Subscriber and to execute and deliver this Agreement.
2.4.3 [Intentionally Omitted].
3. Acknowledgments. Subscriber is aware that:
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3.1 Risks of Investment. Subscriber recognizes that an investment in the
Company involves substantial risks, including the potential loss of Subscriber's
entire investment herein.
3.2 No Government Approval. No federal or state agency has passed upon
the Securities, recommended or endorsed the Offering, or made any finding
or determination as to the fairness of this transaction;
3.3 No Registration. The Securities and any component thereof have not
been registered under the Act or any applicable state securities laws by
reason of exemptions from the registration requirements of the Act and such
laws, and may not be sold, pledged (except for any pledge in connection with a
margin account of Subscriber), assigned or otherwise disposed of in the absence
of an effective registration of the Securities and any component thereof under
the Act or unless an exemption from such registration is available;
3.4 [Intentionally Omitted].
3.5 No Assurances of Registration. There can be no assurance that any
registration statement will become effective at the scheduled time. Therefore,
Subscriber may bear the economic risk of Subscriber's investment for an
indefinite period of time;
3.6 Exempt Transaction. Subscriber understands that the Securities are
being offered and sold in reliance on specific exemptions from the registration
requirements of federal and state law and that the representations, warranties,
agreements, acknowledgments and understandings set forth herein are being relied
upon by the Company in determining the applicability of such exemptions and the
suitability of Subscriber to acquire such Securities;
3.7 Legends. It is understood that the Convertible Notes, the Warrants,
the Conversion Shares and the Warrant Shares shall bear the following
legend (the "Legend") (prior to registration as provided in Section 5.3):
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended, or applicable state securities
laws, nor the securities laws of any other jurisdiction. They may not
be sold or transferred in the absence of an effective registration
statement under those securities laws or pursuant to an exemption
therefrom."
3.8 Warrant Shares Not Listed as of Closing. The Warrant Shares are not
currently listed and available for trading on the New York Stock Exchange,
cannot become so listed and available for trading until after the 20% Approval
(as defined in Section 5.14 below), and may never become so listed and available
for trading.
4. Representations and Warranties of the Company . The Company hereby makes
the following representations and warranties to Subscriber (which shall be true
at the signing of this Agreement) and agrees with Subscriber that:
4.1 Organization, Good Standing, and Qualification. The Company and each
of its Subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of the State of New Jersey, USA in the case of
the Company, the state of California, in the case of Tanon Manufacturing, Inc.
and the state of Massachusetts in the case of Service Assembly, Inc. and has all
requisite corporate power and authority to carry on its business as now
conducted and as proposed to be conducted. The Company and each of its
Subsidiaries is duly qualified to transact business and is in good standing in
each jurisdiction in which the
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failure to so qualify would have a material adverse effect on the business
or properties of the Company and its subsidiaries taken as a whole. The Company
is not the subject of any pending or, to its knowledge, threatened or
contemplated investigation or administrative or legal proceeding by the Internal
Revenue Service, the taxing authorities of any state or local jurisdiction, or
the Securities and Exchange Commission ("SEC"), The National Association of
Securities Dealers, Inc., The New York Stock Exchange (the "NYSE") or any state
securities commission, or any other governmental entity, which have not been
disclosed in the Disclosure Documents.
4.2 Corporate Condition. The Company's condition is, in all material
respects, as described in the Disclosure Documents, except for changes in the
ordinary course of business and normal year-end adjustments that are not, in the
aggregate, materially adverse to the Company. There have been no material
adverse changes to the Company's business or financial condition since the date
of such Disclosure Documents. The financial statements contained in the
Disclosure Documents have been prepared in accordance with generally accepted
accounting principles, consistently applied (except as otherwise permitted by
Regulation S-X of the Exchange Act), and fairly present the consolidated
financial condition of the Company as of the dates of the balance sheets
included therein and the consolidated results of its operations and cash flows
for the periods then ended. Without limiting the foregoing, there are no
material liabilities, contingent or actual, that are not disclosed in the
Disclosure Documents (other than liabilities incurred by the Company in the
ordinary course of its business, consistent with its past practice, after the
period covered by the Disclosure Documents). The Company has paid all material
taxes which are due, except for taxes which it reasonably disputes. There is no
material claim, litigation, or administrative proceeding pending, or, to the
best of the Company's knowledge, threatened against the Company or its officers
and directors in their capacity as such, except as disclosed in the Disclosure
Documents and there is no factual basis, to the Company's knowledge, for any
material claim in the future. This Agreement and the Disclosure Documents do not
contain any untrue statement of a material fact and do not omit to state any
material fact required to be stated therein or herein necessary to make the
statements contained therein or herein not misleading in the light of the
circumstances under which they were made. No event or circumstance exists
relating to the Company which under applicable law that would require disclosure
in a registration statement filed by the Company in connection with the sale by
the Company of its common stock but which has not been so publicly announced or
disclosed. As of their respective dates, the Disclosure Documents complied in
all respects with the Exchange Act and the rules and regulations thereunder.
4.3 Authorization. All corporate action on the part of the Company by
its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, the performance of all obligations of
the Company hereunder and the authorization, issuance and delivery of the
Convertible Notes being sold hereunder and the issuance (and/or the reservation
for issuance) of the Conversion Shares, the Warrants and the Warrant Shares have
been taken, with the exception of the approval of the shareholders required by
NYSE Listed Company Manual Section 312.03(c), and this Agreement, the
Convertible Notes, the Irrevocable Instructions to Transfer Agent and the
Registration Rights Agreement constitute valid and legally binding obligations
of the Company, enforceable in accordance with their terms, except insofar as
the enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, or other similar laws affecting creditors' rights generally or
by principles governing the availability of equitable remedies. The Company has
obtained all consents and approvals required for it to execute, deliver and
perform each agreement referenced in the previous sentence.
