Exhibit 10.3
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (the "Agreement") is made as of the date
set forth on the signature page hereof between Nephros, Inc., a Delaware
corporation (the "Company"), and the undersigned (the "Subscriber").
W I T N E S S E T H:
WHEREAS, the Company desires to issue $5,500,000 of Series A
Convertible Preferred Stock, par value $.001 per share, of the Company (the
"Preferred Stock" and collectively with the common stock underlying the
Preferred Stock hereinafter sometimes collectively referred to as the
"Securities") in a private placement of the Company's securities (the
"Offering");
WHEREAS, the Subscriber desires to purchase that number of shares of
Preferred Stock set forth on the signature page hereof on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
representations and covenants hereinafter set forth, the parties hereto do
hereby agree as follows:
I SUBSCRIPTION FOR PREFERRED STOCK AND REPRESENTATIONS BY SUBSCRIBER
1 Subject to the terms and conditions hereinafter set forth, the
Subscriber hereby subscribes for and agrees to purchase from the
Company such number of shares of Preferred Stock (the "Shares") as set
forth upon the signature page hereof at a price equal to $1.25 per
Share and the Company agrees to sell such Shares to the Subscriber for
said purchase price. Upon drawdown by the Company in accordance with
Article III of this Agreement, the purchase price attributable to such
drawdown will be payable by personal or business check, wire transfer
of immediately available funds or money order made payable to
"Nephros, Inc." The certificates representing the Securities will be
delivered by the Company to the Subscriber within ten (10) business
days following the receipt of Subscriber's payment of the applicable
drawdown amount.
2 The Subscriber recognizes that the purchase of the Preferred Stock
involves a high degree of risk in that, among other things, (i) the
Company is a development stage business with no operating history and
requires substantial funds in addition to the proceeds of the
Offering; (ii) an investment in the Company is highly speculative, and
only investors who can afford the loss of their entire investment
should consider investing in the Company and the Preferred Stock;
(iii) the Subscriber may not be able to liquidate the Subscriber's
investment; (iv) transferability of the Securities is extremely
limited and (v) in the event of a disposition, the Subscriber could
sustain the loss of the Subscriber's entire investment.
3 The Subscriber represents that the Subscriber is an "accredited
investor," as such term is defined in Rule 501 of Regulation D
promulgated under the Securities Act
of 1933, as amended (the "Act"), as indicated by his responses to the
questions contained in Article VI hereof, and that the Subscriber is
able to bear the economic risk of an investment in the Preferred
Stock. The Subscriber covenants to notify the Company at any time
prior to the second drawdown (as defined in Article 3) if it is no
longer an "accredited investor."
4 The Subscriber hereby acknowledges and represents that (i) the
Subscriber has prior investment experience, including investment in
non-listed and unregistered securities, or, to the extent necessary,
the Subscriber has employed at its own expense and relied upon the
services of an investment advisor, attorney and/or accountant to read
all of the documents furnished or made available by the Company both
to the Subscriber and to all other prospective investors in the
Preferred Stock and to evaluate the investment, tax and legal merits
and the consequences and risks of such an investment on the
Subscriber's behalf; (ii) the Subscriber recognizes the highly
speculative nature of this investment, and (iii) the Subscriber is
able to bear the economic risk which the Subscriber hereby assumes.
5 The Subscriber hereby acknowledges receipt and careful review of the
Confidential Term Sheet dated July 15, 1997 and the attachments and
exhibits thereto, all of which constitute an integral part thereof
(the "Term Sheet"). The Subscriber further represents that it has been
furnished by the Company during the course of this transaction with
all information regarding the Company which the Subscriber has
requested or desired to know, has been afforded the opportunity to ask
questions of and receive answers from duly authorized officers or
other representatives of the Company concerning the terms and
conditions of the Offering and has received any additional information
which the Subscriber has requested.
6 (a) The Subscriber has relied solely upon the information provided by
the Company in the Term Sheet in making the decision to invest in the
Preferred Stock and the Subscriber covenants that no person other than
the Company has supplied the Subscriber with any information relating
to an investment in the Preferred Stock.
(b) The Subscriber covenants that no Preferred Stock was offered or
sold to it by means of any form of general solicitation or general
advertising, and in connection therewith the Subscriber did not (A)
receive or review any advertisement, article, notice or other
communication published in a newspaper or magazine or similar media or
broadcast over television or radio whether closed circuit or generally
available, or (B) attend any seminar meeting or industry investor
conference whose attendees were invited by any general solicitation or
general advertising.
7 The Subscriber agrees that the Subscriber will not sell or otherwise
transfer the Securities unless they are registered under the Act or
unless an exemption from
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such registration is available and until such Subscriber complies with
the transfer restrictions set forth in herein.
