SUBSCRIPTION AGREEMENT
----------------------
Dear Subscriber:
You (the "Subscriber") hereby agree to purchase, and Science
Dynamics Corporation, a Delaware corporation (the "Company") hereby
agrees to issue and to sell to the Subscriber, Secured 8% Convertible
Notes (the "Notes") convertible in accordance with the terms thereof into
shares of the Company's $.01 par value common stock (the "Company
Shares") for the aggregate consideration as set forth on the signature
page hereof ("Purchase Price"). The form of Convertible Note is annexed
hereto as Exhibit A. (The Company Shares included in the Securities (as
hereinafter defined) are sometimes referred to herein as the "Shares" or
"Common Stock"). (The Notes and the Company Shares, issuable to the
recipients identified on Schedule B hereto, are collectively referred to
herein as, the "Securities"). Upon acceptance of this Agreement by the
Subscriber, the Company shall issue and deliver to the Subscriber the
Note against payment, by federal funds wire transfer of the Purchase
Price.
The following terms and conditions shall apply to this
subscription.
1. Subscriber's Representations and Warranties. The
Subscriber hereby represents and warrants to and agrees with the Company
that:
(a) Information on Company. The Subscriber has been
furnished with the Company's Form 10-KSB for the year ended December 31,
2000 as filed with the Securities and Exchange Commission (the
"Commission") together with all subsequently filed forms 10-QSB, and
other publicly available filings made with the Commission (hereinafter
referred to as the "Reports"). In addition, the Subscriber has received
from the Company such other information concerning its operations,
financial condition and other matters as the Subscriber has requested in
writing, and considered all factors the Subscriber deems material in
deciding on the advisability of investing in the Securities (such
information in writing is collectively, the "Other Written Information").
(b) Information on Subscriber. The Subscriber is an
"accredited investor", as such term is defined in Regulation D
promulgated by the Commission under the Securities Act of 1933, as
amended (the "1933 Act"), is experienced in investments and business
matters, has made investments of a speculative nature and has purchased
securities of United States publicly-owned companies in private
placements in the past and, with its representatives, has such knowledge
and experience in financial, tax and other business matters as to enable
the Subscriber to utilize the information made available by the Company
to evaluate the merits and risks of and to make an informed investment
decision with respect to the proposed purchase, which represents a
speculative investment. The Subscriber has the authority and is duly and
legally qualified to purchase and own the Securities. The Subscriber is
able to bear the risk of such investment for an indefinite period and to
afford a complete loss thereof. The information set forth on the
signature page hereto regarding the Subscriber is accurate.
(c) Purchase of Note. On the Closing Date, the
Subscriber will purchase the Note for its own account and not with a view
to any distribution thereof.
-1-
(d) Compliance with Securities Act. The Subscriber
understands and agrees that the Securities have not been registered under
the 1933 Act, by reason of their issuance in a transaction that does not
require registration under the 1933 Act (based in part on the accuracy of
the representations and warranties of Subscriber contained herein), and
that such Securities must be held unless a subsequent disposition is
registered under the 1933 Act or is exempt from such registration.
(e) Company Shares Legend. The Company Shares, and the
shares of Common Stock issuable upon the exercise of the Warrants, shall
bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THESE SHARES MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH SECURITIES ACT OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO SCIENCE DYNAMICS
CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED."
(f) Warrants Legend. The Warrants shall bear the
following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS
WARRANT AND THE COMMON SHARES ISSUABLE UPON
EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
WARRANT UNDER SAID ACT OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO SCIENCE DYNAMICS
CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED."
(g) Note Legend. The Note shall bear the following
legend:
"THIS NOTE AND THE COMMON SHARES ISSUABLE UPON
CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS
NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION
OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE
UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO SCIENCE DYNAMICS CORPORATION THAT
SUCH REGISTRATION IS NOT REQUIRED."
(h) Communication of Offer. The offer to sell the
Securities was directly communicated to the Subscriber. At no time was
the Subscriber presented with or solicited by any leaflet, newspaper or
magazine article, radio or television advertisement, or any other form of
general advertising or solicited or invited to attend a promotional
meeting otherwise than in connection and concurrently with such
communicated offer.
-2-
(i) Correctness of Representations. The Subscriber
represents that the foregoing representations and warranties are true and
correct as of the date hereof and, unless the Subscriber otherwise
notifies the Company prior to the Closing Date (as hereinafter defined),
shall be true and correct as of the Closing Date. The foregoing
representations and warranties shall survive the Closing Date.
2. Company Representations and Warranties. The Company
represents and warrants to and agrees with the Subscriber that:
(a) Due Incorporation. The Company and each of its
subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of the respective jurisdictions of their
incorporation and have the requisite corporate power to own their
properties and to carry on their business as now being conducted. The
Company and each of its subsidiaries is duly qualified as a foreign
corporation to do business and is in good standing in each jurisdiction
where the nature of the business conducted or property owned by it makes
such qualification necessary, other than those jurisdictions in which the
failure to so qualify would not have a material adverse effect on the
business, operations or prospects or condition (financial or otherwise)
of the Company.
(b) Outstanding Stock. All issued and outstanding shares
of capital stock of the Company and each of its subsidiaries has been
duly authorized and validly issued and are fully paid and non-assessable.
(c) Authority; Enforceability. This Agreement has been
duly authorized, executed and delivered by the Company and is a valid and
binding agreement enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium
and similar laws of general applicability relating to or affecting
creditors' rights generally and to general principles of equity; and the
Company has full corporate power and authority necessary to enter into
this Agreement and to perform its obligations hereunder and all other
agreements entered into by the Company relating hereto.
(d) Additional Issuances. There are no outstanding
agreements or preemptive or similar rights affecting the Company's common
stock or equity and no outstanding rights, warrants or options to
acquire, or instruments convertible into or exchangeable for, or
agreements or understandings with respect to the sale or issuance of any
shares of common stock or equity of the Company or other equity interest
in any of the subsidiaries of the Company, except as described in the
Reports or Other Written Information.
