SUBSCRIPTION AGREEMENT
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Dear Subscriber:
You (the "Subscriber") hereby agree to purchase, and Science Dynamics
Corporation, a Delaware corporation (the "Company") hereby agrees to issue
and to sell to the Subscriber, Secured 8% Convertible Notes (the "Notes")
convertible in accordance with the terms thereof into shares of the
Company's $.01 par value common stock (the "Company Shares") for the
aggregate consideration as set forth on the signature page hereof
("Purchase Price"). The form of Convertible Note is annexed hereto as
Exhibit A. (The Company Shares included in the Securities (as hereinafter
defined) are sometimes referred to herein as the "Shares" or "Common
Stock"). (The Notes, the Company Shares, Common Stock Purchase Warrants
("Warrants") issuable to the recipients identified on Schedule B hereto,
and the Common Stock issuable upon exercise of the Warrants are
collectively referred to herein as, the "Securities"). Upon acceptance of
this Agreement by the Subscriber, the Company shall issue and deliver to
the Subscriber the Note against payment, by federal funds wire transfer of
the Purchase Price.
The following terms and conditions shall apply to this
subscription.
1. Subscriber's Representations and Warranties. The Subscriber
hereby represents and warrants to and agrees with the Company that:
(a) Information on Company. The Subscriber has been
furnished with the Company's Form 10-KSB for the year ended December 31,
2000 as filed with the Securities and Exchange Commission (the
"Commission") together with all subsequently filed forms 10-QSB, and other
publicly available filings made with the Commission (hereinafter referred
to as the "Reports"). In addition, the Subscriber has received from the
Company such other information concerning its operations, financial
condition and other matters as the Subscriber has requested in writing, and
considered all factors the Subscriber deems material in deciding on the
advisability of investing in the Securities (such information in writing is
collectively, the "Other Written Information").
(b) Information on Subscriber. The Subscriber is an
"accredited investor", as such term is defined in Regulation D promulgated
by the Commission under the Securities Act of 1933, as amended (the "1933
Act"), is experienced in investments and business matters, has made
investments of a speculative nature and has purchased securities of United
States publicly-owned companies in private placements in the past and, with
its representatives, has such knowledge and experience in financial, tax
and other business matters as to enable the Subscriber to utilize the
information made available by the Company to evaluate the merits and risks
of and to make an informed investment decision with respect to the proposed
purchase, which represents a speculative investment. The Subscriber has
the authority and is duly and legally qualified to purchase and own the
Securities. The Subscriber is able to bear the risk of such investment for
an indefinite period and to afford a complete loss thereof. The
information set forth on the signature page hereto regarding the Subscriber
is accurate.
(c) Purchase of Note. On the Closing Date, the Subscriber
will purchase the Note for its own account and not with a view to any
distribution thereof.
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(d) Compliance with Securities Act. The Subscriber
understands and agrees that the Securities have not been registered under
the 1933 Act, by reason of their issuance in a transaction that does not
require registration under the 1933 Act (based in part on the accuracy of
the representations and warranties of Subscriber contained herein), and
that such Securities must be held unless a subsequent disposition is
registered under the 1933 Act or is exempt from such registration.
(e) Company Shares Legend. The Company Shares, and the
shares of Common Stock issuable upon the exercise of the Warrants, shall
bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THESE SHARES MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH SECURITIES ACT OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO SCIENCE DYNAMICS
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED."
(f) Warrants Legend. The Warrants shall bear the
following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS
WARRANT AND THE COMMON SHARES ISSUABLE UPON
EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
WARRANT UNDER SAID ACT OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO SCIENCE DYNAMICS
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED."
(g) Note Legend. The Note shall bear the following legend:
"THIS NOTE AND THE COMMON SHARES ISSUABLE UPON
CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS
NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION
OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE
UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO SCIENCE DYNAMICS CORPORATION THAT
SUCH REGISTRATION IS NOT REQUIRED."
(h) Communication of Offer. The offer to sell the
Securities was directly communicated to the Subscriber. At no time was the
Subscriber presented with or solicited by any leaflet, newspaper or
magazine article, radio or television advertisement, or any other form of
general advertising or solicited or invited to attend a promotional meeting
otherwise than in connection and concurrently with such communicated offer.
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(i) Correctness of Representations. The Subscriber
represents that the foregoing representations and warranties are true and
correct as of the date hereof and, unless the Subscriber otherwise notifies
the Company prior to the Closing Date (as hereinafter defined), shall be
true and correct as of the Closing Date. The foregoing representations and
warranties shall survive the Closing Date.
2. Company Representations and Warranties. The Company
represents and warrants to and agrees with the Subscriber that:
(a) Due Incorporation. The Company and each of its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the respective jurisdictions of their
incorporation and have the requisite corporate power to own their
properties and to carry on their business as now being conducted. The
Company and each of its subsidiaries is duly qualified as a foreign
corporation to do business and is in good standing in each jurisdiction
where the nature of the business conducted or property owned by it makes
such qualification necessary, other than those jurisdictions in which the
failure to so qualify would not have a material adverse effect on the
business, operations or prospects or condition (financial or otherwise) of
the Company.
(b) Outstanding Stock. All issued and outstanding shares
of capital stock of the Company and each of its subsidiaries has been duly
authorized and validly issued and are fully paid and non-assessable.
(c) Authority; Enforceability. This Agreement has been
duly authorized, executed and delivered by the Company and is a valid and
binding agreement enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors'
rights generally and to general principles of equity; and the Company has
full corporate power and authority necessary to enter into this Agreement
and to perform its obligations hereunder and all other agreements entered
into by the Company relating hereto.
(d) Additional Issuances. There are no outstanding
agreements or preemptive or similar rights affecting the Company's common
stock or equity and no outstanding rights, warrants or options to acquire,
or instruments convertible into or exchangeable for, or agreements or
understandings with respect to the sale or issuance of any shares of common
stock or equity of the Company or other equity interest in any of the
subsidiaries of the Company, except as described in the Reports or Other
Written Information.
(e) Consents. No consent, approval, authorization or
order of any court, governmental agency or body or arbitrator having
jurisdiction over the Company, or any of its affiliates, the NASD, NASDAQ
or the Company's Shareholders is required for execution of this Agreement,
and all other agreements entered into by the Company relating thereto,
including, without limitation issuance and sale of the Securities, and the
performance of the Company's obligations hereunder, except as described in
Section 7(h) of this Agreement.
(f) No Violation or Conflict. Assuming the
representations and warranties of the Subscriber in Paragraph 1 are true
and correct and the Subscriber complies with its obligations under this
Agreement, neither the issuance and sale of the Securities nor the
performance of its obligations under this Agreement and all other
agreements entered into by the Company relating thereto by the Company
will:
(i) violate, conflict with, result in a breach of,
or constitute a default (or an event which with the giving of notice or the
lapse of time or both would be reasonably likely to constitute a default)
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under (A) the certificate of incorporation, charter or bylaws of the
Company or any of its affiliates, (B) to the Company's knowledge, any
decree, judgment, order, law, treaty, rule, regulation or determination
applicable to the Company or any of its affiliates of any court,
governmental agency or body, or arbitrator having jurisdiction over the
Company or any of its affiliates or over the properties or assets of the
Company or any of its affiliates, (C) the terms of any bond, debenture,
note or any other evidence of indebtedness, or any agreement, stock option
or other similar plan, indenture, lease, mortgage, deed of trust or other
instrument to which the Company or any of its affiliates is a party, by
which the Company or any of its affiliates is bound, or to which any of the
properties of the Company or any of its affiliates is subject, or (D) the
terms of any "lock-up" or similar provision of any underwriting or similar
agreement to which the Company, or any of its affiliates is a party; or
(ii) result in the creation or imposition of any
lien, charge or encumbrance upon the Securities or any of the assets of the
Company, or any of its affiliates.