8 The Subscriber understands that the Securities have not been
registered under the Act by reason of a claimed exemption under the
provisions of the Act which depends, in part, upon the Subscriber's
investment intention. In connection herewith, the Subscriber hereby
represents that the Subscriber is purchasing the Securities for the
Subscriber's own account for investment and not with a view toward the
resale or distribution to others. The Subscriber, if an entity, was
not formed for the purpose of purchasing the Securities. The
Subscriber understands that Rule 144 promulgated under the Act
requires, among other conditions, a one (1) year holding period prior
to the resale (in limited amounts) of securities acquired in a
non-public offering without having to satisfy the registration
requirements under the Act.
9 Other than as set forth in Article IV hereof, the Subscriber
understands and hereby acknowledges that the Company is under no
obligation to register the shares of common stock (the "Common Stock")
underlying the Preferred Stock under the Act or any state securities
or "blue sky" laws. The Subscriber consents that the Company may, if
it desires, permit the transfer of the Securities out of the
Subscriber's name only when the Subscriber's request for transfer is
accompanied by an opinion of counsel reasonably satisfactory to the
Company that neither the sale nor the proposed transfer results in a
violation of the Act or any applicable state "blue sky" laws
(collectively, the "Securities Laws").
10 The Subscriber agrees to hold the Company and its directors, officers,
employees, controlling persons and agents and each of their respective
heirs, representatives, successors and assigns harmless and to
indemnify them against all liabilities, costs and expenses incurred by
them as a result of any misrepresentation made by the Subscriber
contained in this Agreement (including the Confidential Investor
Questionnaire contained in Article VI herein) or any sale or
distribution by the Subscriber in violation of the Securities Laws.
11 The Subscriber consents to the placement of a legend on any
certificate, or other document evidencing the Securities, that such
Securities have not been registered under the Securities Laws and
setting forth or referring to the restrictions on transferability and
sale thereof contained in this Agreement. The Subscriber is aware that
the Company will make a notation in its appropriate records with
respect to the restrictions on the transferability of such Securities.
12 The Subscriber understands that the Company will review this Agreement
and the Company is hereby given authority by the Subscriber to call
the Subscriber's bank or place of employment or otherwise review the
financial standing of the Subscriber; and it is further agreed that
the Company reserves the unrestricted right, without further
documentation or agreement on the part of the Subscriber, to reject
all or a portion of any subscription, to accept subscriptions for
lesser amounts than subscribed for and to close the Offering to the
Subscriber at any
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time. In addition, the Subscriber understands and agrees that the
during the Drawdown Period (as hereinafter defined), the Subscriber
shall have no rights in or to purchase Securities and the Company, in
its sole discretion, shall have the right to drawdown in whole or in
part or to cancel any subscription.
13 The Subscriber hereby represents that the address of the Subscriber
furnished by the Subscriber on the signature page hereof is the
Subscriber's principal residence if the Subscriber is an individual or
its principal business address if it is a corporation or other entity.
14 The Subscriber represents that the Subscriber has full power and
authority (corporate, statutory and otherwise) to execute and deliver
this Agreement and to purchase the Preferred Stock. This Agreement
constitutes the legal, valid and binding obligation of the Subscriber,
enforceable against the Subscriber in accordance with its terms.
15 If the Subscriber is a corporation, company, trust, employee benefit
plan, individual retirement account, Xxxxx Plan, or other tax-exempt
entity, it is authorized and qualified to become an investor in the
Company and the person signing this Agreement on behalf of such entity
has been duly authorized by such entity to do so.
16 The Subscriber acknowledges that if the Subscriber is a Registered
Representative of a National Association of Securities Dealers, Inc.
("NASD") member firm, the Subscriber must give such firm the notice
required by the Rules of Fair Practice promulgated by the NASD,
receipt of which must be acknowledged by such firm in Article 6.4
below.
II REPRESENTATIONS BY AND COVENANTS OF THE COMPANY
The Company hereby represents and warrants to the Subscriber that:
1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has full corporate power
and authority to conduct its business as described in the Term Sheet.
2 Capitalization and Voting Rights. The authorized, issued and
outstanding capital stock of the Company is as follows: 30,000,000
authorized shares of Common Stock, of which 5,500,000 shares are
currently issued and outstanding and 5,000,000 authorized shares of
Preferred Stock of which none are currently issued or outstanding. All
issued and outstanding shares of capital stock of the Company are
validly issued, fully paid and nonassessable. The Preferred Stock has
been duly and validly authorized and, when issued and paid for
pursuant to this Agreement, will be validly issued, fully paid and
nonassessable. Except as set forth in the Term Sheet, there are no
outstanding options, warrants, agreements, convertible securities,
preemptive rights or other rights to subscribe for or to purchase any
shares of capital stock of the Company. Except as set forth in this
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Agreement and as otherwise required by law, there are no restrictions
upon the voting or transfer of the Securities pursuant to the
Company's Certificate of Incorporation, Bylaws or other governing
documents or any agreement or other instruments to which the Company
is a party or by which the Company is bound.