(e) Consents. No consent, approval, authorization or
order of any court, governmental agency or body or arbitrator having
jurisdiction over the Company, or any of its affiliates, the NASD, NASDAQ
or the Company's Shareholders is required for execution of this
Agreement, and all other agreements entered into by the Company relating
thereto, including, without limitation issuance and sale of the
Securities, and the performance of the Company's obligations hereunder.
(f) No Violation or Conflict. Assuming the
representations and warranties of the Subscriber in Paragraph 1 are true
and correct and the Subscriber complies with its obligations under this
Agreement, neither the issuance and sale of the Securities nor the
performance of its obligations under this Agreement and all other
agreements entered into by the Company relating thereto by the Company
will:
-3-
(i) violate, conflict with, result in a breach of,
or constitute a default (or an event which with the giving of notice or
the lapse of time or both would be reasonably likely to constitute a
default) under (A) the certificate of incorporation, charter or bylaws of
the Company or any of its affiliates, (B) to the Company's knowledge, any
decree, judgment, order, law, treaty, rule, regulation or determination
applicable to the Company or any of its affiliates of any court,
governmental agency or body, or arbitrator having jurisdiction over the
Company or any of its affiliates or over the properties or assets of the
Company or any of its affiliates, (C) the terms of any bond, debenture,
note or any other evidence of indebtedness, or any agreement, stock
option or other similar plan, indenture, lease, mortgage, deed of trust
or other instrument to which the Company or any of its affiliates is a
party, by which the Company or any of its affiliates is bound, or to
which any of the properties of the Company or any of its affiliates is
subject, or (D) the terms of any "lock-up" or similar provision of any
underwriting or similar agreement to which the Company, or any of its
affiliates is a party; or
(ii) result in the creation or imposition of any
lien, charge or encumbrance upon the Securities or any of the assets of
the Company, or any of its affiliates.
(g) The Securities. The Securities upon issuance:
(i) are, or will be, free and clear of any security
interests, liens, claims or other encumbrances, subject to restrictions
upon transfer under the 1933 Act and State laws;
(ii) have been, or will be, duly and validly
authorized and on the date of issuance and on the Closing Date, as
hereinafter defined, and the date the Note is converted, and the Warrants
are exercised, the Securities will be duly and validly issued, fully paid
and nonassessable (and if registered pursuant to the 1933 Act, and resold
pursuant to an effective registration statement will be free trading and
unrestricted, provided that the Subscriber complies with the Prospectus
delivery requirements);
(iii) will not have been issued or sold in
violation of any preemptive or other similar rights of the holders of any
securities of the Company; and
(iv) will not subject the holders thereof to
personal liability by reason of being such holders.
(h) Litigation. There is no pending or, to the best
knowledge of the Company, threatened action, suit, proceeding or
investigation before any court, governmental agency or body, or
arbitrator having jurisdiction over the Company, or any of its affiliates
that would affect the execution by the Company or the performance by the
Company of its obligations under this Agreement, and all other agreements
entered into by the Company relating hereto. Except as disclosed in the
Reports or Other Written Information, there is no pending or, to the best
knowledge of the Company, threatened action, suit, proceeding or
investigation before any court, governmental agency or body, or
arbitrator having jurisdiction over the Company, or any of its
affiliates.
(i) Reporting Company. The Company is a publicly-held company
subject to reporting obligations pursuant to Sections 15(d) and 13 of the
Securities Exchange Act of 1934, as amended (the "1934 Act") and has a
class of common shares registered pursuant to Section 12(g) of the 1934
Act. The Company's common stock is trading on the NASDAQ SmallCap Market
("SmallCap Market"). Pursuant to the provisions of the 1934 Act, the
Company has filed all reports and other materials required to be filed
thereunder with the Securities and Exchange Commission during the
preceding twelve months except as set forth in the Reports.
(j) No Market Manipulation. The Company has not taken,
and will not take, directly or indirectly, any action designed to, or
that might reasonably be expected to, cause or result in stabilization or
manipulation of the price of the common stock of the Company to
facilitate the sale or resale of the Securities or affect the price at
which the Securities may be issued.
-4-
(k) Information Concerning Company. The Reports and
Other Written Information contain all material information relating to
the Company and its operations and financial condition as of their
respective dates which information is required to be disclosed therein.
Since the date of the financial statements included in the Reports, and
except as modified in the Other Written Information, there has been no
material adverse change in the Company's business, financial condition or
affairs not disclosed in the Reports. The Reports and Other Written
Information do not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading.
(l) Dilution. The number of Shares issuable upon
conversion of the Note may increase substantially in certain
circumstances, including, but not necessarily limited to, the
circumstance wherein the trading price of the Common Stock declines prior
to conversion of the Note. The Company's executive officers and
directors have studied and fully understand the nature of the Securities
being sold hereby and recognize that they have a potential dilutive
effect. The board of directors of the Company has concluded, in its good
faith business judgment, that such issuance is in the best interests of
the Company. The Company specifically acknowledges that its obligation
to issue the Shares upon conversion of the Note and exercise of the
Warrants is binding upon the Company and enforceable, except as otherwise
described in this Subscription Agreement or the Note, regardless of the
dilution such issuance may have on the ownership interests of other
shareholders of the Company.
(m) Stop Transfer. The Securities are restricted
securities as of the date of this Agreement. The Company will not issue
any stop transfer order or other order impeding the sale and delivery of
the Securities, except as may be required by federal securities laws.
(n) Defaults. Neither the Company nor any of its
subsidiaries is in violation of its Certificate of Incorporation or
ByLaws. Neither the Company nor any of its subsidiaries is (i) in
default under or in violation of any other material agreement or
instrument to which it is a party or by which it or any of its properties
are bound or affected, which default or violation would have a material
adverse effect on the Company, (ii) in default with respect to any order
of any court, arbitrator or governmental body or subject to or party to
any order of any court or governmental authority arising out of any
action, suit or proceeding under any statute or other law respecting
antitrust, monopoly, restraint of trade, unfair competition or similar
matters, or (iii) to its knowledge in violation of any statute, rule or
regulation of any governmental authority which violation would have a
material adverse effect on the Company.