(g) The Securities. The Securities upon issuance:
(i) are, or will be, free and clear of any security
interests, liens, claims or other encumbrances, subject to restrictions
upon transfer under the 1933 Act and State laws;
(ii) have been, or will be, duly and validly
authorized and on the date of issuance and on the Closing Date, as
hereinafter defined, and the date the Note is converted, and the Warrants
are exercised, the Securities will be duly and validly issued, fully paid
and nonassessable (and if registered pursuant to the 1933 Act, and resold
pursuant to an effective registration statement will be free trading and
unrestricted, provided that the Subscriber complies with the Prospectus
delivery requirements);
(iii) will not have been issued or sold in violation
of any preemptive or other similar rights of the holders of any securities
of the Company; and
(iv) will not subject the holders thereof to
personal liability by reason of being such holders.
(h) Litigation. There is no pending or, to the best
knowledge of the Company, threatened action, suit, proceeding or
investigation before any court, governmental agency or body, or arbitrator
having jurisdiction over the Company, or any of its affiliates that would
affect the execution by the Company or the performance by the Company of
its obligations under this Agreement, and all other agreements entered into
by the Company relating hereto. Except as disclosed in the Reports or
Other Written Information, there is no pending or, to the best knowledge of
the Company, threatened action, suit, proceeding or investigation before
any court, governmental agency or body, or arbitrator having jurisdiction
over the Company, or any of its affiliates.
(i) Reporting Company. The Company is a publicly-held company
subject to reporting obligations pursuant to Sections 15(d) and 13 of the
Securities Exchange Act of 1934, as amended (the "1934 Act") and has a
class of common shares registered pursuant to Section 12(g) of the 1934
Act. The Company's common stock is trading on the NASDAQ SmallCap Market
("SmallCap Market"). Pursuant to the provisions of the 1934 Act, the
Company has filed all reports and other materials required to be filed
thereunder with the Securities and Exchange Commission during the preceding
twelve months except as set forth in the Reports.
(j) No Market Manipulation. The Company has not taken,
and will not take, directly or indirectly, any action designed to, or that
might reasonably be expected to, cause or result in stabilization or
manipulation of the price of the common stock of the Company to facilitate
the sale or resale of the Securities or affect the price at which the
Securities may be issued.
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(k) Information Concerning Company. The Reports and
Other Written Information contain all material information relating to the
Company and its operations and financial condition as of their respective
dates which information is required to be disclosed therein. Since the
date of the financial statements included in the Reports, and except as
modified in the Other Written Information, there has been no material
adverse change in the Company's business, financial condition or affairs
not disclosed in the Reports. The Reports and Other Written Information do
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading.
(l) Dilution. The number of Shares issuable upon
conversion of the Note may increase substantially in certain circumstances,
including, but not necessarily limited to, the circumstance wherein the
trading price of the Common Stock declines prior to conversion of the Note.
The Company's executive officers and directors have studied and fully
understand the nature of the Securities being sold hereby 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 specifically
acknowledges that its obligation to issue the Shares upon conversion of the
Note and exercise of the Warrants is binding upon the Company and
enforceable, except as otherwise described in this Subscription Agreement
or the Note, regardless of the dilution such issuance may have on the
ownership interests of other shareholders of the Company.
(m) Stop Transfer. The Securities are restricted
securities as of the date of this Agreement. The Company will not issue
any stop transfer order or other order impeding the sale and delivery of
the Securities, except as may be required by federal securities laws.
(n) Defaults. Neither the Company nor any of its
subsidiaries is in violation of its Certificate of Incorporation or ByLaws.
Neither the Company nor any of its subsidiaries is (i) in default under or
in violation of any other material agreement or instrument to which it is a
party or by which it or any of its properties are bound or affected, which
default or violation would have a material adverse effect on the Company,
(ii) in default with respect to any order of any court, arbitrator or
governmental body or subject to or party to any order of any court or
governmental authority arising out of any action, suit or proceeding under
any statute or other law respecting antitrust, monopoly, restraint of
trade, unfair competition or similar matters, or (iii) to its knowledge in
violation of any statute, rule or regulation of any governmental authority
which violation would have a material adverse effect on the Company.
(o) No Integrated Offering. To the best of its
knowledge after due inquiry with regulatory authorities, neither the
Company, nor any of its affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales of any security
or solicited any offers to buy any security under circumstances that would
cause the offering of the Securities pursuant to this Agreement to be
integrated with prior offerings by the Company for purposes of the 1933 Act
or any applicable stockholder approval provisions, including, without
limitation, under the rules and regulations of the NASDAQ SmallCap Market,
as applicable, nor will the Company or any of its affiliates or
subsidiaries take any action or steps that would cause the offering of the
Securities to be integrated with other offerings.
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(p) No General Solicitation. Neither the Company, nor
any of its affiliates, nor to its knowledge, any person acting on its or
their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the Act) in
connection with the offer or sale of the Securities.
(q) Listing. The Company's Common Stock is listed for
trading on the NASDAQ SmallCap Market and satisfies all requirements for
the continuation of such listing. The Company has not received any notice
that its common stock will be delisted from the NASDAQ SmallCap Market or
that the Common Stock does not meet all requirements for the continuation
of such listing.
(r) No Undisclosed Liabilities. The Company has no
liabilities or obligations which are material, individually or in the
aggregate, which are not disclosed in the Reports and Other Written
Information, other than those incurred in the ordinary course of the
Company's businesses since December 31, 2000 and which, individually or in
the aggregate, would not reasonably be expected to have a material adverse
effect on the Company's financial condition.
(s) No Undisclosed Events or Circumstances. Since
December 31, 2000, no event or circumstance has occurred or exists with respect
to the Company or its businesses, properties, prospects, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but
which has not been so publicly announced or disclosed in the Reports.
(t) Capitalization. The authorized and outstanding capital
stock of the Company as of the date of this Agreement and the Closing Date are
set forth on Schedule 2 hereto. Except as set forth in the Reports and Other
Written Information, there are no options, warrants, or rights to subscribe
to, securities, rights or obligations convertible into or exchangeable for
or giving any right to subscribe for any shares of capital stock of the
Company. All of the outstanding shares of Common Stock of the Company have
been duly and validly authorized and issued and are fully paid and
nonassessable.
(u) Correctness of Representations. The Company represents
that the foregoing representations and warranties are true and correct as
of the date hereof in all material respects, will be true and correct as of
the Closing Date, and, unless the Company otherwise notifies the Subscriber
prior to the Closing Date, shall be true and correct in all material
respects as of the Closing Date. The foregoing representations and
warranties shall survive the Closing Date.
3. Regulation D Offering. This Offering is being made pursuant
to the exemption from the registration provisions of the Securities Act of
1933, as amended, afforded by Rule 506 of Regulation D promulgated
thereunder. On the Closing Date, the Company will provide an opinion
acceptable to Subscriber from the Company's legal counsel opining on the
availability of the Regulation D exemption as it relates to the offer and
issuance of the Securities. A form of the legal opinion is annexed hereto
as Exhibit C. The Company will provide, at the Company's expense, such
other legal opinions in the future as are reasonably necessary for the
conversion of the Note and exercise of the Warrants.