3 Authorization; Enforceability. This Agreement has been duly and
validly authorized by the Company and is enforceable against the
Company in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors'
rights generally and by general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law).
The Company has full power and lawful authority to authorize, issue
and sell the Preferred Stock to be sold by it hereunder on the terns
and conditions set forth herein.
4 Reservation of Common Stock Issuable Upon Conversion. The Company
shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Preferred Stock, such
number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of the
Preferred Stock and all shares of Preferred Stock that may be issued
upon drawdown of subscriptions by the Company.
5 Certificate of Designations of Series A Preferred Stock. The Series A
Preferred Stock has the rights, preferences and privileges
substantially as set forth in the Form of Certificate of Designations
attached as Exhibit B to the Term Sheet with the conversion ratio as
set forth therein.
6 No Conflict; Governmental Consents.
(a) The execution and delivery by the Company of this Agreement and
the consummation of the transactions contemplated hereby will not
result in the violation of any law, statute, rule, regulation,
order, writ, injunction, judgment or decree of any court or
governmental authority to or by which the Company is bound, or of
any provision of the Certificate of Incorporation or Bylaws of
the Company, and will not conflict with, or result in a breach or
violation of, any of the terms or provisions of, or constitute
(with due notice or lapse of time or both) a default under, any
lease, loan agreement, mortgage, security agreement, trust
indenture or other agreement or instrument to which the Company
is a party or by which it is bound or to which any of its
properties or assets is subject, nor result in the creation or
imposition of any lien upon any of the properties or assets of
the Company.
(b) No consent, approval, authorization or other order of any
governmental authority is required to be obtained by the Company
in connection with the authorization, execution and delivery of
this Agreement or with the
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authorization, issue and sale of the Securities, except such
filings as may be required to be made with, the Securities and
Exchange Commission (the "SEC"), any state or foreign "blue sky"
or securities regulatory authority.
7 Licenses. Except as set forth herein, the Company has sufficient
licenses, permits and other governmental authorizations currently
required for the conduct of its business or ownership of properties
and is in all material respects complying therewith.
8 Litigation. The Company knows of no pending or threatened legal or
governmental proceedings against the Company which could materially
adversely affect the business, property, financial condition or
operations of the Company.
9 Representations and Warranties Correct. The representations and
warranties made by the Company in Article II hereof shall be true and
correct in all material respects when made, and except for Article
2.2, shall be true and correct in all material respects on the date of
each drawdown with the same force and effect as if they had been made
on and as of such date.
III TERMS OF SUBSCRIPTION
1 There will be no minimum commitment amount required for the closing of
this Offering. Accordingly, the Company may drawdown on subscriptions,
subject to Article 3.2, immediately following receipt of such
subscriptions without regard to the aggregate number of shares of
Preferred Stock subscribed for in the Offering.
2 The Company shall be permitted to drawdown up to fifty percent (50%)
of each investors subscription immediately upon acceptance by the
Company of such subscription and shall be permitted to drawdown the
remaining fifty percent (50%) of each investors subscription on or
after the date which is one (1) year from the date of acceptance of
subscriptions pursuant to this Offering. The Company shall send a
notice (the "Drawdown Notice") to each Subscriber specifying the
drawdown amount. The Subscriber shall be required to fund the amount
specified in the Drawdown Notice within ten (10) business days of
receipt by the Subscriber of such notice. Any amount of this
subscription not drawn down upon shall expire on the date which is
three (3) years from the date of this Agreement (the "Drawdown
Period").
IV REGISTRATION RIGHTS
1 Registration Rights. The Company covenants and agrees as follows:
2 Definitions. For purposes of this Article IV:
(a) The term "Act" means the Securities Act of 1933, as amended.
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(b) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof.
(c) The term "1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
(d) The terms "register", "registered" and "registration" refer to a
registration effected by preparing and filing a registration
statement or similar document in compliance with the Act, and the
declaration or order of effectiveness of such registration
statement or document.
(e) The term "Registrable Securities" shall mean (i) the shares of
Common Stock issuable upon the conversion of the Preferred Stock,
(ii) any shares of Common Stock issued as (or issuable upon the
conversion or exercise of any warrant, right or other security
which is issued as) a dividend or other distribution with respect
to or in replacement of the Preferred Stock; provided, however,
that securities shall only be treated as Registrable Securities
if and only for so long as they (A) have not been disposed of
pursuant to a registration statement declared effective by the
Commission, (B) have not been sold in a transaction exempt from
the registration and prospectus delivery requirements of the Act
so that all transfer restrictions and restrictive legends with
respect thereto are removed upon the consummation of such sale or
(C) are held by a Holder or a permitted transferee of a Holder.