4.4 Valid Issuance of Convertible Notes and Common Stock. The
Convertible Notes and the Warrants, when issued, sold and delivered in
accordance with the terms hereof, for the consideration expressed herein, based
in part upon the representations of Subscriber in this Agreement, will be issued
in compliance with all applicable U.S. federal and state securities laws. The
Conversion Shares and the Warrant Shares, when issued in accordance with the
terms of the Convertible Notes or the Warrants, as applicable, shall be duly and
validly issued and outstanding, fully paid and nonassessable, and based in part
on the representations and
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warranties of Subscriber of the Convertible Notes, will be issued in
compliance with all applicable U.S. federal and state securities laws. The
Convertible Notes, the Conversion Shares, the Warrants and the Warrant Shares
will be issued free of any preemptive rights. The Company currently has Five
Million Two Hundred Fifty Thousand (5,250,000) Conversion Shares reserved for
issuance upon conversion of the Convertible Notes, and upon exercise of the
Warrants.
4.5 Compliance with Other Instruments. The Company is not in violation
or default of any provisions of its Certificate of Incorporation or Bylaws
each as amended, and in effect on and as of the date of the Agreement or of any
provision of any instrument or contract to which it is a party or by which it is
bound or, of any provision of any federal or state judgment, writ, decree,
order, statute, rule or governmental regulation applicable to the Company, which
would have a material adverse effect on the Company's business or prospects, or
on the performance of its obligations under this Agreement, the Registration
Rights Agreement, the Convertible Notes and the Irrevocable Instructions to
Transfer Agent, except as described in Schedule 4.5. The execution, delivery and
performance of this Agreement and the other agreements entered into in
conjunction with the Offering and the consummation of the transactions
contemplated hereby and thereby will not (a) result in any such violation or be
in conflict with or constitute, with or without the passage of time and giving
of notice, either a default under any such provision, instrument or contract or
an event which results in the creation of any lien, charge or encumbrance upon
any assets of the Company (b) violate the Company's Articles of Incorporation or
By-Laws or (c) violate any statute, rule or governmental regulation applicable
to the Company which violation would have a material adverse effect on the
Company's business or prospects.
4.6 Reporting Company. The Company is subject to the reporting
requirements of the Exchange Act, has a class of securities registered
under Section 12 of the Exchange Act, and has timely filed all reports required
by the Exchange Act since the Company first became subject to such reporting
requirements. The Company undertakes to furnish Subscriber with copies of such
reports as may be reasonably requested by Subscriber prior to consummation of
this Offering and thereafter, to make such reports available, as long as
Subscriber holds the Securities. Except as disclosed in Schedule A attached, the
Company is not otherwise in violation of the listing requirements of the New
York Stock Exchange (the "NYSE") and does not reasonably anticipate that the
Common Stock will be delisted by the NYSE for the foreseeable future. The
Company has filed all reports required under the Exchange Act. The Company, in
entering this Agreement, the Convertible Notes, the Irrevocable Instructions to
Transfer Agent and the Registration Rights Agreement and performing its
obligations hereunder and thereunder, shall not violate any of the rules of the
NYSE.
4.7 Capitalization. The capitalization of the Company as of July 10,
998 is, and the pro forma capitalization as of the Closing, after taking
into account the offering of the Securities contemplated by this Agreement and
all other share issuances occurring prior to this Offering, will be, as set
forth in the Capitalization Schedule as set forth in Exhibit F. Except as
disclosed in the Capitalization Schedule, as of the date of this Agreement, (i)
there are no outstanding options, warrants, scrip, rights to subscribe for,
calls or commitments of any character whatsoever relating to, or securities or
rights convertible into or exercisable or exchangeable for, any shares of
capital stock of the Company or any of its subsidiaries, or arrangements by
which the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries,
and (ii) there are no agreements or arrangements under which the Company or any
of its subsidiaries is obligated to register the sale of any of its or their
securities under the Act (except the Registration Rights Agreement).
4.8 Intellectual Property. The Company has valid, unrestricted and
exclusive patents, trademarks, trademark registrations, trade names, copyrights,
know-how, technology and other intellectual property necessary to the conduct of
its business as set forth on Exhibit H-1. The Company has granted such licenses
or has assigned or otherwise transferred a portion of (or all of) such valid,
unrestricted and exclusive
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patents, trademarks, trademark registrations, trade names, copyrights,
know-how, technology and other intellectual property necessary to the conduct of
its business as set forth on Exhibit H-2. The Company has been granted licenses,
know-how, technology and/or other intellectual property necessary to the conduct
of its business as set forth on Exhibit H-3. To the best of the Company's
knowledge, the Company is not infringing on the intellectual property rights of
any third party, nor is any third party infringing on the Company's intellectual
property rights. The Company has received no notice of any conflict or
infringement of its intellectual property. There are no restrictions in any
agreements, licenses, franchises, or other instruments which preclude the
Company from engaging in its business as presently conducted. Neither the
Company nor any of its subsidiaries has entered into any consent,
indemnification, forbearance to xxx or settlement agreements with respect to the
validity of the Company's or its subsidiaries' ownership or right to use its
intellectual property and, to the best knowledge of the Company, there is no
reasonable basis for any such claim to be successful.
4.9 Use of Proceeds. As of the date hereof, the Company expects to use
the proceeds from this Offering (less fees and expenses) for the purposes
and in the approximate amounts set forth on the Use of Proceeds Schedule set
forth as Exhibit G hereto. These purposes and amounts are estimates and are
subject to change without notice to any Subscriber.
4.10 No Rights of Participation. No person or entity, including, but not
limited to, current or former shareholders of the Company, underwriters,
brokers, agents or other third parties, has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the financing contemplated by this Agreement which has not been waived.
4.11 Company Acknowledgment. Subject to Section 2.3.1 above, the Company
hereby acknowledges that Subscriber may elect to hold the Securities for various
periods of time, as permitted by the terms of this Agreement, the Convertible
Notes, the Warrants, and other agreements contemplated hereby, and the Company
further acknowledges that Subscriber and the Placement Agent have made no
representations or warranties, either written or oral, as to how long the
Securities will be held by Subscriber or regarding Subscriber's trading history
or investment strategies.