(o) No Integrated Offering. To the best of its
knowledge after due inquiry with regulatory authorities, neither the
Company, nor any of its affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales of any
security or solicited any offers to buy any security under circumstances
that would cause the offering of the Securities pursuant to this
Agreement to be integrated with prior offerings by the Company for
purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and
regulations of the NASDAQ SmallCap Market, as applicable, nor will the
Company or any of its affiliates or subsidiaries take any action or steps
that would cause the offering of the Securities to be integrated with
other offerings.
(p) No General Solicitation. Neither the Company, nor
any of its affiliates, nor to its knowledge, any person acting on its or
their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the Act) in
connection with the offer or sale of the Securities.
-5-
(q) Listing. The Company's Common Stock is listed for
trading on the OTC Bulletin Board and satisfies all requirements for the
continuation of such listing. The Company has not received any notice
that its common stock will be delisted from the OTC Bulletin Board or
that the Common Stock does not meet all requirements for the continuation
of such listing.
(r) No Undisclosed Liabilities. The Company has no
liabilities or obligations which are material, individually or in the
aggregate, which are not disclosed in the Reports and Other Written
Information, other than those incurred in the ordinary course of the
Company's businesses since December 31, 2000 and which, individually or
in the aggregate, would not reasonably be expected to have a material
adverse effect on the Company's financial condition.
(s) No Undisclosed Events or Circumstances. Since December 31, 2000,
no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, that, under applicable law, rule or regulation, requires
public disclosure or announcement prior to the date hereof by the Company
but which has not been so publicly announced or disclosed in the Reports.
(t) Capitalization. The authorized and outstanding capital stock of
the Company as of the date of this Agreement and the Closing Date are set
forth on Schedule 2 hereto. Except as set forth in the Reports and Other
Written Information, there are no options, warrants, or rights to
subscribe to, securities, rights or obligations convertible into or
exchangeable for or giving any right to subscribe for any shares of
capital stock of the Company. All of the outstanding shares of Common
Stock of the Company have been duly and validly authorized and issued and
are fully paid and nonassessable.
(u) Correctness of Representations. The Company represents that
the foregoing representations and warranties are true and correct as of
the date hereof in all material respects, will be true and correct as of
the Closing Date, and, unless the Company otherwise notifies the
Subscriber prior to the Closing Date, shall be true and correct in all
material respects as of the Closing Date. The foregoing representations
and warranties shall survive the Closing Date.
3. Regulation D Offering. This Offering is being made
pursuant to the exemption from the registration provisions of the
Securities Act of 1933, as amended, afforded by Rule 506 of Regulation D
promulgated thereunder. On the Closing Date, the Company will provide an
opinion acceptable to Subscriber from the Company's legal counsel opining
on the availability of the Regulation D exemption as it relates to the
offer and issuance of the Securities. A form of the legal opinion is
annexed hereto as Exhibit C. The Company will provide, at the Company's
expense, such other legal opinions in the future as are reasonably
necessary for the conversion of the Note and exercise of the Warrants.
4. Reissuance of Securities. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Sections 1(e) and 1(f) above at such time as (a) the holder thereof is
permitted to and disposes of such Securities pursuant to Rule 144(d)
and/or Rule 144(k) under the 1933 Act in the opinion of counsel
reasonably satisfactory to the Company, or (b) upon resale subject to an
effective registration statement after the Securities are registered
under the 0000 Xxx. The Company agrees to cooperate with the Subscriber
in connection with all resales pursuant to Rule 144(d) and Rule 144(k)
and provide legal opinions necessary to allow such resales provided the
Company and its counsel receive all reasonably requested written
representations from the Subscriber and selling broker, if any. If the
Company fails to remove any legend as required by this Section 4 (a
"Legend Removal Failure"), then beginning on the tenth (10th) day
following the date that the Subscriber has requested the removal of the
legend and delivered all items reasonably required to be delivered by the
Subscriber, the Company continues to fail to remove such legend, the
Company shall pay to each Subscriber or assignee holding shares subject
to a Legend Removal Failure an amount equal to one percent (1%) of the
Purchase Price of the shares subject to a Legend Removal Failure per day
that such failure continues. If during any twelve (12) month period, the
Company fails to remove any legend as required by this Section 4 for an
aggregate of thirty (30) days, each Subscriber or assignee holding
Securities subject to a Legend Removal Failure may, at its option,
require the Company to purchase all or any portion of the Securities
subject to a Legend Removal Failure held by such Subscriber or assignee
at a price per share equal to 120% of the applicable Purchase Price.
-6-
5. Redemption. The Company may not redeem the Securities
without the consent of the holder of the Securities except as otherwise
described herein.
6. Fees/Warrants.
(a) The Company shall pay to counsel to the Subscriber
its fees of $1,000 for services rendered to Subscribers in connection
with this Agreement and the other Subscription Agreements for aggregate
subscription amounts of up to $500,000 (the "Offering"). The Company
will pay the escrow agent for the Offering a fee of $750. The Company
will pay to the Fund Managers identified on Schedule B hereto a cash fee
in the amount of: eight percent (8%) of the Purchase Price ("Fund
Manager's Fee"). The Fund Manager's Fee must be paid each Closing Date
with respect to the Notes issued on such date. The Fund Manager's Fee
and legal fees will be payable out of funds held pursuant to a Funds
Escrow Agreement to be entered into by the Company, Subscriber and an
Escrow Agent.