3 "Piggy-back" Registration Rights. If (but without any obligation to do
so), at any time after the initial public offering (the "IPO") of the
Company's Common Stock, the Company proposes to register any of its
stock or other equity securities under the Act in connection with the
public offering of such securities solely for cash (other than a
registration relating solely to the sale of securities to participants
in a Company stock plan, a registration on any form which does not
include substantially the same information as would be required to be
included in a registration statement covering the sale of the
Registrable Securities or a registration in which the only Common
Stock being registered is Common Stock issuable upon conversion of
debt securities which are also being registered), the Company shall,
at such time, promptly give each Holder written notice of such
registration. Upon the written request of each Holder given within ten
(10) days after mailing of such notice by the Company in accordance
with Article 4.1, the Company shall, on up to two (2) occasions and
subject to the limitations set forth in this Agreement (including the
provisions of Article 4.8), include in the Company's registration
statement under the Act all of the Registrable Securities that each
such Holder has requested to be registered; provided, however, that
nothing in this Article 4.3 shall prevent the Company from at any time
abandoning or delaying any such registration without obligation to any
Holder.
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4 Obligations of the Company. Whenever required under this Article IV to
include Registrable Securities in a Company registration statement,
the Company shall, as expeditiously as reasonably possible:
(a) Use its reasonable best efforts to cause such registration
statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for a
period of up to one hundred twenty (120) days or until the
distribution contemplated in the Registration Statement has been
completed; provided, however, that such 120-day period shall be
extended for a period of time equal to the period that the Holder
refrains from selling any securities included in such
registration at the request of an underwriter of Common Stock (or
other securities) of the Company, and provided further that if
applicable rules under the Act governing the obligation to file a
post-effective amendment permits, in lieu of filing a
post-effective amendment which (x) includes any prospectus
required by Section 10(a)(3) of the Act or (y) reflects facts or
events representing a material or fundamental change in the
information set forth in the registration statement, the Company
may incorporate by reference information required to be included
in (x) and (y) above to the extent such information is contained
in periodic reports filed pursuant to Section 13 or 15(d) of the
1934 Act in the registration statement.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement, and the prospectus used in
connection with such registration statement, as may be necessary
to comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration
statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may
reasonably request in order to facilitate the disposition of
Registrable Securities owned by them.
(d) Use its reasonable best efforts to register and qualify the
securities covered by such registration statement under such
other securities or Blue Sky laws of such jurisdictions as shall
be reasonably requested by the Holders; provided that the Company
shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions, unless
the Company is already subject to service in such jurisdiction
and except as may be required by the Act.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such
offering. Each Holder
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participating in such underwriting shall also enter into and
perform its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by 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 as a result of which the prospectus
included 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 the light of the
circumstances then existing.
(g) Cause all such Registrable Securities registered hereunder to be
listed on each securities exchange on which similar securities
issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and CUSIP number for all
such Registrable Securities, in each case not later than the
effective date of such registration.
5 Furnish Information. It shall be a condition precedent to the
obligation of the Company to take any action pursuant to this Article
IV with respect to the Registrable Securities of any selling Holder
that such Holder shall furnish to the Company such information
regarding the Holder, the Registrable Securities held by the Holder,
and the intended method of disposition of such securities as shall be
required to effect the registration of such Holder's Registrable
Securities.
6 Expenses of Company Registration. The Company shall bear and pay all
expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the
registrations pursuant to Article 4.3 for each Holder, including
(without limitation) all registration, filing, and qualification fees,
printers and accounting fees relating or apportionable thereto, but
excluding underwriting discounts and commissions relating to
Registrable Securities; provided, however, that the Company shall not
bear the cost of any professional fees or costs of accounting,
financial or legal advisors to any of the Holders. Notwithstanding the
foregoing, each Holder shall pay all registration expenses which such
Holder is required to pay under applicable law.