4.12 Termination Date of Offering. The last Closing ("Last Closing")
shall occur no later than July 31, 1998, which date can be extended by up
to ten (10) days upon written approval by the Company and the Subscriber, and
the date of the Last Closing is referred to herein as the "Last Closing Date".
4.13 Underwriter's Fees and Rights of First Refusal. The Company is not
obligated to pay any compensation or other fees, costs or related expenditures
in cash or securities to any underwriter, broker, agent or other representative
other than the Placement Agent in connection with this Offering.
4.14 Current Public Information. The Company is currently eligible and
agrees to maintain its eligibility to register the resale of its Common Stock on
a registration statement on Form S-3 under the Act.
4.15 No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any of the Company's securities or
solicited any offers to buy any security under circumstances that would prevent
the parties hereto from consummating the transactions contemplated hereby
pursuant to an exemption from registration under the Act pursuant to the
provisions of Regulation D or would require the issuance of any other securities
to be integrated with this Offering under the rules of NYSE. The Company has not
engaged in any form of general solicitation or advertising in connection with
the offering of the Convertible Notes.
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4.16 Acknowledgment of Dilution. The number of Conversion Shares
issuable upon conversion of the Convertible Notes may increase
substantially in certain circumstances, including the circumstance wherein the
trading price of the Common Stock declines. The Company's executive officers and
directors have studied and fully understand the nature of the Securities being
sold hereunder and recognize that they have a potential dilutive effect. The
board of directors of the Company has concluded in its good faith business
judgment that such issuance is in the best interests of the Company. The Company
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Convertible Notes is binding upon it and enforceable regardless of the
dilution that such issuance may have on the ownership interests of the other
stockholders.
4.17 Foreign Corrupt Practices. Neither the Company, nor any of its
subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of its actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,
as amended; or made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or domestic government official or
employee.
4.18 Key Employees. Each Key Employee (as defined below) is currently
serving the Company in the capacity disclosed in Exhibit I. No Key Employee, to
the best knowledge of the Company and its subsidiaries, is, or is now expected
to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each Key Employee does not subject the
Company or any of its subsidiaries to any liability with respect to any of the
foregoing matters. No Key Employee has, to the best knowledge of the Company and
its subsidiaries, any intention to terminate his employment with, or services
to, the Company or any of its subsidiaries. "Key Employee" means each of Xxxxx
X. Xxxxxxxxxxx, President, Chief Executive Officer and Director; Xxxxx Xxxxxxx,
Vice President and Chief Financial Officer - EAI; Xxxx Xxxxxxx, Vice President -
EAI; Xxxxxx Xxxxxx, President - Tanon Manufacturing (East Coast); and Xxxxx
Xxxxx, President - Tanon Manufacturing (West Coast).
4.19 Tax Status. The Company has made or filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and as set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim.
4.20 Transactions With Affiliates. Except as set forth in the Disclosure
Documents, none of the officers, directors, or employees of the Company is
presently a party to any transaction with the Company (other than for services
as employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the knowledge
of the Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
10
4.21 Application of Takeover Protections. 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 or other
similar anti-takeover provision under New Jersey law which is or could become
applicable to the Subscriber as a result of the transactions contemplated by
this Agreement, including, without limitation, the issuance of the Convertible
Notes and any conversion of the Convertible Notes and ownership of the
Conversion Shares.
4.22 Other Agreements. The Company has not, directly or indirectly, made
any agreements with the Subscriber, or any other subscriber under a subscription
in the form of this Agreement for the purchase of Convertible Notes, relating to
the terms or conditions of the transactions contemplated hereby or thereby
except as expressly set forth herein or therein, respectively, or in exhibits
hereto or thereto.
4.23 NYSE Correspondence. The Company has provided to the Subscriber a
copy of all correspondence and other written communications, between itself
and the NYSE as well as any correspondence to third parties regarding the
Company's NYSE listing which have been received or sent during the past nine
months.
4.24 Representations Correct. The foregoing representations, warranties
and agreements are true, correct and complete in all material respects, and
shall survive the Closing and the issuance of the Convertible Notes until the
date that is three (3) years after the Last Closing Date.
5. Covenants of the Company.
5.1 Independent Auditors. The Company shall, until at least three (3)
years after the date of the Last Closing, maintain as its independent
auditors an accounting firm authorized to practice before the SEC.
5.2 Corporate Existence and Taxes. The Company shall, until at least the
later of (i) the date that is three (3) years after the Last Closing Date or
(ii) the conversion or redemption of all of the Convertible Notes purchased
pursuant to this Agreement, and the exercise of the Warrants, maintain its
corporate existence in good standing and remain a Reporting Company (provided,
however, that the foregoing covenant shall not prevent the Company from entering
into any merger or corporate reorganization as long as the surviving entity in
such transaction, if not the Company, assumes the Company's obligations with
respect to the Convertible Notes and has Common Stock listed for trading on a
stock exchange or on Nasdaq and is a "Reporting Issuer") and shall pay all its
taxes when due except for taxes which the Company disputes.
5.3 Registration Rights. On or prior to the Closing, the Company will
enter into a registration rights agreement covering the resale of the
Conversion Shares and the Warrant Shares in the form of the Registration Rights
Agreement attached as Exhibit B.
5.4 Notification of Closing Date by Company. Within five (5) business
days after the Closing, the Company shall notify Subscriber in writing that
the Closing has occurred, the dates that Subscriber is entitled to convert
Subscriber's Convertible Notes, the value of the Fixed Conversion Price, as that
term is defined in the Convertible Notes, and the name and telephone number of
an administrative contact person at the Company whom Subscriber may contact
regarding information related to conversion of the Convertible Notes as
contemplated by the Convertible Notes.