(b) The Company will also issue and deliver to the Subscribers
(sometimes referred to as "Subscribers"), one Warrant for each $1.00 of
Purchase Price invested by such Subscriber. A form of Warrant is annexed
hereto as Exhibit D. The per share "Purchase Price" of Common Stock as
defined in the Warrant shall be equal to 120% of the three lowest closing
prices of the Common Stock as reported by Bloomberg Financial for the
Pink Sheets, the NASD OTC Bulletin Board, NASDAQ SmallCap Market, NASDAQ
National Market, American Stock Exchange, or New York Stock Exchange
(each of the foregoing the Principal Market"), or such other principal
market or exchange where the Common Stock is listed or traded for the ten
(10) trading days preceding but not including the Closing Date. The
Warrants designated on Schedule B hereto must be delivered to the
Subscribers on the Closing Date. Failure to timely deliver the Warrant
Exercise Compensation, the Warrants or Fund Manager's Fee shall be an
Event of Default as defined in Article III of the Note.
(c) The Fund Manager's Fee, legal fees and escrow agent's fee will be
paid to the Fund Managers and attorneys only when, as, and if a
corresponding subscription amount is released from escrow to the Company
and out of the escrow proceeds.
(d) The Company on the one hand, and the Subscriber on the
other hand, agree to indemnify the other against and hold the other
harmless from any and all liabilities to any other persons claiming
brokerage commissions or fund manager's fees except as identified on
Schedule B hereto on account of services purported to have been rendered
on behalf of the indemnifying party in connection with this Agreement or
the transactions contemplated hereby and arising out of such party's
actions. Except as set forth on Schedule B hereto, the Company
represents that there are no other parties entitled to receive fees,
commissions, or similar payments in connection with the offering
described in the Subscription Agreement.
7. Covenants of the Company. The Company covenants and agrees
with the Subscriber as follows:
-7-
(a) The Company will advise the Subscriber, promptly
after it receives notice of issuance by the Securities and Exchange
Commission, any state securities commission or any other regulatory
authority of any stop order or of any order preventing or suspending any
offering of any securities of the Company, or of the suspension of the
qualification of the Common Stock of the Company for offering or sale in
any jurisdiction, or the initiation of any proceeding for any such
purpose.
(b) The Company shall promptly secure the listing of the
Company Shares, and Common Stock issuable upon the exercise of the
Warrants upon each national securities exchange, or automated quotation
system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance) and shall maintain such listing
so long as any other shares of Common Stock shall be so listed. The
Company will maintain the listing of its Common Stock on a Principal
Market, and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the National
Association of Securities Dealers ("NASD") and such exchanges, as
applicable. The Company will provide the Subscriber copies of all notices
it receives notifying the Company of the threatened and actual delisting
of the Common Stock from any Principal Market.
(c) The Company shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, if
any, of the transactions contemplated by this Agreement, and shall take
all other necessary action and proceedings as may be required and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Securities to the Subscriber and promptly provide copies
thereof to Subscriber.
(d) Until at least two (2) years after the effectiveness
of the Registration Statement on Form SB-2 or such other Registration
Statement described in Section 10.1(iv) hereof, the Company will (i)
cause its Common Stock to continue to be registered under Sections 12(b)
or 12(g) of the Exchange Act, (ii) comply in all respects with its
reporting and filing obligations under the Exchange Act, (iii) comply
with all reporting requirements that is applicable to an issuer with a
class of Shares registered pursuant to Section 12(g) of the Exchange Act,
and (iv) comply with all requirements related to any registration
statement filed pursuant to this Agreement. The Company will not take
any action or file any document (whether or not permitted by the Act or
the Exchange Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing
obligations under said Acts until the later of (y) two (2) years after
the actual effective date of the Registration Statement on Form SB-2 or
such other Registration Statement described in Section 10.1(iv) hereof,
or (z) the sale by the Subscribers and Warrant Recipients of all the
Company Shares and Securities issuable by the Company pursuant to this
Agreement. Until at least two (2) years after the Warrants have been
exercised, the Company will use its commercial best efforts to continue
the listing of the Common Stock on the OTC Market, and will comply in all
respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the NASD and NASDAQ.
(e) The Company undertakes to use the proceeds of the
Subscriber's funds for the purposes set forth on Schedule 7(e) hereto.
Purchase Price may not and will not be used to pay debt or non-trade
obligations outstanding on or after the Closing Date. A deviation from
the use of proceeds set forth on Schedule 7(e) of more than 10% per item
or more than 20% in the aggregate shall be deemed a material breach of
the Company's obligations hereunder.
(f) The Company undertakes to use its best efforts to
acquire, within three months of the Closing Date, at a commercially
reasonable cost, a standard officers and directors errors and omissions
liability insurance policy covering the transactions contemplated in this
Agreement.
-8-
(g) The Company undertakes to reserve pro rata on behalf of
each holder of a Note or Warrant, from its authorized but unissued Common
Stock, at all times that Notes or Warrants remain outstanding, a number
of Common Shares equal to not less than 200% of the amount of Common
Shares necessary to allow each such holder to be able to convert all such
outstanding Notes, at the then applicable Conversion Price and one Common
Share for each Common Share issuable upon exercise of the Warrants.
8. Covenants of the Company and Subscriber Regarding
Indemnification.
(a) The Company agrees to indemnify, hold harmless,
reimburse and defend Subscriber, Subscriber's officers, directors,
agents, affiliates, control persons, and principal shareholders, against
any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed
upon Subscriber or any such person which results, arises out of or is
based upon (i) any misrepresentation by Company or breach of any warranty
by Company in this Agreement or in any Exhibits or Schedules attached
hereto, or other agreement delivered pursuant hereto; or (ii) after any
applicable notice and/or cure periods, any breach or default in
performance by the Company of any covenant or undertaking to be performed
by the Company hereunder, or any other agreement entered into by the
Company and Subscribers relating hereto.