7 Underwriting Requirements. In connection with any offering involving
an underwriting of shares of the Company's capital stock, the Company
shall not be required under Article 4.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between the Company and the underwriters
selected by it (or by other persons entitled to select the
underwriters), and then only in such quantity as the underwriters
determine in their sole discretion will not jeopardize the success of
the offering by the Company. If the total amount of securities,
including Registrable Securities, requested by stockholders to be
included in such offering
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exceeds the amount of securities sold other than by the Company that
the underwriters determine in their sole discretion is compatible with
the success of the offering, then the Company shall be required to
include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling
stockholders according to the total amount of securities entitled to
be included therein owned by each selling stockholder or in such other
proportions as shall mutually be agreed to by such selling
stockholders). For purposes of the preceding parenthetical concerning
apportionment, for any selling stockholder that is a holder of
Registrable Securities and that is a partnership or corporation, the
partners, retired partners and stockholders of such holder, or the
estates and family members of any such partners and retired partners
and any trusts for the benefit of any of the foregoing persons shall
be deemed to be a single "selling stockholder", and any pro-rata
reduction with respect to such "selling stockholder" shall be based
upon the aggregate amount of shares carrying registration rights owned
by all entities and individuals included in such "selling
stockholder", as defined in this sentence.
8 Delay of Registration. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with
respect to the interpretation or implementation of this Article IV.
9 Indemnification. In the event any Registrable Securities are included
in a registration statement under this Article IV:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, any underwriter (as defined in the
Act) for such Holder and each person, if any, who controls such
Holder or underwriter within the meaning of the Act or the 1934
Act, against any losses, claims, damages, or liabilities (joint
or several) to which they may become subject under the Act, or
the 1934 Act, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or
final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii)
any violation or alleged violation by the Company of the Act, the
1934 Act, or any rule or regulation promulgated under the Act, or
the 1934 Act, and the Company will pay to each such Holder,
underwriter or controlling person, as incurred, 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 indemnity
agreement
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contained in this Article 4.9(a) shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability, or
action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any such loss,
claim, damage, liability, or action to the extent that it arises
out of or is based upon a Violation which occurs in reliance upon
and in conformity with written information famished expressly for
use in connection with such registration by any such Holder,
underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors,
each of its officers who has signed the registration statement,
each person, if any, who controls the Company within the meaning
of the Act, any underwriter, any other Holder selling securities
in such registration statement and any controlling person of any
such underwriter or other Holder, against any losses, claims,
damages, or liabilities (joint or several) to which any of the
foregoing persons may become subject, under the Act, or the 1934
Act, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity
with written information furnished by such Holder expressly for
use in connection with such registration; and each such Holder
will pay, as incurred, any legal or other expenses reasonably
incurred by any person intended to be indemnified pursuant to
this Article 4.9(b), in connection with investigating or
defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this
Article 4.9(b) shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which
consent shall not be unreasonably withheld; provided, that, in no
event shall any indemnity under this Article 4.9(b) exceed the
gross proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Article
4.9 of notice of the commencement of any action (including any
governmental action), such indemnified party shall, if a claim in
respect thereof is to be made against any indemnifying party
under this Article 4.9, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying
party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other
indemnifying party similarly notified, to assume the defense
thereof with counsel selected by the indemnifying party and
approved by the indemnified party (whose approval shall not be
unreasonably withheld); provided, however, that an indemnified
party (together with all other indemnified parties which may be
represented without conflict by one counsel) shall have the right
to retain one separate counsel, with the fees and expenses to be
paid
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by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing interests
between such indemnified party and any other party represented by
such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any
liability to the indemnified party under this Article 4.9, but
the omission so to deliver written notice to the indemnifying
party will not relieve it of any liability that it may have to
any indemnified party otherwise than under this Article 4.9.
(d) If the indemnification provided for in this Article 4.9 is held
by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim,
damage, or expense referred to therein, then the indemnifying
party, in lieu of indemnifying such indemnified party hereunder,
shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim,
damage, or expense in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one
hand and of the indemnified party on the other in connection with
the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other
relevant equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied
by the indemnifying party or by the indemnified party and the
parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public
offering are in conflict with the foregoing provisions, the
provisions in the underwriting agreement shall control.
(f) The obligations of the Company and Holders under this Article 4.9
shall survive the completion of any offering of Registrable
Securities in a registration statement under this Article IV, and
otherwise.
10 Reports Under Securities Exchange Act of 1934. With a view to making
available to the Holders the benefits of Rule 144 promulgated under
the Act and any other rule or regulation of the SEC that may at any
time permit a Holder to sell securities of the Company to the public
without registration or pursuant to a registration on Form S-3, the
Company agrees to:
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(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety
(90) days after the effective date of the registration statement
filed in connection with an IPO by the Company;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act;
and
(c) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a copy of the most recent
annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (ii) such other
information as may be reasonably requested in availing any Holder
of any rule or regulation of the SEC which permits the selling of
any such securities without registration or pursuant to such
form.