5.5 Asset Transfers. The Company shall not transfer, sell, convey or
otherwise dispose of any of its material assets to any Subsidiary or affiliate
except for a cash or cash equivalent consideration or for a proper
11
business purpose or loans, contributions or advances to any of its
subsidiaries, while any of the Convertible Notes are outstanding.
5.6 Capital Raising Limitations; Rights of First Refusal.
5.6.1 Capital Raising Limitations. The Company shall not, without
obtaining the prior written approval of Subscribers holding a majority of the
principal amount of Convertible Notes then outstanding, issue or sell or agree
to issue or sell any debt or equity securities (or any security convertible into
or exercisable or exchanged directly or indirectly, equity or debt security of
the Company) for cash in private capital raising transactions for a period
beginning on the date hereof and ending six (6) months (the "Lock-Up Period")
after the Last Closing Date (the limitations referred to in this sentence are
collectively referred to as the "Capital Raising Limitations," and are subject
to the exceptions as specified in Section 5.6.4 herein below).
5.6.2 Right of First Offer. The Company agrees that, during the
period beginning on the date hereof and terminating on the date that is
one year after the date of the Last Closing Date (the "First Refusal Period"),
the Company will not, without the prior written consent of each Subscriber issue
or sell, or agree to issue or sell any equity securities of the Company (or any
security convertible into or exercisable or exchangeable, directly or
indirectly, for equity or debt securities of the Company ("Future Offerings"))
unless the Company shall have first delivered to each Subscriber at least thirty
(30) days prior to the closing of such Future Offering, written notice
describing the proposed Future Offering, including the terms and conditions
thereof, and providing each Subscriber and its affiliates an option during the
twenty (20) day period following delivery of such notice to purchase up to the
amount of the securities as described in Section 5.6.3 below, being offered in
the Future Offering on the same terms as contemplated by such Future Offering
(the Subscriber's rights to purchase in Future Offerings referred to in this
sentence are collectively referred to as the "Rights of First Refusal"). The
First Refusal Period shall be extended one day for each day that the
effectiveness of the registration statement (the "Registration Statement")
required by the Registration Rights Agreement exceeds the Due Date (as defined
in the Registration Rights Agreement).
5.6.3 Amount of Subscriber's Right of First Refusal. The amount of
securities which a Subscriber is entitled to purchase in such a Future Offering
shall be a number obtained by multiplying the aggregate amount of securities
being offered in the Future Offering by a fraction, the numerator of which is
the purchase price of the Convertible Notes purchased by the Subscriber pursuant
to this Agreement and the denominator of which is the aggregate dollar amount of
Convertible Notes placed in this Offering.
5.6.4 Exceptions to the Capital Raising Limitation and Rights of
First Refusal. Neither the Capital Raising Limitations nor the Rights of
First Refusal shall apply to (a) any transaction involving issuances of
securities as consideration for a merger, consolidation, acquisition or sale of
assets, or, in connection with any of the foregoing transactions with an
industry Partner (a "Strategic Alliance"), or as consideration for an
acquisition of a business, product or license by the Company or exercise of
options by employees, consultants or directors; provided, however, that no
registration statement covering the resale of Common Stock issued in connection
with a Strategic Alliance, or upon conversion, exercise or exchange of
securities issued in connection with such transactions, shall be declared
effective prior to the date that is one year after the Last Closing Date, (b)
the issuance of securities pursuant to a firm commitment underwritten public
offering, (c) the issuance of securities upon exercise or conversion of the
Company's options, warrants or other convertible securities outstanding as of
the date hereof, (d) the grant of additional options or warrants, or the
issuance of additional securities, under any Company stock option or restricted
stock plans for the benefit of the Company's employees, directors or
consultants, (e) to any borrowing by the Company of straight debt, with no
equity feature, in a private placement, or (f) the issuance of securities where
(i) the benefits derived by the holder of such securities are entirely derived
from one of the Company's subsidiaries and (ii) none of the
12
distributions from such securities may be made in equity securities of
the Company or securities convertible or exchangeable for or excercisable into
equity securities of the Company, or (g) issuance in one or more transactions
during the Lock-up Period, of equity securities generating aggregate gross cash
proceeds to the Company of not more than $1,000,000 but only if the price per
share of Common Stock of each of such securities (determined on an as-converted
basis) is not less than 90% of the market price of the Company's Common Stock at
the time of issuance.
The Capital Raising Limitations shall not apply (but the Rights of First
Refusal shall apply) to any transaction, up to $5 million, where the proceeds
are used to acquire Axiom Electronics, Inc. concurrently with the closing of
such transaction.
5.7 Financial 10-K Statements, Etc. and Current Reports on Form 8-K. The
Company shall make available to the holders of the Convertible Notes copies of
its annual reports on Form 10-K, quarterly reports on Form 10-Q and current
reports on form 8-K for as long as the Convertible Notes may remain outstanding.
The Company shall file a current report on form 8-K disclosing the terms of this
Offering and the Securities within five (5) business days of the date of each
Closing.
5.8 Opinion of Counsel. Subscribers shall, concurrent with the purchase
of the Convertible Notes and accompanying Warrants in each of the First Closing
and the Second Closing, if applicable, pursuant to this Agreement, receive an
opinion letter from Mesirov Xxxxxx Xxxxx Xxxxxx & Xxxxxxxx, LLP, 0000 Xxxxxx
Xxxxxx, Xxxxxxxxxxxx, XX 00000-0000 Telephone: 000-000-0000 Facsimile:
000-000-0000 ("Counsel"), counsel to the Company, in the form attached as
Exhibit C.