(b) Subscriber agrees to indemnify, hold harmless,
reimburse and defend the Company and each of the Company's officers and
directors at all times against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any
nature, incurred by or imposed upon the Company or any such person which
results, arises out of or is based upon (i) any misrepresentation by
Subscriber in this Agreement or in any Exhibits or Schedules attached
hereto, or other agreement delivered pursuant hereto; or (ii) after any
applicable notice and/or cure periods, any breach or default in
performance by Subscriber of any covenant or undertaking to be performed
by Subscriber hereunder, or any other agreement entered into by the
Company and Subscribers relating hereto.
(c) The procedures set forth in Section 10.6 shall apply to
the indemnifications set forth in Sections 8(a) and 8(b) above.
9.1. Conversion of Note.
(a) Upon the conversion of the Note or part thereof, the Company
shall, at its own cost and expense, take all necessary action (including
the issuance of an opinion of counsel) to assure that the Company's
transfer agent shall issue stock certificates in the name of Subscriber
(or its nominee) or such other persons as designated by Subscriber and in
such denominations to be specified at conversion representing the number
of shares of common stock issuable upon such conversion. The Company
warrants that no instructions other than these instructions have been or
will be given to the transfer agent of the Company's Common Stock and
that the Shares will be unlegended, free-trading, and freely
transferable, and will not contain a legend restricting the resale or
transferability of the Company Shares provided the Shares are being sold
pursuant to an effective registration statement covering the Shares to be
sold or are otherwise exempt from registration when sold.
(b) Subscriber will give notice of its decision to
exercise its right to convert the Note or part thereof by telecopying an
executed and completed Notice of Conversion (as defined in the Note) to
the Company via confirmed telecopier transmission. The Subscriber will
not be required to surrender the Note until the Note has been fully
converted or satisfied. Each date on which a Notice of Conversion is
telecopied to the Company in accordance with the provisions hereof shall
be deemed a Conversion Date. The Company will or cause the transfer
agent to transmit the Company's Common Stock certificates representing
the Shares issuable upon conversion of the Note to the Subscriber via
express courier for receipt by such Subscriber within three (3) business
days after receipt by the Company of the Notice of Conversion (the
"Delivery Date"). A Note representing the balance of the Note not so
converted will be provided to the Subscriber, if requested by Subscriber.
To the extent that a Subscriber elects not to surrender a Note for
reissuance upon partial payment or conversion, the Subscriber hereby
indemnifies the Company against any and all loss or damage attributable
to a third-party claim in an amount in excess of the actual amount then
due under the Note.
-9-
(c) The Company understands that a delay in the delivery
of the Shares in the form required pursuant to Section 9 hereof, or the
Mandatory Redemption Amount described in Section 9.2 hereof, beyond the
Delivery Date or Mandatory Redemption Payment Date (as hereinafter
defined) could result in economic loss to the Subscriber. As
compensation to the Subscriber for such loss, the Company agrees to pay
late payments to the Subscriber for late issuance of Shares in the form
required pursuant to Section 9 hereof upon Conversion of the Note or late
payment of the Mandatory Redemption Amount, in the amount of $100 per
business day after the Delivery Date or Mandatory Redemption Payment
Date, as the case may be, for each $10,000 of Note principal amount being
converted or redeemed. The Company shall pay any payments incurred under
this Section in immediately available funds upon demand. Furthermore, in
addition to any other remedies which may be available to the Subscriber,
in the event that the Company fails for any reason to effect delivery of
the Shares by the Delivery Date or make payment by the Mandatory
Redemption Payment Date, the Subscriber will be entitled to revoke all or
part of the relevant Notice of Conversion or rescind all or part of the
notice of Mandatory Redemption by delivery of a notice to such effect to
the Company whereupon the Company and the Subscriber shall each be
restored to their respective positions immediately prior to the delivery
of such notice, except that late payment charges described above shall be
payable through the date notice of revocation or rescission is given to
the Company.
(d) Nothing contained herein or in any document referred
to herein or delivered in connection herewith shall be deemed to
establish or require the payment of a rate of interest or other charges
in excess of the maximum permitted by applicable law. In the event that
the rate of interest or dividends required to be paid or other charges
hereunder exceed the maximum permitted by such law, any payments in
excess of such maximum shall be credited against amounts owed by the
Company to the Subscriber and thus refunded to the Company.
9.2. Mandatory Redemption. In the event the Company is
prohibited from issuing Shares, or fails to timely deliver Shares on a
Delivery Date, or upon the occurrence of an Event of Default (as defined
in the Note) or for any reason other than pursuant to the limitations set
forth in Section 9.3 hereof, then at the Subscriber's election, the
Company must pay to the Subscriber ten (10) business days after request
by the Subscriber or on the Delivery Date (if requested by the
Subscriber) a sum of money determined by multiplying up to the
outstanding principal amount of the Note designated by the Subscriber by
130%, together with accrued but unpaid interest thereon ("Mandatory
Redemption Payment"). The Mandatory Redemption Payment must be received
by the Subscriber on the same date as the Company Shares otherwise
deliverable or within ten (10) business days after request, whichever is
sooner ("Mandatory Redemption Payment Date"). Upon receipt of the
Mandatory Redemption Payment, the corresponding Note principal and
interest will be deemed paid and no longer outstanding.
9.3. Maximum Conversion. The Subscriber shall not be entitled
to convert on a Conversion Date that amount of the Note in connection
with that number of shares of Common Stock which would be in excess of
the sum of (i) the number of shares of Common Stock beneficially owned by
the Subscriber and its affiliates on a Conversion Date, and (ii) the
number of shares of Common Stock issuable upon the conversion of the Note
with respect to which the determination of this provision is being made
on a Conversion Date, which would result in beneficial ownership by the
Subscriber and its affiliates of more than 4.99% of the outstanding
shares of Common Stock of the Company on such Conversion Date. For the
purposes of the provision to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d)
of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder. Subject to the foregoing, the Subscriber shall not be
limited to aggregate conversions of only 4.99%. The Subscriber may void
the conversion limitation described in this Section 9.3 upon 75 days
prior written notice to the Company or upon an Event of Default under the
Note. The Subscriber may allocate which of the equity of the Company
deemed beneficially owned by the Subscriber shall be included in the
4.99% amount described above and which shall be allocated to the excess
above 4.99%.
