Exhibit 10.2
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
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(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
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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.
- 16 -
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.
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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).
- 18 -
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:
- 19 -
Public
Companies Companies Biotechnology Companies
Frequently | | | | |X|
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 |_|
- 20 -
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:
--------------------------------
- 21 -
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.
- 22 -
[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:
- 23 -
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)
- 24 -