5.9 Removal of Legend Upon Conversion. As contemplated by the
Convertible Notes, upon conversion of the Convertible Notes, Subscriber shall
submit a Notice of Conversion and Resale, substantially in the form attached
hereto as Exhibit J. The Legend shall be removed and the Company shall issue a
certificate without such Legend to the holder of any Security upon which it is
stamped, and a certificate for a security shall be originally issued without the
Legend, if, unless otherwise required by state securities laws, (a) such
Security is registered for sale under the Act, or (b) such holder provides the
Company with an opinion of counsel, in form, substance and scope customary for
opinions of counsel in comparable transactions, to the effect that a public sale
or transfer of such Security may be made without registration under the Act, or
(c) such holder provides the Company with reasonable assurances that such
Security can be sold pursuant to Rule 144. Each Subscriber agrees to sell all
Securities, including those represented by a certificate(s) from which the
Legend has been removed, or which were originally issued without the Legend,
pursuant to an effective registration statement and to deliver a prospectus in
connection with such sale or in compliance with an exemption from the
registration requirements of the Act. In the event the Legend is removed from
any Security or any Security is issued without the Legend and thereafter the
effectiveness of a registration statement covering the resale of such Security
is suspended or the Company determines that a supplement or amendment thereto is
required by applicable securities laws, then upon reasonable advance notice to
Subscriber holding such Security, the Company may require that the Legend be
placed on any such Security that cannot then be sold pursuant to an effective
registration statement or Rule 144 or with respect to which the opinion referred
to in clause (b) next above has not been rendered, which Legend shall be removed
when such Security may be sold pursuant to an effective registration statement
or Rule 144 or such holder provides the opinion with respect thereto described
in clause (b) next above.
5.10 Listing. Subject to the remainder of this Section 5.10, the Company
shall ensure that its shares of Common Stock (including all Conversion Shares)
are listed and available for trading on the New York Stock Exchange (the
"NYSE"). Thereafter, the Company shall (i) use its best efforts to continue the
listing and trading of its Common Stock on the NYSE, or on the NASDAQ National
Market ("NMS") or the American
13
Stock Exchange ("AMEX") or any other national exchange or over-the-counter
market system; and (ii) comply in all respects with the Company's reporting,
filing and other obligations under the by-laws or rules of the NYSE, the
National Association of Securities Dealers ("NASD") and such exchanges, as
applicable. The Company shall file a subsequent listing application with the
NYSE to list the Warrant Shares and will use its best efforts to obtain a letter
from the NYSE (the "NYSE Warrant Listing Letter"), as soon as possible after the
Last Closing, stating that the Warrant Shares have been approved for listing on
the NYSE subject to the 20% Approval (as defined in Section 5.14 below), and
will promptly deliver a copy of the NYSE Warrant Listing Letter to the Holder
upon its receipt. The Company shall use its best efforts to cause the Warrant
Shares to become listed and available for trading on the NYSE as soon as
possible after the 20% Approval.
5.11 The Company's Instructions to Transfer Agent. The Company will
issue to its Transfer Agent the Irrevocable Instructions to Transfer Agent in
the form of Exhibit D instructing the Transfer Agent to issue certificates,
registered in the name of each Subscriber or its nominee, for the Conversion
Shares and Warrant Shares in such amounts as specified from time to time by such
Subscriber to the Company upon conversion of the Convertible Notes and exercise
of the Warrants. Such certificates shall bear a Legend only to the extent
permitted by Section 5.9 hereof. The Company warrants that no instruction, other
than such instructions referred to in Section 5.9 hereof or in this Section 5.11
and stop transfer instructions to give effect to Section 3.7 hereof in the case
of Conversion Shares and Warrant Shares prior to registration of the Conversion
Shares and Warrant Shares under the Act, will be given by the Company to its
Transfer Agent and that the Securities shall otherwise be freely transferable on
the books and records of the Company as and to the extent provided in this
Agreement and the Registration Rights Agreement. Nothing in this Section shall
affect in any way each Subscriber's obligations and agreement set forth in
Sections 2.3.3 or 2.3.4 hereof to resell the Securities pursuant to an effective
registration statement and to deliver a prospectus in connection with such sale
or in compliance with an exemption from the registration requirements of
applicable securities laws. If (a) a Subscriber provides the Company with an
opinion of counsel, which opinion of counsel shall be in form, substance and
scope customary for opinions of counsel in comparable transactions, to the
effect that the Securities to be sold or transferred may be sold or transferred
pursuant to an exemption from registration or (b) a Subscriber transfers
Securities to an affiliate which is an accredited investor pursuant to Rule 144,
the Company shall permit the transfer, and, in the case of Conversion Shares and
Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denomination as specified by such
Subscriber. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to a Subscriber by vitiating the intent
and purpose of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 5.11 will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 5.11, that a
Subscriber shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required. The Company hereby agrees that it will not unilaterally
terminate its relationship with the Transfer Agent for any reason prior to the
date which is three (3) years and one (1) month after the Last Closing Date or
one (1) month after the first date that no Convertible Notes and no Warrants are
outstanding, whichever is earlier (the "Ending Date"), unless the Company's
Transfer Agent continues acting as transfer agent pursuant to the terms of the
Irrevocable Instructions to Transfer Agent until such time that a successor
transfer agent (i) is appointed by the Company; (ii) is approved by seventy-five
percent (75%) of the Subscribers of outstanding Convertible Notes; and (iii)
executes and agrees to be bound by the terms of the Irrevocable Instructions to
Transfer Agent.
5.12 No Integrated Offerings. The Company shall not make any offers or
sales of any security (other than the Securities) under circumstances that would
require registration of the issuance of the Securities being offered or sold
hereunder under the Securities Act or cause the Offering to be integrated with
any other
14
offering of securities by the Company for purposes of any shareholder
approval provision applicable to the Company or its securities.
5.13 Shareholder's Meeting. The Company, acting through its Board of
Directors (the "Board"), will, in accordance with applicable law and the
Company's Articles and Bylaws, duly call, give notice of, convene and hold a
special or annual meeting (including any adjournment or postponement thereof,
the "Meeting") of its shareholders as soon as practicable following the date of
this Agreement, for the purpose of considering and taking action upon the
approval of the issuance of the number of shares issuable upon the conversion of
the Convertible Notes and upon exercise of the Warrants (which approval is a
precondition to the listing and the use of said shares) and any other related
matters required under applicable law to be approved by such shareholders. The
Board shall recommend such approval by the shareholders and shall take all
reasonable, lawful action to solicit such approval by its shareholders.