4. Reissuance of Securities. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Sections 1(e) and 1(f) above at such time as (a) the holder thereof is
permitted to and disposes of such Securities pursuant to Rule 144(d) and/or
Rule 144(k) under the 1933 Act in the opinion of counsel reasonably
satisfactory to the Company, or (b) upon resale subject to an effective
registration statement after the Securities are registered under the 0000
Xxx. The Company agrees to cooperate with the Subscriber in connection
with all resales pursuant to Rule 144(d) and Rule 144(k) and provide legal
opinions necessary to allow such resales provided the Company and its
counsel receive all reasonably requested written representations from the
Subscriber and selling broker, if any. If the Company fails to remove any
legend as required by this Section 4 (a "Legend Removal Failure"), then
beginning on the tenth (10th) day following the date that the Subscriber
has requested the removal of the legend and delivered all items reasonably
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required to be delivered by the Subscriber, the Company continues to fail
to remove such legend, the Company shall pay to each Subscriber or assignee
holding shares subject to a Legend Removal Failure an amount equal to one
percent (1%) of the Purchase Price of the shares subject to a Legend
Removal Failure per day that such failure continues. If during any twelve
(12) month period, the Company fails to remove any legend as required by
this Section 4 for an aggregate of thirty (30) days, each Subscriber or
assignee holding Securities subject to a Legend Removal Failure may, at its
option, require the Company to purchase all or any portion of the
Securities subject to a Legend Removal Failure held by such Subscriber or
assignee at a price per share equal to 120% of the applicable Purchase
Price.
5. Redemption. The Company may not redeem the Securities
without the consent of the holder of the Securities except as otherwise
described herein.
6. Fees/Warrants.
(a) The Company shall pay to counsel to the Subscriber
its fees of $10,000 (of which $7,500 has been paid) for services rendered
to Subscribers in connection with this Agreement and the other Subscription
Agreements for aggregate subscription amounts of up to $1,200,000 (the
"Offering"). The Company will pay the escrow agent for the Offering a fee
of $750. The Company will pay to the Fund Managers identified on Schedule
B hereto a cash fee in the amount of: eight percent (8%) of the Purchase
Price ("Fund Manager's Fee") and of the actual cash proceeds received by
the Company in connection with the exercise of the Warrants issued in
connection with the Offering ("Warrant Exercise Compensation"). The Fund
Manager's Fee must be paid each Closing Date with respect to the Notes
issued on such date. The Warrant Exercise Compensation must be paid to the
Fund Managers identified on Schedule B hereto, within ten (10) days of
receipt of the Warrant exercise "Purchase Price" (as defined in the
Warrant). The Fund Manager's Fee and legal fees will be payable out of
funds held pursuant to a Funds Escrow Agreement to be entered into by the
Company, Subscriber and an Escrow Agent. On the Closing Date, the Company
will pay the Fund Manager identified on Schedule B, the sum of $2,500 as an
expense allowance ("Expense Allowance").
(b) The Company will also issue and deliver to the
Subscribers (sometimes referred to as "Subscribers"), one Warrant for each
$1.375 of Purchase Price invested by such Subscriber. A form of Warrant is
annexed hereto as Exhibit D. The per share "Purchase Price" of Common
Stock as defined in the Warrant shall be equal to 130% of the three lowest
closing prices of the Common Stock as reported by Bloomberg Financial for
the Pink Sheets, the NASD OTC Bulletin Board, NASDAQ SmallCap Market,
NASDAQ National Market, American Stock Exchange, or New York Stock Exchange
(each of the foregoing the Principal Market"), or such other principal
market or exchange where the Common Stock is listed or traded for the ten
(10) trading days preceding but not including the Closing Date. The
Warrants designated on Schedule B hereto must be delivered to the
Subscribers on the Closing Date. Failure to timely deliver the Warrant
Exercise Compensation, the Warrants or Fund Manager's Fee shall be an Event
of Default as defined in Article III of the Note.
(c) The Fund Manager's Fee, legal fees and escrow
agent's fee will be paid to the Fund Managers and attorneys only when, as,
and if a corresponding subscription amount is released from escrow to the
Company and out of the escrow proceeds. All the representations,
covenants, warranties, undertakings, remedies, liquidated damages,
indemnification, rights in Section 9 hereof, and other rights but not
including registration rights made or granted to or for the benefit of the
Subscriber are hereby also made and granted to the Subscribers in respect
of the Warrants and Company Shares issuable upon exercise of the Warrants.
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(d) The Company on the one hand, and the Subscriber on the
other hand, agree to indemnify the other against and hold the other
harmless from any and all liabilities to any other persons claiming
brokerage commissions or fund manager's fees except as identified on
Schedule B hereto on account of services purported to have been rendered on
behalf of the indemnifying party in connection with this Agreement or the
transactions contemplated hereby and arising out of such party's actions.
Except as set forth on Schedule B hereto, the Company represents that there
are no other parties entitled to receive fees, commissions, or similar
payments in connection with the offering described in the Subscription
Agreement.
7. Covenants of the Company. The Company covenants and agrees
with the Subscriber as follows:
(a) The Company will advise the Subscriber, promptly
after it receives notice of issuance by the Securities and Exchange
Commission, any state securities commission or any other regulatory
authority of any stop order or of any order preventing or suspending any
offering of any securities of the Company, or of the suspension of the
qualification of the Common Stock of the Company for offering or sale in
any jurisdiction, or the initiation of any proceeding for any such purpose.
(b) The Company shall promptly secure the listing of the
Company Shares, and Common Stock issuable upon the exercise of the Warrants
upon each national securities exchange, or automated quotation system, if
any, upon which shares of Common Stock are then listed (subject to official
notice of issuance) and shall maintain such listing so long as any other
shares of Common Stock shall be so listed. The Company will maintain the
listing of its Common Stock on a Principal Market, and will comply in all
respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the National Association of Securities Dealers
("NASD") and such exchanges, as applicable. The Company will provide the
Subscriber copies of all notices it receives notifying the Company of the
threatened and actual delisting of the Common Stock from any Principal
Market.
(c) The Company shall notify the SEC, NASD and applicable
state authorities, in accordance with their requirements, if any, of the
transactions contemplated by this Agreement, and shall take all other
necessary action and proceedings as may be required and permitted by
applicable law, rule and regulation, for the legal and valid issuance of
the Securities to the Subscriber and promptly provide copies thereof to
Subscriber.
(d) Until at least two (2) years after the effectiveness
of the Registration Statement on Form SB-2 or such other Registration
Statement described in Section 10.1(iv) hereof, the Company will (i) cause
its Common Stock to continue to be registered under Sections 12(b) or 12(g)
of the Exchange Act, (ii) comply in all respects with its reporting and
filing obligations under the Exchange Act, (iii) comply with all reporting
requirements that is applicable to an issuer with a class of Shares
registered pursuant to Section 12(g) of the Exchange Act, and (iv) comply
with all requirements related to any registration statement filed pursuant
to this Agreement. The Company will not take any action or file any
document (whether or not permitted by the Act or the Exchange Act or the
rules thereunder) to terminate or suspend such registration or to terminate
or suspend its reporting and filing obligations under said Acts until the
later of (y) two (2) years after the actual effective date of the
Registration Statement on Form SB-2 or such other Registration Statement
described in Section 10.1(iv) hereof, or (z) the sale by the Subscribers
and Subscribers of all the Company Shares and Securities issuable by the
Company pursuant to this Agreement. Until at least two (2) years after the
Warrants have been exercised, the Company will use its commercial best
efforts to continue the listing of the Common Stock on the SmallCap Market,
and will comply in all respects with the Company's reporting, filing and
other obligations under the bylaws or rules of the NASD and NASDAQ.