11 Lock-Up Provision. In connection with the IPO, the Holder hereby
agrees to be subject to a lock-up for a period of one hundred eighty
(180) days following the IPO or such longer period as may be required
by the underwriter or underwriters of such IPO. In connection with any
subsequent public offering of the Company's securities, the Holder
hereby agrees to be subject to a lock-up for a period of sixty (60)
days or such longer period following such public offering as required
by the underwriter or underwriters of such public offering. During
such periods, the Holder agrees not to directly or indirectly sell,
offer to sell, contract to sell, including, without limitation,
"short" or "short against the box" (as those terms are generally
understood), grant any option to purchase or otherwise transfer or
dispose of (other than to donees who agree to be similarly bound) any
securities of the Company held by it at any time during such period.
This Article 4.11 shall be binding upon any transferee of the
Securities.
In order to enforce the foregoing covenant, the Company may impose
stock-transfer instructions with respect to the Registrable Securities
of each Holder (and the shares or securities of every other person
subject to the foregoing restriction) until the end of such period.
Notwithstanding the foregoing, the obligation described in this
Article 4.11 shall not apply to a registration relating solely to
employee benefit plans on Form S-1 or Form S-8 or similar forms which
may be promulgated in the future, or a registration relating solely to
a Commission Rule 145 transaction on Form S-4 or similar forms which
may be promulgated in the future.
12 Termination of Registration Rights. In addition, the right of any
Holder to request inclusion in any registration pursuant to Article
4.3 shall terminate if all shares of Registrable Securities held by
such Holder may immediately be sold under Rule 144 or Rule 701 during
any 90-day period; provided, however, that the provisions of this
Article 4.12 shall not apply to any Holder who owns more than two
percent
- 13 -
(2%) of the Company's outstanding stock until such time as such Holder
owns less than two percent (2%) of the outstanding stock of the
Company.
V MISCELLANEOUS
1 Any notice or other communication given hereunder shall be deemed
sufficient if in writing and sent by (a) telecopy or facsimile at the
address or number designated below (if delivered on a business day
during normal business hours where such notice is to be received); or
(b) registered or certified mail, return receipt requested, or
delivered by hand against written receipt therefor, addressed to
Nephros, Inc., c/o 000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx, 00000,
Attn: Xxxxxxx X. Xxxxx, or such other office designated by the
Corporation, and to the Subscriber at his address indicated on the
signature page of this Agreement. Notices shall be deemed to have been
given or delivered on the date of mailing, except notices of change of
address, which shall be deemed to have been given or delivered when
received.
2 This Agreement shall not be changed, modified or amended except by a
writing signed by the parties to be charged, and this Agreement may
not be discharged except by performance in accordance with its terms
or by a writing signed by the party to be charged.
3 This Agreement shall be binding upon and inure to the benefit of the
parties hereto and to their respective heirs, legal representatives,
successors and assigns. This Agreement sets forth the entire agreement
and understanding between the parties as to the subject matter hereof
and merges and supersedes all prior discussions, agreements and
understandings of any and every nature among them.
4 Upon the execution and delivery of this Agreement by the Subscriber,
this Agreement shall become a binding obligation of the Subscriber
with respect to the purchase of Preferred Stock as herein provided;
subject, however, to the right hereby reserved to the Company to
reject or decrease any subscription, enter into the same agreements
with other subscribers and to add and/or delete other Persons as
subscribers.
5 NOTWITHSTANDING THE PLACE WHERE THIS AGREEMENT MAY BE EXECUTED BY ANY
OF THE PARTIES HERETO, THE PARTIES EXPRESSLY AGREE THAT ALL THE TERMS
AND PROVISIONS HEREOF SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
6 In order to discourage frivolous claims, the parties agree that unless
a claimant in any proceeding arising out of this Agreement succeeds in
establishing his claim and recovering a judgment against another party
(regardless of whether such claimant succeeds against one of the other
parties to the action), then the other party shall be entitled to
recover from such claimant all of its/their reasonable
- 14 -
legal costs and expenses relating to such proceeding and/or incurred
in preparation therefor.
7 The holding of any provision of this Agreement to be invalid or
unenforceable by a court of competent jurisdiction shall not affect
any other provision of this Agreement, which shall remain in full
force and effect. If any provision of this Agreement shall be declared
by a court of competent jurisdiction to be invalid, illegal or
incapable of being enforced in whole or in part, such provision shall
be interpreted so as to remain enforceable to the maximum extent
permissible consistent with applicable law and the remaining
conditions and provisions or portions thereof shall nevertheless
remain in full force and effect and enforceable to the extent they are
valid, legal and enforceable, and no provisions shall be deemed
dependent upon any other covenant or provision unless so expressed
herein.
8 It is agreed that a waiver by either party of a breach of any
provision of this Agreement shall not operate, or be construed, as a
waiver of any subsequent breach by that same party.