5.14 Proxy Statement. The Company will (i) as promptly as practicable
following the date of this Agreement, prepare and file with the SEC, and use its
best efforts to have cleared by the SEC and thereafter mail to its shareholders
as promptly as practicable, a proxy statement and a form of proxy, in connection
with the vote of the Company's shareholders with respect to the issuance of the
shares issuable upon conversion of the Convertible Notes and upon exercise of
the Warrants, (ii) use its best efforts to obtain the necessary "20% Approval"
(as defined in the Convertible Note) by its shareholders and (iii) otherwise
comply with all legal requirements applicable to the Meeting.
6. Subscriber Covenant/Miscellaneous
6.1 Representations and Warranties Shall Survive the Closing;
Severability. Subscriber's representations and warranties shall survive the
Closing of the transactions contemplated by this Agreement notwithstanding any
due diligence investigation made by or on behalf of the party seeking to rely
thereon. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that no such severability shall be effective if it
materially changes the economic benefit of this Agreement to any party.
6.2 Successors and Assigns. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement. Subscriber may assign Subscriber's rights hereunder, in
connection with any private sale of the Convertible Notes of such Subscriber, so
long as, as a condition precedent to such transfer, the transferee executes an
acknowledgment agreeing to be bound by the applicable provisions of this
Agreement.
6.3 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of New York without respect to conflict of laws
principles. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
Each party hereby irrevocably waives any right it may have, and agrees not to
request, a jury trial for the adjudication of any dispute hereunder or in
connection herewith or arising out of this agreement or any transaction
contemplated hereby.
15
6.4 Execution in Counterparts Permitted. This Agreement may be executed
in any number of counterparts, each of which shall be enforceable against the
parties actually executing such counterparts, and all of which together shall
constitute one (1) instrument.
6.5 Titles and Subtitles; Gender. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement. The use in this Agreement of a
masculine, feminine or neither pronoun shall be deemed to include a reference to
the others.
6.6 Written Notices, Etc. Any notice, demand or request required or
permitted to be given by the Company or Subscriber pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally, or by facsimile, addressed to the parties at the addresses and/or
facsimile telephone number of the parties set forth in Section 10 of this
Agreement, or such other address as a party may request by notifying the other
in writing.
6.7 Expenses. Except as set forth in Section 8 hereof and Section 9 of
the Registration Rights Agreement, each of the Company and Subscriber shall pay
all costs and expenses that it respectively incurs, with respect to the
negotiation, execution, delivery and performance of this Agreement.
6.8 Entire Agreement; Written Amendments Required. This Agreement,
including the Exhibits attached hereto, the Convertible Notes, the Warrants, the
Registration Rights Agreement, the Escrow Agreement, the Irrevocable
Instructions to Transfer Agent and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof, and no party shall be liable or
bound to any other party in any manner by any warranties, representations or
covenants except as specifically set forth herein or therein. Except as
expressly provided herein, neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated other than by a written instrument
signed by the party against whom enforcement of any such amendment, waiver,
discharge or termination is sought.
6.9 Arbitration. Any controversy or claim arising out of or related to
this Agreement or the breach thereof, shall be settled by binding arbitration in
New York, New York in accordance with the Expedited Procedures (Rules 53-57) of
the Commercial Arbitration Rules of the American Arbitration Association
("AAA"). A proceeding shall be commenced upon written demand by Company or any
Subscriber to the other. The arbitrator(s) shall enter a judgment by default
against any party which fails or refuses to appear in any properly noticed
arbitration proceeding. The proceeding shall be conducted by one (1) arbitrator,
unless the amount alleged to be in dispute exceeds two hundred fifty thousand
dollars ($250,000), in which case three (3) arbitrators shall preside. The
arbitrator(s) will be chosen by the parties from a list provided by the AAA, and
if they are unable to agree within ten (10) days, the AAA shall select the
arbitrator(s). The arbitrators must be experts in securities law and financial
transactions. The arbitrators shall assess costs and expenses of the
arbitration, including all attorneys' and experts' fees, as the arbitrators
believe is appropriate in light of the merits of the parties' respective
positions in the issues in dispute. Each party submits irrevocably to the
jurisdiction of any state court sitting in New York, New York or to the United
States District Court sitting in New York, New York for purposes of enforcement
of any discovery order, judgment or award in connection with such arbitration.
The award of the arbitrator(s) shall be final and binding upon the parties and
may be enforced in any court having jurisdiction. The arbitration shall be held
in such place as set by the arbitrator(s) in accordance with Rule 55.
16
7. Subscription and Wiring Instructions; Irrevocability.
7.1 Subscription
(a) Wire transfer of Subscription Funds. Subscriber shall send this
signed Agreement by facsimile to the Placement Agent at (770)
640-7150, and send the subscription funds by wire transfer, to
the Escrow Agent as follows:
First Union National Bank
ABA No. 000000000
Account No. 465946
Re: EA Industries, Inc.
A/C: #3072238787
Contact: Xxxxxxx Xxxxxx
Telephone No.: (000) 000-0000
SWIFT Code: XXXXXX00
(b) Irrevocable Subscription. Subscriber hereby acknowledges and
agrees, subject to the provisions of any applicable laws
providing for the refund of subscription amounts submitted by
Subscriber, that this Agreement is irrevocable and that
Subscriber is not entitled to cancel, terminate or revoke this
Agreement or any other agreements executed by such Subscriber and
delivered pursuant hereto, and that this Agreement and such other
agreements shall survive the death or disability of such
Subscriber and shall be binding upon and inure to the benefit of
the parties and their heirs, executors, administrators,
successors, legal representatives and assigns. If the Securities
subscribed for are to be owned by more than one person, the
obligations of all such owners under this Agreement shall be
joint and several, and the agreements, representations,
warranties and acknowledgments herein contained shall be deemed
to be made by and be binding upon each such person and his heirs,
executors, administrators, successors, legal representatives and
assigns. Notwithstanding the foregoing, (i) if the conditions to
Closing are not satisfied or (ii) if the Disclosure Documents are
discovered prior to Closing to contain statements which are
materially inaccurate, or omit statements of material fact,
Subscriber may revoke or cancel this Agreement.