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(e) The Company undertakes to use the proceeds of the
Subscriber's funds for the purposes set forth on Schedule 7(e) hereto.
Purchase Price may not and will not be used to pay debt or non-trade
obligations outstanding on or after the Closing Date. A deviation from the
use of proceeds set forth on Schedule 7(e) of more than 10% per item or
more than 20% in the aggregate shall be deemed a material breach of the
Company's obligations hereunder.
(f) The Company undertakes to use its best efforts to
acquire, within three months of the Closing Date, at a commercially
reasonable cost, a standard officers and directors errors and omissions
liability insurance policy covering the transactions contemplated in this
Agreement.
(g) The Company undertakes to reserve pro rata on behalf of
each holder of a Note or Warrant, from its authorized but unissued Common
Stock, at all times that Notes or Warrants remain outstanding, a number of
Common Shares equal to not less than 200% of the amount of Common Shares
necessary to allow each such holder to be able to convert all such
outstanding Notes, at the then applicable Conversion Price and one Common
Share for each Common Share issuable upon exercise of the Warrants.
(h) The Company and Subscriber agree that until the
Company either obtains shareholder approval of the issuance of the
Securities, or an exemption from NASDAQ's corporate governance rules as
they may apply to the Securities, and an opinion of counsel reasonably
acceptable to Subscriber that NASDAQ's corporate governance rules do not
conflict with nor may result in a delisting of the Company's common stock
from the SmallCap Market ("the Approval") upon the conversion of the Notes,
each Subscriber may not receive upon conversion of the Notes more than the
number of common shares designated on the Signature Page hereto ("Section 7
Shares"). The Company represents that this number of Company Shares
together with the aggregate of such amounts designated for all investors in
the Offering is not greater than 19.9% of the shares of Company's common
stock outstanding on the Closing Date. The Company covenants to obtain the
Approval required pursuant to the NASDAQ's corporate governance rules to
allow conversion of all the Notes and interest thereon. The Company
further covenants to file the preliminary proxy statement relating to the
Approval with the Commission on or before thirty days after the Closing
Date ("Proxy Filing Date"). The Company further covenants to obtain the
Approval no later than ninety days after the Closing Date ("Approval
Date"). The Company's failure to (i) file the proxy on or before the Proxy
Filing Date; or (ii) the Company's failure to obtain the Approval on or
before the Approval Date (each being an "Approval Default") shall be deemed
an Event of Default under the Note, but only to the extent the Notes and
interest thereon that may not be converted due to the Company's failure to
obtain such Approval. Anything to the contrary in this Section 7(h)
notwithstanding, there shall be no limitation on the amount of Notes that
may be converted by the Subscriber and the amount of Company Shares that
may be issued upon conversion of the Notes provided the Subscriber elects a
Conversion Price (as defined in the Note) equal to the closing price of the
Common Stock on the Closing Date.
8. Covenants of the Company and Subscriber Regarding Idemnification.
(a) The Company agrees to indemnify, hold harmless,
reimburse and defend Subscriber, Subscriber's officers, directors, agents,
affiliates, control persons, and principal shareholders, against any claim,
cost, expense, liability, obligation, loss or damage (including reasonable
legal fees) of any nature, incurred by or imposed upon Subscriber or any
such person which results, arises out of or is based upon (i) any
misrepresentation by Company or breach of any warranty by Company in this
Agreement or in any Exhibits or Schedules attached hereto, or other
agreement delivered pursuant hereto; or (ii) after any applicable notice
and/or cure periods, any breach or default in performance by the Company of
any covenant or undertaking to be performed by the Company hereunder, or
any other agreement entered into by the Company and Subscribers relating
hereto.
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(b) Subscriber agrees to indemnify, hold harmless,
reimburse and defend the Company and each of the Company's officers and
directors at all times against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company or any such person which results,
arises out of or is based upon (i) any misrepresentation by Subscriber in
this Agreement or in any Exhibits or Schedules attached hereto, or other
agreement delivered pursuant hereto; or (ii) after any applicable notice
and/or cure periods, any breach or default in performance by Subscriber of
any covenant or undertaking to be performed by Subscriber hereunder, or any
other agreement entered into by the Company and Subscribers relating
hereto.
(c) The procedures set forth in Section 10.6 shall apply to
the indemnifications set forth in Sections 8(a) and 8(b) above.
9.1. Conversion of Note.
(a) Upon the conversion of the Note or part thereof, the Company
shall, at its own cost and expense, take all necessary action (including the
issuance of an opinion of counsel) to assure that the Company's transfer
agent shall issue stock certificates in the name of Subscriber (or its
nominee) or such other persons as designated by Subscriber and in such
denominations to be specified at conversion representing the number of
shares of common stock issuable upon such conversion. The Company warrants
that no instructions other than these instructions have been or will be
given to the transfer agent of the Company's Common Stock and that the
Shares will be unlegended, free-trading, and freely transferable, and will
not contain a legend restricting the resale or transferability of the
Company Shares provided the Shares are being sold pursuant to an effective
registration statement covering the Shares to be sold or are otherwise
exempt from registration when sold.
(b) Subscriber will give notice of its decision to
exercise its right to convert the Note or part thereof by telecopying an
executed and completed Notice of Conversion (as defined in the Note) to the
Company via confirmed telecopier transmission. The Subscriber will not be
required to surrender the Note until the Note has been fully converted or
satisfied. Each date on which a Notice of Conversion is telecopied to the
Company in accordance with the provisions hereof shall be deemed a
Conversion Date. The Company will or cause the transfer agent to transmit
the Company's Common Stock certificates representing the Shares issuable
upon conversion of the Note to the Subscriber via express courier for
receipt by such Subscriber within three (3) business days after receipt by
the Company of the Notice of Conversion (the "Delivery Date"). A Note
representing the balance of the Note not so converted will be provided to
the Subscriber, if requested by Subscriber. To the extent that a
Subscriber elects not to surrender a Note for reissuance upon partial
payment or conversion, the Subscriber hereby indemnifies the Company
against any and all loss or damage attributable to a third-party claim in
an amount in excess of the actual amount then due under the Note.
(c) The Company understands that a delay in the delivery
of the Shares in the form required pursuant to Section 9 hereof, or the
Mandatory Redemption Amount described in Section 9.2 hereof, beyond the
Delivery Date or Mandatory Redemption Payment Date (as hereinafter defined)
could result in economic loss to the Subscriber. As compensation to the
Subscriber for such loss, the Company agrees to pay late payments to the
Subscriber for late issuance of Shares in the form required pursuant to
Section 9 hereof upon Conversion of the Note or late payment of the
Mandatory Redemption Amount, in the amount of $100 per business day after
the Delivery Date or Mandatory Redemption Payment Date, as the case may be,
for each $10,000 of Note principal amount being converted or redeemed. The
Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Furthermore, in addition to any other
remedies which may be available to the Subscriber, in the event that the
Company fails for any reason to effect delivery of the Shares by the
Delivery Date or make payment by the Mandatory Redemption Payment Date, the
Subscriber will be entitled to revoke all or part of the relevant Notice of
Conversion or rescind all or part of the notice of Mandatory Redemption by
delivery of a notice to such effect to the Company whereupon the Company
and the Subscriber shall each be restored to their respective positions
immediately prior to the delivery of such notice, except that late payment
charges described above shall be payable through the date notice of
revocation or rescission is given to the Company.
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(d) Nothing contained herein or in any document referred
to herein or delivered in connection herewith shall be deemed to establish
or require the payment of a rate of interest or other charges in excess of
the maximum permitted by applicable law. In the event that the rate of
interest or dividends required to be paid or other charges hereunder exceed
the maximum permitted by such law, any payments in excess of such maximum
shall be credited against amounts owed by the Company to the Subscriber and
thus refunded to the Company.