9 The parties agree to execute and deliver all such further documents,
agreements and instruments and take such other and further action as
may be necessary or appropriate to carry out the purposes and intent
of this Agreement.
10 This Agreement may be executed in two or more counterparts each of
which shall be deemed an original, but all of which shall together
constitute one and the same instrument.
11 (a) The Subscriber agrees not to issue any public statement with
respect to the Subscriber's investment or proposed investment in the
Company or the terms of any agreement or covenant between it and the
Company without the Company's prior written consent, except such
disclosures as may be required under applicable law or under any
applicable order, rule or regulation.
(b) The Company agrees not to disclose the names, addresses or any
other information about the Subscribers, except as required by law;
provided, that the Company may use the name (but not the address) of
the Subscriber in registration materials filed with the SEC.
12 The Subscriber represents and warrants that it has not engaged,
consented to or authorized any broker, finder or intermediary to act
on its behalf, directly or indirectly, as a broker, finder or
intermediary in connection with the transactions contemplated by this
Agreement. The Subscriber hereby agrees to indemnify and hold harmless
the Company from and against all fees, commissions or other payments
owing to any such person or firm acting on behalf of the Subscriber
hereunder.
- 15 -
13 Nothing in this Agreement shall create or be deemed to create any
rights in any Person not a party to this Agreement, except for the
holders of Registrable Securities.
VI CONFIDENTIAL INVESTOR QUESTIONNAIRE
6.1 The Subscriber represents and warrants that the Subscriber comes
within one category marked below, and that for any category marked, the
Subscriber has truthfully set forth, where applicable, the factual basis or
reason the Subscriber comes within that category. ALL INFORMATION IN RESPONSE TO
THIS Article WILL BE KEPT STRICTLY CONFIDENTIAL. The Subscriber agrees to
furnish any additional information which the Company deems necessary in order to
verify the answers set forth below.
Category A |_| The Subscriber is an individual (not a partnership,
corporation, etc.) whose individual net worth, or joint net
worth with his or her spouse, presently exceeds $1,000,000.
Explanation. In calculating net worth you may include
equity in personal property and real estate, including
your principal residence, cash, short-term investments,
stock and securities. Equity in personal property and real
estate should be based on the fair market value of such
property less debt secured by such property.
Category B |_| The Subscriber is an individual (not a partnership,
corporation, etc.) who had an income in excess of $200,000 in
each of the two most recent years, or joint income with his or
her spouse in excess of $300,000 in each of those years (in
each case including foreign income, tax exempt income and full
amount of capital gains and losses but excluding any income of
other family members and any unrealized capital appreciation)
and has a reasonable expectation of reaching the same income
level in the current year.
Category C |_| The Subscriber is a director or executive officer of the
Company which is issuing and selling the Preferred Stock.
- 16 -
Category D |_| The Subscriber is a bank; a savings and loan association,
insurance company, registered investment company; registered
business development company; licensed small business
investment company ("SBIC"); or employee benefit plan within
the meaning of Title 1 of ERISA and (a) the investment decision
is made by a plan fiduciary which is either a bank, savings and
loan association, insurance company or registered investment
advisor, or (b) the plan has total assets in excess of
$5,000,000 or is a self directed plan with investment decisions
made solely by persons that are accredited investors.
--------------------------
--------------------------
(describe entity)
Category E |_| The Subscriber is a private business development company as
defined in Article 202(a)(22) of the Investment Advisors Act of
1940.
--------------------------
--------------------------
(describe entity)
Category F |_| The Subscriber is a corporation, partnership, Massachusetts
business trust, or a non-profit organization within the meaning
of Article 501(c)(3) of the Internal Revenue Code, in each case
not formed for the specific purpose of acquiring the Preferred
Stock and with total assets in excess of $5,000,000.
--------------------------
--------------------------
(describe entity)
Category G |_| The Subscriber is a trust with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring
the Preferred Stock, where the purchase is directed by a
"sophisticated person" as defined in Regulation 506(b)(2)(ii).
- 17 -
Category H |_| The Subscriber is an entity all the equity owners of which are
"accredited investors" within one or more of the above
categories. If relying upon this Category alone, each equity
owner must complete a separate copy of this Agreement.
--------------------------
--------------------------
(describe entity)
Category I |_| The Subscriber is not within any of the categories above and is
therefore not an accredited investor.