(c) Company's Right to Reject Subscription. Subscriber understands
that this Agreement is not binding on the Company until the
Company accepts it. This Agreement shall be accepted by the
Company when the Company countersigns this Agreement. Subscriber
hereby confirms that the Company has full right in its sole
discretion to accept or reject the subscription of Subscriber, in
whole or in part, provided that, if the Company decides to reject
such subscription, the Company must do so promptly and in
writing. In the case of rejection, the Company will promptly
return any rejected payments and (if rejected in whole) copies of
all executed subscription documents (including without limitation
this Agreement) to Subscriber. In the event of rejection, no
interest will be payable by the Company to Subscriber on any
return of payment, provided however, that any such interest
accrued on such funds in the Escrow Account shall be returned to
the Subscriber by the Escrow Agent.
7.2 Acceptance of Subscription. In the case of acceptance of
Subscriber's subscription, ownership of the number of securities being purchased
hereby will pass to Subscriber upon the Closing.
17
7.3 Subscriber to Forward Original Signed Subscription
Agreement to Company. Subscriber agrees to courier to Company his, her or its
original inked signed Subscription Agreement within two (2) days after faxing
said signed agreement to Placement Agent.
8. Indemnification.
In consideration of each Subscriber's execution and delivery of this
Agreement, Registration Rights Agreement, Irrevocable Instructions to Transfer
Agent (the "Transaction Documents") and acquiring the Securities thereunder and
in addition to all of the Company's other obligations under the Transaction
Documents and the Convertible Notes, the Company agrees to indemnify and hold
harmless Subscriber and the Placement Agent and each of their respective
officers, directors, employees and agents, and each person who controls
Subscriber or the Placement Agent within the meaning of the Act or the Exchange
Act (each, a "Subscriber Indemnified Party") from and against any and all
actions, causes of action, suits, cost, penalties, fees, losses, claims, damages
or liabilities and expenses in connection therewith, joint or
several,(irrespective of whether any such indemnitee is a party to the action
for which indemnification hereunder is sought), and including reasonable
attorney's fees and disbursements and costs incurred in connection with the
collection of the Convertible Notes (the "Indemnified Liabilities"), incurred by
any Subscriber Indemnified Party as a result of, or arising out of, or relating
to (a) any misrepresentation or breach of any representation or warranty made by
the Company in the Transaction Documents or any other certificate, instrument or
documents contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents,
the Disclosure Documents or the Convertible Notes or any other certificate,
instrument or document contemplated hereby or thereby, or (c) any cause of
action, suit or claim, derivative or otherwise, by any shareholder of the
Company based on a breach or alleged breach by the Company or any of its
officers or directors of their fiduciary or other obligations to the
shareholders of the Company. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which it would be required to make if such foregoing undertaking was
enforceable which is permissible under applicable law.
Promptly after receipt by an Indemnified Party of notice of the
commencement of any action pursuant to which indemnification may be sought, such
Indemnified Party will, if a claim in respect thereof is to be made against the
other party (hereinafter "Indemnitor") under this Section 8, deliver to the
Indemnitor a written notice of the commencement thereof and the Indemnitor shall
have the right to participate in and to assume the defense thereof with counsel
reasonably selected by the Indemnitor, provided, however, that an Indemnified
Party shall have the right to retain its own counsel, with the reasonably
incurred fees and expenses of such counsel to be paid by the Indemnitor, if
representation of such Indemnified Party by the counsel retained by the
Indemnitor would be inappropriate due to actual or potential conflicts of
interest between such Indemnified Party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
Indemnitor within a reasonable time of the commencement of any such action, if
prejudicial to the Indemnitor's ability to defend such action, shall relieve the
Indemnitor of any liability to the Indemnified Party under this Section 8 to the
extent the Indemnified party is prejudiced, but the omission to so deliver
written notice to the Indemnitor will not relieve it of any liability that it
may have to any Indemnified Party other than under this Section 8 to the extent
it is prejudicial.
9. Certain Additional Legends and Information.
FOR FLORIDA RESIDENTS:
THE SECURITIES REFERRED TO HEREIN WILL BE SOLD TO, AND ACQUIRED BY, THE
HOLDER IN A TRANSACTION EXEMPT UNDER SECTION 517.061 OF THE FLORIDA SECURITIES
ACT. THE SECURITIES HAVE NOT BEEN REGISTERED UNDER SAID ACT IN THE STATE OF
FLORIDA. IN
18
ADDITION, ALL FLORIDA RESIDENTS SHALL HAVE THE PRIVILEGE OF VOIDING THE
PURCHASE WITHIN THREE (3) DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS MADE
BY SUCH SUBSCRIBER TO THE ISSUER, AN AGENT OF THE ISSUER, OR AN ESCROW AGENT OR
WITHIN THREE DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO
SUCH SUBSCRIBER, WHICHEVER OCCURS LATER.
FOR MAINE RESIDENTS:
THESE SECURITIES ARE BEING SOLD PURSUANT TO AN EXEMPTION FROM
REGISTRATION WITH THE BANK SUPERINTENDENT OF THE STATE OF MAINE UNDER SECTION
10502(2)(R) OF TITLE 32 OF THE MAINE REVISED STATUTES. THESE SECURITIES MAY BE
DEEMED RESTRICTED SECURITIES AND AS SUCH THE HOLDER MAY NOT BE ABLE TO RESELL
THE SECURITIES UNLESS PURSUANT TO REGISTRATION UNDER STATE OR FEDERAL SECURITIES
LAWS OR UNLESS AN EXEMPTION UNDER SUCH LAWS EXISTS.