9.2. Mandatory Redemption. In the event the Company is
prohibited from issuing Shares, or fails to timely deliver Shares on a
Delivery Date, or upon the occurrence of an Event of Default (as defined in
the Note) or for any reason other than pursuant to the limitations set
forth in Section 9.3 hereof, then at the Subscriber's election, the Company
must pay to the Subscriber ten (10) business days after request by the
Subscriber or on the Delivery Date (if requested by the Subscriber) a sum
of money determined by multiplying up to the outstanding principal amount
of the Note designated by the Subscriber by 130%, together with accrued but
unpaid interest thereon ("Mandatory Redemption Payment"). Notwithstanding
the foregoing, provided the proxy statement described in Section 7(h) is
filed by the Proxy Filing Date and further provided all of the Company's
officers and directors vote Common Shares owned by them in favor of the
Approval, the Mandatory Redemption Payment shall be 100% of the principal
amount of the Note designated by the Subscriber together with accrued but
unpaid interest if the event giving rise to the Mandatory Redemption
Payment is a consequence exclusively of the Company's failure to obtain the
Approval of its shareholders as contemplated by Section 7(h) hereof. The
Mandatory Redemption Payment must be received by the Subscriber on the same
date as the Company Shares otherwise deliverable or within ten (10)
business days after request, whichever is sooner ("Mandatory Redemption
Payment Date"). Upon receipt of the Mandatory Redemption Payment, the
corresponding Note principal and interest will be deemed paid and no longer
outstanding.
9.3. Maximum Conversion. The Subscriber shall not be entitled
to convert on a Conversion Date that amount of the Note in connection with
that number of shares of Common Stock which would be in excess of the sum
of (i) the number of shares of Common Stock beneficially owned by the
Subscriber and its affiliates on a Conversion Date, and (ii) the number of
shares of Common Stock issuable upon the conversion of the Note with
respect to which the determination of this provision is being made on a
Conversion Date, which would result in beneficial ownership by the
Subscriber and its affiliates of more than 4.99% of the outstanding shares
of Common Stock of the Company on such Conversion Date. For the purposes
of the provision to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder. Subject to the foregoing, the Subscriber shall not be limited
to aggregate conversions of only 4.99%. The Subscriber may void the
conversion limitation described in this Section 9.3 upon 75 days prior
written notice to the Company. The Subscriber may allocate which of the
equity of the Company deemed beneficially owned by the Subscriber shall be
included in the 4.99% amount described above and which shall be allocated
to the excess above 4.99%.
9.4. Injunction - Posting of Bond. In the event a Subscriber
shall elect to convert a Note or part thereof, the Company may not refuse
conversion based on any claim that such Subscriber or any one associated or
affiliated with such Subscriber has been engaged in any violation of law,
or for any other reason, unless, an injunction from a court, on notice,
restraining and or enjoining conversion of all or part of said Note shall
have been sought and obtained and the Company posts a surety bond for the
benefit of such Subscriber in the amount of 130% of the amount of the Note,
which is subject to the injunction, which bond shall remain in effect until
the completion of arbitration/litigation of the dispute and the proceeds of
which shall be payable to such Subscriber to the extent Subscriber obtains
judgment.
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9.5. Buy-In. In addition to any other rights available to the
Subscriber, if the Company fails to deliver to the Subscriber such shares
issuable upon conversion of a Note by the Delivery Date and if ten (10)
days after the Delivery Date the Subscriber purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction
of a sale by such Subscriber of the Common Stock which the Subscriber
anticipated receiving upon such conversion (a "Buy-In"), then the Company
shall pay in cash to the Subscriber (in addition to any remedies available
to or elected by the Subscriber) the amount by which (A) the Subscriber's
total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (B) the aggregate principal
and/or interest amount of the Note for which such conversion was not timely
honored, together with interest thereon at a rate of 15% per annum,
accruing until such amount and any accrued interest thereon is paid in full
(which amount shall be paid as liquidated damages and not as a penalty).
For example, if the Subscriber purchases shares of Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to an
attempted conversion of $10,000 of note principal and/or interest, the
Company shall be required to pay the Subscriber $1,000, plus interest. The
Subscriber shall provide the Company written notice indicating the amounts
payable to the Subscriber in respect of the Buy-In.
9.6 Adjustments. The Conversion Price and amount of Shares
issuable upon conversion of the Notes and Put Notes shall be adjusted
consistent with customary anti-dilution adjustments.
9.7. Optional Redemption. The Company will have the option of
redeeming any outstanding Notes ("Optional Redemption") by paying to the
Subscriber a sum of money as follows:
from the Closing Date through 30 days after the Closing
Date - 120% from 31 days through 90 days after the Closing
Date - 135% from 91 days through 180 days after the Closing
Date - 150% after 180 days following the Closing Date - 200%
of the principal amount of the Note together with accrued but unpaid
interest thereon and any and all other sums due, accrued or payable to the
Subscriber arising under this Subscription Agreement, Note or any other
document delivered herewith ("Redemption Amount") outstanding on the day
notice of redemption ("Notice of Redemption) is given to a Subscriber
("Redemption Date"). A Notice of Redemption may not be given in connection
with any portion of Note for which notice of conversion has been given by
the Subscriber at any time before receipt of a Notice of Redemption. The
Subscriber may elect within five (5) business days after receipt of a
Notice of Redemption to give the Company Notice of Conversion in connection
with some or all of the Note principal and interest which was the subject
of the Notice of Redemption. A Notice of Redemption must be accompanied by
a certificate signed by the chief executive officer or chief financial
officer of the Company stating that the Company has on deposit and
segregated ready funds equal to the Redemption Amount. The Redemption
Amount must be paid in good funds to the Subscriber no later than the
seventh (7th) business day after the Redemption Date ("Optional Redemption
Payment Date"). In the event the Company fails to pay the Redemption
Amount by the Optional Redemption Payment Date, then the Redemption Notice
will be null and void and the Company will thereafter have no further right
to effect an Optional Redemption, and at the Subscription's election, the
Redemption Amount will be deemed a Mandatory Redemption Payment and the
Optional Redemption Payment Date will be deemed a Mandatory Redemption
Payment Date. Such failure will also be deemed an Event of Default under
the Note. Any Notice of Redemption must be given to all holders of Notes
issued in connection with the Offering, in proportion to their holdings of
Note principal on a Redemption Date. A Notice of Redemption may be given
by the Company, provided (i) no Event of Default, as described in the Note
shall have occurred or be continuing; and (ii) the Company Shares issuable
upon conversion of the full outstanding Note principal are included for
unrestricted resale in a registration statement effective as of the
Redemption Date. Note proceeds may not be used to effect an Optional
Redemption.
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10.1. Registration Rights. The Company hereby grants the following
registration rights to holders of the Securities.
(i) On one occasion, for a period commencing 91 days after the
Closing Date, but not later than three years after the Closing Date ("Request
Date"), the Company, upon a written request therefor from any record holder
or holders of more than 50% of the aggregate of the Company's Shares issued
and issuable upon Conversion of the Notes (the Common Stock issued or
issuable upon conversion of the Notes or issuable by virtue of ownership of
the Note, being, the "Registrable Securities"), shall prepare and file with
the SEC a registration statement under the Act covering the Registrable
Securities which are the subject of such request, unless such Registrable
Securities are the subject of an effective registration statement. In
addition, upon the receipt of such request, the Company shall promptly give
written notice to all other record holders of the Registrable Securities
that such registration statement is to be filed and shall include in such
registration statement Registrable Securities for which it has received
written requests within 10 days after the Company gives such written
notice. Such other requesting record holders shall be deemed to have
exercised their demand registration right under this Section 10.1(i). As a
condition precedent to the inclusion of Registrable Securities, the holder
thereof shall provide the Company with such information as the Company
reasonably requests. The obligation of the Company under this Section
10.1(i) shall be limited to one registration statement.