-10-
9.4. Injunction - Posting of Bond. In the event a Subscriber
shall elect to convert a Note or part thereof, the Company may not refuse
conversion based on any claim that such Subscriber or any one associated
or affiliated with such Subscriber has been engaged in any violation of
law, or for any other reason, unless, an injunction from a court, on
notice, restraining and or enjoining conversion of all or part of said
Note shall have been sought and obtained and the Company posts a surety
bond for the benefit of such Subscriber in the amount of 130% of the
amount of the Note, which is subject to the injunction, which bond shall
remain in effect until the completion of arbitration/litigation of the
dispute and the proceeds of which shall be payable to such Subscriber to
the extent Subscriber obtains judgment.
9.5. Buy-In. In addition to any other rights available to the
Subscriber, if the Company fails to deliver to the Subscriber such shares
issuable upon conversion of a Note by the Delivery Date and if ten (10)
days after the Delivery Date the Subscriber purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such Subscriber of the Common Stock which the
Subscriber anticipated receiving upon such conversion (a "Buy-In"), then
the Company shall pay in cash to the Subscriber (in addition to any
remedies available to or elected by the Subscriber) the amount by which
(A) the Subscriber's total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased exceeds
(B) the aggregate principal and/or interest amount of the Note for which
such conversion was not timely honored, together with interest thereon at
a rate of 15% per annum, accruing until such amount and any accrued
interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For example, if the Subscriber
purchases shares of Common Stock having a total purchase price of $11,000
to cover a Buy-In with respect to an attempted conversion of $10,000 of
note principal and/or interest, the Company shall be required to pay the
Subscriber $1,000, plus interest. The Subscriber shall provide the
Company written notice indicating the amounts payable to the Subscriber
in respect of the Buy-In.
9.6 Adjustments. The Conversion Price and amount of Shares
issuable upon conversion of the Notes and Put Notes shall be adjusted
consistent with customary anti-dilution adjustments.
9.7. Optional Redemption. The Company will have the option of
redeeming any outstanding Notes ("Optional Redemption") by paying to the
Subscriber a sum of money as follows:
from the Closing Date through 30 days after the Closing Date - 120%
from 31 days through 90 days after the Closing Date - 135%
from 91 days through 180 days after the Closing Date - 150%
after 180 days following the Closing Date - 200%
of the principal amount of the Note together with accrued but unpaid
interest thereon and any and all other sums due, accrued or payable to
the Subscriber arising under this Subscription Agreement, Note or any
other document delivered herewith ("Redemption Amount") outstanding on
the day notice of redemption ("Notice of Redemption) is given to a
Subscriber ("Redemption Date"). A Notice of Redemption may not be given
in connection with any portion of Note for which notice of conversion has
been given by the Subscriber at any time before receipt of a Notice of
Redemption. The Subscriber may elect within five (5) business days after
receipt of a Notice of Redemption to give the Company Notice of
Conversion in connection with some or all of the Note principal and
interest which was the subject of the Notice of Redemption. A Notice of
Redemption must be accompanied by a certificate signed by the chief
executive officer or chief financial officer of the Company stating that
the Company has on deposit and segregated ready funds equal to the
Redemption Amount. The Redemption Amount must be paid in good funds to
-11-
the Subscriber no later than the seventh (7th) business day after the
Redemption Date ("Optional Redemption Payment Date"). In the event the
Company fails to pay the Redemption Amount by the Optional Redemption
Payment Date, then the Redemption Notice will be null and void and the
Company will thereafter have no further right to effect an Optional
Redemption, and at the Subscription's election, the Redemption Amount
will be deemed a Mandatory Redemption Payment and the Optional Redemption
Payment Date will be deemed a Mandatory Redemption Payment Date. Such
failure will also be deemed an Event of Default under the Note. Any
Notice of Redemption must be given to all holders of Notes issued in
connection with the Offering, in proportion to their holdings of Note
principal on a Redemption Date. A Notice of Redemption may be given by
the Company, provided (i) no Event of Default, as described in the Note
shall have occurred or be continuing; and (ii) the Company Shares
issuable upon conversion of the full outstanding Note principal are
included for unrestricted resale in a registration statement effective as
of the Redemption Date. Note proceeds may not be used to effect an
Optional Redemption.
10.1. Registration Rights. The Company hereby grants the following
registration rights to holders of the Securities.
(i) On one occasion, for a period commencing 61 days after the
Closing Date, but not later than three years after the Closing Date
("Request Date"), the Company, upon a written request therefor from any
record holder or holders of more than 50% of the aggregate of the
Company's Shares issued and issuable upon Conversion of the Notes (the
Common Stock issued or issuable upon conversion of the Notes or issuable
by virtue of ownership of the Note, being, the "Registrable Securities"),
shall prepare and file with the SEC a registration statement under the
Act covering the Registrable Securities which are the subject of such
request, unless such Registrable Securities are the subject of an
effective registration statement. In addition, upon the receipt of such
request, the Company shall promptly give written notice to all other
record holders of the Registrable Securities that such registration
statement is to be filed and shall include in such registration statement
Registrable Securities for which it has received written requests within
10 days after the Company gives such written notice. Such other
requesting record holders shall be deemed to have exercised their demand
registration right under this Section 10.1(i). As a condition precedent
to the inclusion of Registrable Securities, the holder thereof shall
provide the Company with such information as the Company reasonably
requests. The obligation of the Company under this Section 10.1(i) shall
be limited to one registration statement.