FOR PENNSYLVANIA RESIDENTS:
EACH PENNSYLVANIA RESIDENT WHO SUBSCRIBES FOR THE SECURITIES BEING
OFFERED HEREBY AGREES NOT TO SELL THESE SECURITIES FOR A PERIOD OF TWELVE MONTHS
AFTER THE DATE OF PURCHASE UNLESS SUCH SECURITIES HAVE BEEN REGISTERED FOR SALE.
UNDER PROVISION OF THE PENNSYLVANIA SECURITIES ACT OF 1972 (THE "1972 ACT"),
EACH PENNSYLVANIA RESIDENT SHALL HAVE THE RIGHT TO WITHDRAW HIS ACCEPTANCE
WITHOUT INCURRING ANY LIABILITY, TO THE SELLER, UNDERWRITER (IF ANY) OR ANY
PERSON, WITHIN TWO (2) BUSINESS DAYS FROM THE DATE OF RECEIPT BY THE ISSUER OF
HIS WRITTEN BINDING CONTRACT OF PURCHASE OR IN THE CASE OF A TRANSACTION IN
WHICH THERE IS NO WRITTEN BINDING CONTRACT OF PURCHASE, WITHIN TWO BUSINESS DAYS
AFTER HE MAKES THE INITIAL PAYMENT FOR THE SECURITIES BEING OFFERED. TO
ACCOMPLISH THIS WITHDRAWAL, A SUBSCRIBER NEED ONLY SEND A LETTER OR TELEGRAM TO
THE SELLING AGENT AT THE ADDRESS SET FORTH IN THE TEXT OF THE MEMORANDUM,
INDICATING HIS OR HER INTENTION TO WITHDRAW. SUCH LETTER OR TELEGRAM SHOULD BE
SENT AND POSTMARKED PRIOR TO THE END OF THE AFOREMENTIONED SECOND BUSINESS DAY.
IT IS PRUDENT TO SEND SUCH LETTER BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED,
TO ENSURE THAT IT IS RECEIVED AND ALSO TO EVIDENCE THE TIME WHEN IT WAS MAILED.
IF THE REQUEST IS MADE ORALLY (IN PERSON OR BY TELEPHONE, TO THE SELLING AGENT
AT THE NUMBER LISTED IN THE TEXT OF THE MEMORANDUM) A WRITTEN CONFIRMATION THAT
THE REQUEST HAS BEEN RECEIVED SHOULD BE REQUESTED.
FOR NEW HAMPSHIRE RESIDENTS:
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A
SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW
HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT
FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH
FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR
A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE
MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON,
SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY
PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH
THE PROVISIONS OF THIS PARAGRAPH.
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10. Principal Amount Purchased and Purchase Price. Subscriber subscribes
for $ in principal amount of Convertible Notes and the accompanying Warrants
against payment by wire transfer in the amount of $_________ ("Purchase Price").
11. Accredited Investor. Subscriber is an "accredited investor" because
(check all applicable boxes):
(a) [ ] it is an organization described in Section
501(c)(3) of the Internal Revenue Code, or a
corporation, limited duration company, limited
liability company, business trust, or partnership not
formed for the specific purpose of acquiring the
securities offered, with total assets in excess of
$5,000,000.
(b) [ ] any trust or partnership, 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 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.
(c) [ ] a natural person, who
[ ] is a director, executive officer or general partner
of the issuer of the securities being offered or sold
or a director, executive officer or general partner
of a general partner of that issuer.
[ ] has an individual net worth, or joint net worth
with that person's spouse, at the time of his
purchase exceeding $1,000,000.
[ ] 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.
(d) [ ] an entity each equity owner of which is an entity
described in a - b above or is an individual who
could check one (1) of the last three (3) boxes under
subparagraph (c) above.
(e) [ ] other [specify] ____________________________________
The undersigned acknowledges that this Agreement and the subscription
represented hereby shall not be effective unless accepted by the Company as
indicated below.
IN WITNESS WHEREOF, the undersigned Subscriber does represent and
certify under penalty of perjury that the foregoing statements are true and
correct and that Subscriber by the following signature(s) executed this
Agreement.
Dated this __th day of July, 1998.
--------------------------------------------
Your Signature PRINT EXACT NAME IN WHICH YOU WANT
THE SECURITIES TO BE REGISTERED
-------------------------------------------- DELIVERY INSTRUCTIONS:
Name: Please Print Please type or print address where
your security is to be delivered
ATTN.:
-------------------------------------------- ----------------------------
Title/Representative Capacity (if applicable)
-------------------------------------------- ----------------------------------
Name of Company You Represent (if applicable) Street Address
-------------------------------------------- ----------------------------------
Place of Execution of this Agreement City, State or Province, Country,
Offshore Postal Code
----------------------------------
Phone Number (For Federal Express)
and Fax Number (re: Notice)
THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF $______________
ON THE 16th DAY OF July, 1998.
EA Industries, Inc.
By:
------------------------------
20
NOTICE OF CONVERSION [AND RESALE]
(To be Executed by the Registered Holder
in order to Convert the Convertible Notes)
The undersigned hereby elects to convert _____________ principal amount of
Convertible Notes (the "Convertible Notes") into shares of common stock ("Common
Stock") of _______________, Inc. (the "Company") according to the conditions of
the Convertible Notes, as of the date written below [in connection with the
resale of the underlying Common Stock unless otherwise indicated below]. If
shares are to be issued in the name of a person other than the undersigned, the
undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates. No fee will be charged to the Holder for
any conversion, except for transfer taxes, if any. A copy of each of the
Convertible Notes being converted is attached hereto. The undersigned agrees to
deliver a Prospectus in connection with any sale made pursuant to the
Registration Statement, as provided in Section 5.9 of the Securities Purchase
Agreement.
____ Check here if this conversion is not being made in connection with
the resale of the Common Stock.
Date of Conversion:________________________
Applicable Conversion Price:_______________
Number of Shares of
Common Stock to be Issued:_________________
Signature:_________________________________
Name:______________________________________
Address: __________________________________
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