(ii) If the Company at any time proposes to register any of its
securities under the Act for sale to the public, whether for its own
account or for the account of other security holders or both, except with
respect to registration statements on Forms X-0, X-0 or another form not
available for registering the Registrable Securities for sale to the
public, provided the Registrable Securities are not otherwise registered
for resale by the Subscriber or Holder pursuant to an effective
registration statement, each such time it will give at least 30 days' prior
written notice to the record holder of the Registrable Securities of its
intention so to do. Upon the written request of the holder, received by the
Company within 20 days after the giving of any such notice by the Company,
to register any of the Registrable Securities, the Company will cause such
Registrable Securities as to which registration shall have been so
requested to be included with the securities to be covered by the
registration statement proposed to be filed by the Company, all to the
extent required to permit the sale or other disposition of the Registrable
Securities so registered by the holder of such Registrable Securities (the
"Seller"). In the event that any registration pursuant to this Section
10.1(ii) shall be, in whole or in part, an underwritten public offering of
common stock of the Company, the number of shares of Registrable Securities
to be included in such an underwriting may be reduced by the managing
underwriter if and to the extent that the Company and the underwriter shall
reasonably be of the opinion that such inclusion would adversely affect the
marketing of the securities to be sold by the Company therein; provided,
however, that the Company shall notify the Seller in writing of any such
reduction. Notwithstanding the foregoing provisions, or Section 10.4
hereof, the Company may withdraw or delay or suffer a delay of any
registration statement referred to in this Section 10.1(ii) without thereby
incurring any liability to the Seller.
(iii) If, at the time any written request for registration is
received by the Company pursuant to Section 10.1(i), the Company has determined
to proceed with the actual preparation and filing of a registration statement
under the 1933 Act in connection with the proposed offer and sale for cash
of any of its securities for the Company's own account, such written
request shall be deemed to have been given pursuant to Section 10.1(ii)
rather than Section 10.1(i), and the rights of the holders of Registrable
Securities covered by such written request shall be governed by Section
10.1(ii).
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(iv) The Company shall file with the Commission within 25
days after the Closing Date (the "Filing Date"), and use its reasonable
commercial efforts to cause to be declared effective Form SB-2 registration
statement (or such other form that it is eligible to use) in order to
register the Registrable Securities for resale and distribution under the
Act. The registration statement described in this paragraph must be
declared effective by the Commission within 90 days of the Closing Date (as
defined herein) ("Effective Date"). The Company will register not less
than a number of shares of Common Stock in the aforedescribed registration
statement that is equal to 250% of the Company Shares issuable at the
Conversion Price that would be in effect on the Closing Date or the date of
filing of such registration statement (employing the Conversion Price which
would result in the greater number of Shares), assuming the conversion of
100% of the Notes. The Registrable Securities shall be reserved and set
aside exclusively for the benefit of the Subscriber, and not issued,
employed or reserved for anyone other than the Subscriber. Such
registration statement will be promptly amended or additional registration
statements will be promptly filed by the Company as necessary to register
additional Company Shares to allow the public resale of all Common Stock
included in and issuable by virtue of the Registrable Securities. No
securities of the Company other than the Registrable Securities will be
included in the registration statement described in this Section 10.1(iv).
10.2. Registration Procedures. If and whenever the Company is
required by the provisions hereof to effect the registration of any shares
of Registrable Securities under the Act, the Company will, as expeditiously
as possible:
(a) prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause
such registration statement to become and remain effective for the period
of the distribution contemplated thereby (determined as herein provided),
and promptly provide to the holders of Registrable Securities ("Sellers")
copies of all filings and Commission letters of comment;
(b) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective until the latest of: (i) twelve months after the latest
Maturity Date of a Note; (ii) thirty months after the Closing Date; or
(iii) until such registration statement has been effective for a period of
not less than 270 days, and comply with the provisions of the Act with
respect to the disposition of all of the Registrable Securities covered by
such registration statement in accordance with the Seller's intended method
of disposition set forth in such registration statement for such period;
(c) furnish to the Seller, and to each underwriter if
any, such number of copies of the registration statement and the prospectus
included therein (including each preliminary prospectus) as such persons
reasonably may request in order to facilitate the public sale or their
disposition of the securities covered by such registration statement;
(d) use its best efforts to register or qualify the
Seller's Registrable Securities covered by such registration statement
under the securities or "blue sky" laws of such jurisdictions as the Seller
and in the case of an underwritten public offering, the managing
underwriter shall reasonably request, provided, however, that the Company
shall not for any such purpose be required to qualify generally to transact
business as a foreign corporation in any jurisdiction where it is not so
qualified or to consent to general service of process in any such
jurisdiction;
(e) list the Registrable Securities covered by such
registration statement with any securities exchange on which the Common
Stock of the Company is then listed;
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(f) immediately notify the Seller and each underwriter
under such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Act, of the happening of any
event of which the Company has knowledge as a result of which the
prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing;
(g) make available for inspection by the Seller, any
underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by the
Seller or underwriter, all publicly available, non-confidential financial
and other records, pertinent corporate documents and properties of the
Company, and cause the Company's officers, directors and employees to
supply all publicly available, non-confidential information reasonably
requested by the seller, underwriter, attorney, accountant or agent in
connection with such registration statement.
10.3. Provision of Documents.
(a) At the request of the Seller, provided a demand for
registration has been made pursuant to Section 10.1(i) or a request for
registration has been made pursuant to Section 10.1(ii), the Registrable
Securities will be included in a registration statement filed pursuant to
this Section 10.
(b) In connection with each registration hereunder, the Seller
will furnish to the Company in writing such information and representation
letters with respect to itself and the proposed distribution by it as
reasonably shall be necessary in order to assure compliance with federal
and applicable state securities laws. In connection with each registration
pursuant to Section 10.1(i) or 10.1(ii) covering an underwritten public
offering, the Company and the Seller agree to enter into a written
agreement with the managing underwriter in such form and containing such
provisions as are customary in the securities business for such an
arrangement between such underwriter and companies of the Company's size
and investment stature.