6.2 SUITABILITY (please answer each question)
(a) For an individual Subscriber, please describe your current
employment, including the company by which you are employed and its principal
business:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(b) For an individual Subscriber, please describe any college or
graduate degrees held by you.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(c) For all Subscribers, please list types of prior investments:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(d) For all Subscribers, please state whether you have participated in
other private placements before:
YES |_| NO |_|
(e) For all Subscribers, please indicate frequency of such prior
participation in private placements of:
- 18 -
Public
Companies Companies Biotechnology Companies
Frequently |_| |_| |_|
Occasionally |_| |_| |_|
Never |_| |_| |_|
(f) For individual Subscribers, do you expect your current level of
income to significantly decrease in the foreseeable future:
YES |_| NO |_|
(g) For individual Subscribers, do you expect your total net worth to
significantly decrease in the foreseeable future:
YES |_| NO |_|
(h) For trust, corporate, partnership and other institutional
Subscribers, do you expect your total assets to significantly decrease in the
foreseeable future:
YES |_| NO |_|
(i) For all Subscribers, do you have any other investments or
contingent liabilities which you reasonably anticipate could cause you to need
sudden cash requirements in excess of cash readily available to you:
YES |_| NO |_|
(j) For all Subscribers, are you familiar with the risk aspects and
the non-liquidity of investments such as the securities for which you seek to
subscribe?
YES |_| NO |_|
(k) For all Subscribers, do you understand that there is no guarantee
of financial return on this investment and that you run the risk of losing your
entire investment?
YES |_| NO |_|
- 19 -
6.3 MANNER IN WHICH TITLE TO BE HELD (circle one)
(a) Individual Ownership
(b) Community Property
(c) Joint Tenant with Right of Survivorship (both parties must
sign)
(d) Partnership*
(e) Tenants in Common
(f) Corporation*
(g) Trust*
(h) Other
*If Preferred Stock is being subscribed for by an entity, the attached
Certificate of Signatory must also be completed.
6.4 NASD Affiliation
Is the Subscriber affiliated or associated with an NASD member firm (please
check one):
YES |_| NO |_|
If Yes, please describe:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
*If Subscriber is a Registered Representative with an NASD member firm, have the
following acknowledgment signed by the appropriate party:
The Subscriber NASD member firm acknowledges receipt of the notice required by
Article 3, Articles 28(a) and (b) of the Rules of Fair Practice.
-----------------------------------
Name of NASD Member Firm
By:
--------------------------------
Authorized Officer
Date:
------------------------------
- 20 -
6.5 REPRESENTATIONS AND WARRANTIES
The Subscriber hereby represents and warrants to the Company as
follows:
The Subscriber has been informed of the significance to the
Company of the foregoing representations and answers contained in this
Confidential Investor Questionnaire and this Agreement.
The answers to the foregoing questions are true, complete and
correct and have been provided with the understanding that the Company will
rely upon them for all purposes, including but not limited to the purpose
of determining whether the offering in which the Subscriber proposes to
participate is exempt from registration under federal and state securities
laws.
The Subscriber will notify the Company immediately, at any time
on or prior to the Final Closing Date, in the event that the
representations and warranties in this Agreement shall cease to be true,
accurate and complete.
The Subscriber is able to bear the economic risk of the
investment and, at the present time, can afford a complete loss of such
investment.
- 21 -
[Signature Page]
NUMBER OF SHARES X $1.25 = $ (the "Purchase Price")
-------- -------
--------------------------------------- --------------------------------------
Signature Signature (if purchasing jointly)
--------------------------------------- --------------------------------------
Name Typed or Printed Name Typed or Printed
--------------------------------------- --------------------------------------
Address Address
--------------------------------------- --------------------------------------
City, State and Zip Code City, State and Zip Code
--------------------------------------- --------------------------------------
Telephone -- Business Telephone -- Business
--------------------------------------- --------------------------------------
Telephone -- Residence Telephone -- Residence
--------------------------------------- --------------------------------------
Telephone -- Business Telephone -- Business
--------------------------------------- --------------------------------------
Telephone -- Residence Telephone -- Residence
--------------------------------------- --------------------------------------
Tax ID# or Social Security # Tax ID or Social Security #
Name in which Securities should be issued :
-------------------------------------
Dated: , 1997.
-------------------
This Subscription Agreement is agreed to and accepted as of , 1997.
--
NEPHROS, Inc.
By:
-----------------------------------
Name:
Title:
- 22 -
CERTIFICATE OF SIGNATORY
(To be completed if Preferred Stock is
being subscribed for by an entity)
I, , am the of
------------------------------- --------------------
(the "Entity").
----------------------------------------------------------------
I certify that I am empowered and duly authorized by the Entity to
execute and carry out the terms of the Subscription Agreement and to purchase
and hold the Preferred Stock, and certify further that the Subscription
Agreement has been duly and validly executed on behalf of the Entity and
constitutes a legal and binding obligation of the Entity.
IN WITNESS WHEREOF, I have set my hand this day of
-------------------
, .
------ -----
------------------------------
(Signature)
- 23 -