(ii) If the Company at any time proposes to register any of its
securities under the Act for sale to the public, whether for its own
account or for the account of other security holders or both, except with
respect to registration statements on Forms X-0, X-0 or another form not
available for registering the Registrable Securities for sale to the
public, provided the Registrable Securities are not otherwise registered
for resale by the Subscriber or Holder pursuant to an effective
registration statement, each such time it will give at least 30 days'
prior written notice to the record holder of the Registrable Securities
of its intention so to do. Upon the written request of the holder,
received by the Company within 20 days after the giving of any such
notice by the Company, to register any of the Registrable Securities, the
Company will cause such Registrable Securities as to which registration
shall have been so requested to be included with the securities to be
covered by the registration statement proposed to be filed by the
Company, all to the extent required to permit the sale or other
disposition of the Registrable Securities so registered by the holder of
such Registrable Securities (the "Seller"). In the event that any
registration pursuant to this Section 10.1(ii) shall be, in whole or in
part, an underwritten public offering of common stock of the Company, the
number of shares of Registrable Securities to be included in such an
underwriting may be reduced by the managing underwriter if and to the
extent that the Company and the underwriter shall reasonably be of the
opinion that such inclusion would adversely affect the marketing of the
securities to be sold by the Company therein; provided, however, that the
Company shall notify the Seller in writing of any such reduction.
Notwithstanding the foregoing provisions, or Section 10.4 hereof, the
Company may withdraw or delay or suffer a delay of any registration
statement referred to in this Section 10.1(ii) without thereby incurring
any liability to the Seller.
-12-
(iii) If, at the time any written request for registration is received
by the Company pursuant to Section 10.1(i), the Company has determined to
proceed with the actual preparation and filing of a registration
statement under the 1933 Act in connection with the proposed offer and
sale for cash of any of its securities for the Company's own account,
such written request shall be deemed to have been given pursuant to
Section 10.1(ii) rather than Section 10.1(i), and the rights of the
holders of Registrable Securities covered by such written request shall
be governed by Section 10.1(ii).
(iv) The Company shall file with the Commission within 30
days after written request by the Subscribers (the "Filing Date"), and
use its reasonable commercial efforts to cause to be declared effective
Form SB-2 registration statement (or such other form that it is eligible
to use) in order to register the Registrable Securities for resale and
distribution under the Act. The registration statement described in this
paragraph must be declared effective by the Commission within 60 days of
the Filing Date (as defined herein) ("Effective Date"). The Company will
register not less than a number of shares of Common Stock in the
aforedescribed registration statement that is equal to 250% of the
Company Shares issuable at the Conversion Price that would be in effect
on the Closing Date or the date of filing of such registration statement
(employing the Conversion Price which would result in the greater number
of Shares), assuming the conversion of 100% of the Notes. The
Registrable Securities shall be reserved and set aside exclusively for
the benefit of the Subscriber, and not issued, employed or reserved for
anyone other than the Subscriber. Such registration statement will be
promptly amended or additional registration statements will be promptly
filed by the Company as necessary to register additional Company Shares
to allow the public resale of all Common Stock included in and issuable
by virtue of the Registrable Securities. No securities of the Company
other than the Registrable Securities will be included in the
registration statement described in this Section 10.1(iv).
10.2. Registration Procedures. If and whenever the Company is
required by the provisions hereof to effect the registration of any
shares of Registrable Securities under the Act, the Company will, as
expeditiously as possible:
(a) prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to
cause such registration statement to become and remain effective for the
period of the distribution contemplated thereby (determined as herein
provided), and promptly provide to the holders of Registrable Securities
("Sellers") copies of all filings and Commission letters of comment;
(b) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective until the latest of: (i) twelve months after the
latest Maturity Date of a Note; (ii) thirty months after the Closing
Date; or (iii) until such registration statement has been effective for a
period of not less than 270 days, and comply with the provisions of the
Act with respect to the disposition of all of the Registrable Securities
covered by such registration statement in accordance with the Seller's
intended method of disposition set forth in such registration statement
for such period;
(c) furnish to the Seller, and to each underwriter if
any, such number of copies of the registration statement and the
prospectus included therein (including each preliminary prospectus) as
such persons reasonably may request in order to facilitate the public
sale or their disposition of the securities covered by such registration
statement;
(d) use its best efforts to register or qualify the
Seller's Registrable Securities covered by such registration statement
under the securities or "blue sky" laws of such jurisdictions as the
Seller and in the case of an underwritten public offering, the managing
underwriter shall reasonably request, provided, however, that the Company
shall not for any such purpose be required to qualify generally to
transact business as a foreign corporation in any jurisdiction where it
is not so qualified or to consent to general service of process in any
such jurisdiction;
-13-
(e) list the Registrable Securities covered by such
registration statement with any securities exchange on which the Common
Stock of the Company is then listed;
(f) immediately notify the Seller and each underwriter
under such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Act, of the happening of
any event of which the Company has knowledge as a result of which the
prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing;
(g) make available for inspection by the Seller, any
underwriter participating in any distribution pursuant to such
registration statement, and any attorney, accountant or other agent
retained by the Seller or underwriter, all publicly available, non-
confidential financial and other records, pertinent corporate documents
and properties of the Company, and cause the Company's officers,
directors and employees to supply all publicly available, non-
confidential information reasonably requested by the seller, underwriter,
attorney, accountant or agent in connection with such registration
statement.
10.3. Provision of Documents.
(a) At the request of the Seller, provided a demand for registration
has been made pursuant to Section 10.1(i) or a request for registration
has been made pursuant to Section 10.1(ii), the Registrable Securities
will be included in a registration statement filed pursuant to this
Section 10.
(b) In connection with each registration hereunder, the Seller will
furnish to the Company in writing such information and representation
letters with respect to itself and the proposed distribution by it as
reasonably shall be necessary in order to assure compliance with federal
and applicable state securities laws. In connection with each
registration pursuant to Section 10.1(i) or 10.1(ii) covering an
underwritten public offering, the Company and the Seller agree to enter
into a written agreement with the managing underwriter in such form and
containing such provisions as are customary in the securities business
for such an arrangement between such underwriter and companies of the
Company's size and investment stature.