10.4. Non-Registration Events. The Company and the Subscriber agree
that the Seller will suffer damages if any registration statement required under
Section 10.1(i) or 10.1(ii) above is not filed within 30 days after written
request by the Holder and not declared effective by the Commission within
90 days after such request [or the Filing Date and Effective Date,
respectively, in reference to the Registration Statement on Form SB-2 or
such other form described in Section 10.1(iv)], and maintained in the
manner and within the time periods contemplated by Section 10 hereof, and
it would not be feasible to ascertain the extent of such damages with
precision. Accordingly, if (i) the Registration Statement described in
Sections 10.1(i) or 10.1(ii) is not filed within 30 days of such written
request, or is not declared effective by the Commission on or prior to the
date that is 90 days after such request, or (ii) the registration statement
on Form SB-2 or such other form described in Section 10.1(iv) is not filed
on or before the Filing Date or not declared effective on or before the
sooner of the Effective Date, or within five business days of receipt by
the Company of a written or oral communication from the Commission that the
registration statement described in Section 10.1(iv) will not be reviewed,
or (iii) any registration statement described in Sections 10.1(i), 10.1(ii)
or 10.1(iv) is filed and declared effective but shall thereafter cease to
be effective (without being succeeded immediately by an additional
registration statement filed and declared effective) for a period of time
which shall exceed 30 days in the aggregate per year but not more than 20
consecutive calendar days (defined as a period of 365 days commencing on
the date the Registration Statement is declared effective) (each such event
referred to in clauses (i), (ii) and (iii) of this Section 10.4 is referred
to herein as a "Non-Registration Event"), then, for so long as such Non-
Registration Event shall continue, the Company shall pay, at the
Subscriber's option, in cash or stock at the applicable Conversion Price,
as Liquidated Damages to each holder of any Registrable Securities an
amount equal to two (2%) percent per month or part thereof during the
pendency of such Non-Registration Event, of the principal of the Notes
issued in connection with the Offering, whether or not converted, whether
or not converted, then owned of record by such holder or issuable as of or
subsequent to the occurrence of such Non-Registration Event. Payments to
be made pursuant to this Section 10.4 shall be due and payable within five
(5) business days after demand in immediately available funds. In the
event a Mandatory Redemption Payment is demanded from the Company by the
Holder pursuant to Section 9.2 of this Subscription Agreement, then the
Liquidated Damages described in this Section 10.4 shall no longer accrue on
the portion of the Purchase Price underlying the Mandatory Redemption
Payment, from and after the date the Holder receives the Mandatory
Redemption Payment. It shall also be deemed a Non-Registration Event if at
any time a Note is outstanding, there is less than 125% of the amount of
Common Shares necessary to allow full conversion of such Note at the then
applicable Conversion Price registered for unrestricted resale in an
effective registration statement.
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10.5. Expenses. All expenses incurred by the Company in
complying with Section 10, including, without limitation, all registration
and filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses
(including reasonable counsel fees) incurred in connection with complying
with state securities or "blue sky" laws, fees of the National Association
of Securities Dealers, Inc., transfer taxes, fees of transfer agents and
registrars, and costs of insurance are called "Registration Expenses". All
underwriting discounts and selling commissions applicable to the sale of
Registrable Securities, including any fees and disbursements of any special
counsel to the Seller, are called "Selling Expenses". The Seller shall
pay the fees of its own additional counsel, if any. The Company will pay
all Registration Expenses in connection with the registration statement
under Section 10. All Selling Expenses in connection with each
registration statement under Section 10 shall be borne by the Seller and
may be apportioned among the Sellers in proportion to the number of shares
sold by the Seller relative to the number of shares sold under such
registration statement or as all Sellers thereunder may agree.
10.6. Indemnification and Contribution.
(a) In the event of a registration of any Registrable Securities
under the Act pursuant to Section 10, the Company will indemnify and hold
harmless the Seller, each officer of the Seller, each director of the
Seller, each underwriter of such Registrable Securities thereunder and each
other person, if any, who controls such Seller or underwriter within the
meaning of the 1933 Act, against any losses, claims, damages or
liabilities, joint or several, to which the Seller, or such underwriter or
controlling person may become subject under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration
statement under which such Registrable Securities was registered under the
Act pursuant to Section 10, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of
or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Seller, each such
underwriter and each such controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, that the Company shall not be liable to the Seller to the extent
that any such damages arise out of or are based upon an untrue statement or
omission made in any preliminary prospectus if (i) the Seller failed to
send or deliver a copy of the final prospectus delivered by the Company to
the Seller with or prior to the delivery of written confirmation of the
sale by the Seller to the person asserting the claim from which such
damages arise, (ii) the final prospectus would have corrected such untrue
statement or alleged untrue statement or such omission or alleged omission,
or (iii) to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with
information furnished by any such Seller, or any such controlling person in
writing specifically for use in such registration statement or prospectus.
-16-
(b) In the event of a registration of any of the Registrable
Securities under the Act pursuant to Section 10, the Seller will indemnify
and hold harmless the Company, and each person, if any, who controls the
Company within the meaning of the Act, each officer of the Company who signs
the registration statement, each director of the Company, each underwriter
and each person who controls any underwriter within the meaning of the Act,
against all losses, claims, damages or liabilities, joint or several, to
which the Company or such officer, director, underwriter or controlling
person may become subject under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement
under which such Registrable Securities were registered under the Act
pursuant to Section 10, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of
or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each
such officer, director, underwriter and controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability or action, provided,
however, that the Seller will be liable hereunder in any such case if and
only to the extent that any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in conformity with
information pertaining to such Seller, as such, furnished in writing to the
Company by such Seller specifically for use in such registration statement
or prospectus, and provided, further, however, that the liability of the
Seller hereunder shall be limited to the gross proceeds received by the
Seller from the sale of Registrable Securities covered by such registration
statement.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if
a claim in respect thereof is to be made against the indemnifying party
hereunder, notify the indemnifying party in writing thereof, but the omission
so to notify the indemnifying party shall not relieve it from any liability
which it may have to such indemnified party other than under this Section
10.6(c) and shall only relieve it from any liability which it may have to such
indemnified party under this Section 10.6(c), except and only if and to the
extent the indemnifying party is prejudiced by such omission. In case any
such action shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate in and, to the extent it shall wish,
to assume and undertake the defense thereof with counsel satisfactory to
such indemnified party, and, after notice from the indemnifying party to
such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such
indemnified party under this Section 10.6(c) for any legal expenses
subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation and of liaison
with counsel so selected, provided, however, that, if the defendants in any
such action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that there may be
reasonable defenses available to it which are different from or additional
to those available to the indemnifying party or if the interests of the
indemnified party reasonably may be deemed to conflict with the interests
of the indemnifying party, the indemnified parties shall have the right to
select one separate counsel and to assume such legal defenses and otherwise
to participate in the defense of such action, with the reasonable expenses
and fees of such separate counsel and other expenses related to such
participation to be reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution in
the event of joint liability under the Act in any case in which either (i)
the Seller, or any controlling person of the Seller, makes a claim for
indemnification pursuant to this Section 10.6 but it is judicially
determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial
of the last right of appeal) that such indemnification may not be enforced
in such case notwithstanding the fact that this Section 10.6 provides for
indemnification in such case, or (ii) contribution under the Act may be
required on the part of the Seller or controlling person of the Seller in
circumstances for which indemnification is provided under this Section
10.6; then, and in each such case, the Company and the Seller will
contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (after contribution from others) in such proportion so
that the Seller is responsible only for the portion represented by the
percentage that the public offering price of its securities offered by the
registration statement bears to the public offering price of all securities
offered by such registration statement, provided, however, that, in any
such case, (y) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities offered by it
pursuant to such registration statement; and (z) no person or entity guilty
of fraudulent misrepresentation (within the meaning of Section 10(f) of the
Act) will be entitled to contribution from any person or entity who was not
guilty of such fraudulent misrepresentation.
-17-
10.7. Underwriter Liability. Nothing contained in this Agreement
or any document delivered herewith shall require or imply that the Subscriber
is or be an Underwriter as defined in the 1933 Act of 1934 Act, nor a
"statutory underwriter." The Subscriber shall not be required to take any
action or assume any liability or obligation which would or could impose
Underwriter or "statutory underwriter" status or liability on the
Subscriber.
11. Offering Restrictions. Except (i) as disclosed in the Reports
or Other Written Information prior to the date of this Subscription
Agreement, and (ii) stock or stock options granted to employees or
directors of the Company pursuant to a plan which has been approved by the
shareholders of the Company (these exceptions hereinafter referred to as
the "Excepted Issuances"), the Company will not issue any equity,
convertible debt or other securities, prior to the expiration of a period
equal to the later of (x) 270 days during which the registration statement
described in Section 10.1(iv) above has been effective, or (y) 12 months
after the Closing Date. The Excepted Issuances (other than [i] above) may
be issued during the above described time periods provided such securities
are not transferable until after a time period equal to one year during
which the registration statement described in Section 10.1(iv) above has
been effective.
12. Security Interest. As a condition of Closing, the Company will
deliver to the Subscriber Common Shares of the Company owned by one or more
shareholders of the Company, together with signature guaranteed stock
powers. Collectively, the foregoing stock is referred to as "Security
Shares." The Security Shares will be held by a Collateral Agent pursuant to
a Security Agreement. Subscriber will be granted a security interest in
the Security Shares to be memorialized in the Security Agreement. The
Company will also execute all such documents reasonably necessary to
memorialize and further protect the security interest described above.
13. Miscellaneous.
(a) Notices. All notices or other communications given or
made hereunder shall be in writing and shall be personally delivered or
deemed delivered the first business day after being telecopied (provided
that a copy is delivered by first class mail) to the party to receive the
same at its address set forth below or to such other address as either
party shall hereafter give to the other by notice duly made under this
Section: (i) if to the Company, to Science Dynamics Corporation, 0000
Xxxxxxxxxx Xxxx, Xxxxxx Xxxx, XX 00000, telecopier number: (000) 000-0000,
with a copy by telecopier only to: Xxxxxxx X. Xxxxxxxx, Esq., 000 Xxxxxxxxx
Xxxx, Xxxxxxx, XX 00000, telecopier number: (000) 000-0000, and (ii) if to
the Subscriber, to the name, address and telecopy number set forth on the
signature page hereto, with a copy by telecopier only to Xxxxxxx X.
Xxxxxxx, Esq., 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000,
telecopier number: (000) 000-0000.
(b) Closing. The consummation of the transactions
contemplated herein shall take place at the offices of Xxxxxxx X. Xxxxxxx,
Esq., 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, XX 00000, upon the
satisfaction of all conditions to Closing set forth in this Agreement. The
closing date shall be the date that subscriber funds representing the net
amount due the Company from the Purchase Price are transmitted by wire
transfer to the Company (the "Closing Date").
-18-
(c) Entire Agreement; Assignment. This Agreement
represents the entire agreement between the parties hereto with respect to
the subject matter hereof and may be amended only by a writing executed by
both parties. No right or obligation of either party shall be assigned by
that party without prior notice to and the written consent of the other
party.
(d) Execution. This Agreement may be executed by
facsimile transmission, and in counterparts, each of which will be deemed
an original.
(e) Law Governing this Agreement. This Agreement shall be
governed by and construed in accordance with the laws of the State of New
York without regard to principles of conflicts of laws. Any action brought
by either party against the other concerning the transactions contemplated
by this Agreement shall be brought only in the state courts of New York or
in the federal courts located in the state of New York. Both parties and
the individuals executing this Agreement and other agreements on behalf of
the Company agree to submit to the jurisdiction of such courts and waive
trial by jury. The prevailing party shall be entitled to recover from the
other party its reasonable attorney's fees and costs. In the event that
any provision of this Agreement or any other agreement delivered in
connection herewith is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed inoperative to
the extent that it may conflict therewith and shall be deemed modified to
conform with such statute or rule of law. Any such provision which may
prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of any agreement.
(f) Specific Enforcement, Consent to Jurisdiction. The
Company and Subscriber acknowledge and agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to
an injunction or injunctions to prevent or cure breaches of the provisions
of this Agreement and to enforce specifically the terms and provisions
hereof or thereof, this being in addition to any other remedy to which any
of them may be entitled by law or equity. Subject to Section 13(e) hereof,
each of the Company and Subscriber hereby waives, and agrees not to assert
in any such suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the
suit, action or proceeding is improper. Nothing in this Section shall
affect or limit any right to serve process in any other manner permitted by
law.
(g) Confidentiality. The Company agrees that it will not
disclose publicly or privately the identity of the Subscriber unless expressly
agreed to in writing by the Subscriber or only to the extent required by
law.
(h) Automatic Termination. This Agreement shall
automatically terminate without any further action of either party hereto
if the Closing shall not have occurred by the tenth (10th) business day
following the date this Agreement is accepted by the Subscriber.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-19-
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
SCIENCE DYNAMICS CORPORATION
A Delaware Corporation
By:_________________________________
Name:
Title:
Dated: May _____, 2001
ATTEST:
By:___________________________________
---------------------------------------------------------------------------
Purchase Price: $1,000,000.00
-------------
Warrants: 727,273
-------
Section 7 Shares: 2,928,268
---------
ACCEPTED: Dated as of May ____, 2001
LAURUS MASTER FUND, LTD. - Subscriber
A Cayman Island corporation
X/x Xxxxxxx Xxxxxxxxx Xxxxxxxx Xxx.
X.X. Xxx 0000 G.T.
Xxxxxxxxxx Xxxxx, Xxxxx Xxxxxx Xxxxxx
Xxxxx Xxxxxx, Xxxxxx Xxxxxxx
Fax: 000-000-0000
By:______________________________
-20-
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
SCIENCE DYNAMICS CORPORATION
A Delaware Corporation
By:_________________________________
Name:
Title:
Dated: May _____, 2001
ATTEST:
By:___________________________________
------------------------------------------------------------------------------
Purchase Price: $100,000.00
-----------
Warrants: 72,727
------
Section 7 Shares: 292,826
-------
ACCEPTED: Dated as of May ____, 2001
THE KESHET FUND L.P. - Subscriber
A New York limited partnership
000 Xxxx 00xx Xxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
Fax: 000-000-0000
By:______________________________
-21-
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
SCIENCE DYNAMICS CORPORATION
A Delaware Corporation
By:_________________________________
Name:
Title:
Dated: May _____, 2001
ATTEST:
By:___________________________________
-----------------------------------------------------------------------------
Purchase Price: $100,000.00
-----------
Warrants: 72,727
------
Section 7 Shares: 292,826
-------
ACCEPTED: Dated as of May ____, 2001
KESHET L.P. - Subscriber
An Isle of Man limited partnership
Ragnall House, 00 Xxxx Xxxx
Xxxxxxx, Xxxx xx Xxx
0X0 0X0, Xxxxxx Xxxxxxx
Fax: 000-00-0000-000000
By:______________________________
-22-
SCHEDULE B TO SUBSCRIPTION AGREEMENT
------------------------------------
FUND MANAGER FUND MANAGER'S FEES AND WARRANT
EXERCISE COMPENSATION
LAURUS CAPITAL MANAGEMENT, L.L.C. 8% Fund Manager's Fees and Warrant
000 Xxxx 00xx Xxxxxx, Xxxxx 0000 Exercise Compensation payable in
Xxx Xxxx, Xxx Xxxx 00000 connection with investment and
Fax: 000-000-0000 warrant exercise by Laurus Master
Fund Ltd. for which Laurus Capital
Management, L.L.C. is the Fund
Manager.
KESHET MANAGEMENT LIMITED 8% Fund Manager's Fees and Warrant
Xxxxxxx Xxxxx, 00 Xxxx Xxxx Exercise Compensation payable in
Douglas, Isle of Man connection with investment and
1M1 4L2, United Kingdom warrant exercise by The Keshet Fund
Fax: 000-00-0000-000000 L.P. and Keshet L.P. for which
Keshet Management Limited is the
Fund Manager.
Recipient of $2,500 Expense Allowance described in Section 6(e) is: Laurus
Capital Management, L.L.C.
-23-