10.4. Non-Registration Events. The Company and the Subscriber agree
that the Seller will suffer damages if any registration statement
required under Section 10.1(i) or 10.1(ii) above is not filed within 30
days after written request by the Holder and not declared effective by
the Commission within 90 days after such request (or the Filing Date and
Effective Date, respectively, in reference to the Registration Statement
on Form SB-2 or such other form described in Section 10.1(iv)), and
maintained in the manner and within the time periods contemplated by
Section 10 hereof, and it would not be feasible to ascertain the extent
of such damages with precision. Accordingly, if (i) the Registration
Statement described in Sections 10.1(i) or 10.1(ii) is not filed within
30 days of such written request, or is not declared effective by the
Commission on or prior to the date that is 90 days after such request, or
(ii) the registration statement on Form SB-2 or such other form described
in Section 10.1(iv) is not filed on or before the Filing Date or not
declared effective on or before the sooner of the Effective Date, or
within five business days of receipt by the Company of a written or oral
communication from the Commission that the registration statement
described in Section 10.1(iv) will not be reviewed, or (iii) any
registration statement described in Sections 10.1(i), 10.1(ii) or
10.1(iv) is filed and declared effective but shall thereafter cease to be
effective (without being succeeded immediately by an additional
registration statement filed and declared effective) for a period of time
which shall exceed 30 days in the aggregate per year but not more than 20
-14-
consecutive calendar days (defined as a period of 365 days commencing on
the date the Registration Statement is declared effective) (each such
event referred to in clauses (i), (ii) and (iii) of this Section 10.4 is
referred to herein as a "Non-Registration Event"), then, for so long as
such Non-Registration Event shall continue, the Company shall pay, at the
Subscriber's option, in cash or stock at the applicable Conversion Price,
as Liquidated Damages to each holder of any Registrable Securities an
amount equal to two percent (2%) per month or part thereof during the
pendency of such Non-Registration Event, of the principal of the Notes
issued in connection with the Offering, whether or not converted, then
owned of record by such holder or issuable as of or subsequent to the
occurrence of such Non-Registration Event. Payments to be made pursuant
to this Section 10.4 shall be due and payable within five (5) business
days after demand in immediately available funds. In the event a
Mandatory Redemption Payment is demanded from the Company by the Holder
pursuant to Section 9.2 of this Subscription Agreement, then the
Liquidated Damages described in this Section 10.4 shall no longer accrue
on the portion of the Purchase Price underlying the Mandatory Redemption
Payment, from and after the date the Holder receives the Mandatory
Redemption Payment. It shall also be deemed a Non-Registration Event if
at any time a Note is outstanding, there is less than 125% of the amount
of Common Shares necessary to allow full conversion of such Note at the
then applicable Conversion Price registered for unrestricted resale in an
effective registration statement.
10.5. Expenses. All expenses incurred by the Company in
complying with Section 10, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements
of counsel and independent public accountants for the Company, fees and
expenses (including reasonable counsel fees) incurred in connection with
complying with state securities or "blue sky" laws, fees of the National
Association of Securities Dealers, Inc., transfer taxes, fees of transfer
agents and registrars, and costs of insurance are called "Registration
Expenses". All underwriting discounts and selling commissions applicable
to the sale of Registrable Securities, including any fees and
disbursements of any special counsel to the Seller, are called "Selling
Expenses". The Seller shall pay the fees of its own additional counsel,
if any. The Company will pay all Registration Expenses in connection
with the registration statement under Section 10. All Selling Expenses
in connection with each registration statement under Section 10 shall be
borne by the Seller and may be apportioned among the Sellers in
proportion to the number of shares sold by the Seller relative to the
number of shares sold under such registration statement or as all Sellers
thereunder may agree.
10.6. Indemnification and Contribution.
(a) In the event of a registration of any Registrable Securities under
the Act pursuant to Section 10, the Company will indemnify and hold
harmless the Seller, each officer of the Seller, each director of the
Seller, each underwriter of such Registrable Securities thereunder and
each other person, if any, who controls such Seller or underwriter within
the meaning of the 1933 Act, against any losses, claims, damages or
liabilities, joint or several, to which the Seller, or such underwriter
or controlling person may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any
registration statement under which such Registrable Securities was
registered under the Act pursuant to Section 10, any preliminary
prospectus or final prospectus contained therein, or any amendment or
supplement thereof, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and
will reimburse the Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company shall
not be liable to the Seller to the extent that any such damages arise out
-15-
of or are based upon an untrue statement or omission made in any
preliminary prospectus if (i) the Seller failed to send or deliver a copy
of the final prospectus delivered by the Company to the Seller with or
prior to the delivery of written confirmation of the sale by the Seller
to the person asserting the claim from which such damages arise, (ii) the
final prospectus would have corrected such untrue statement or alleged
untrue statement or such omission or alleged omission, or (iii) to the
extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished by any
such Seller, or any such controlling person in writing specifically for
use in such registration statement or prospectus.
(b) In the event of a registration of any of the Registrable
Securities under the Act pursuant to Section 10, the Seller will
indemnify and hold harmless the Company, and each person, if any, who
controls the Company within the meaning of the Act, each officer of the
Company who signs the registration statement, each director of the
Company, each underwriter and each person who controls any underwriter
within the meaning of the Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such officer,
director, underwriter or controlling person may become subject under the
Act or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in
the registration statement under which such Registrable Securities were
registered under the Act pursuant to Section 10, any preliminary
prospectus or final prospectus contained therein, or any amendment or
supplement thereof, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and
will reimburse the Company and each such officer, director, underwriter
and controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such
loss, claim, damage, liability or action, provided, however, that the
Seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with information
pertaining to such Seller, as such, furnished in writing to the Company
by such Seller specifically for use in such registration statement or
prospectus, and provided, further, however, that the liability of the
Seller hereunder shall be limited to the gross proceeds received by the
Seller from the sale of Registrable Securities covered by such
registration statement.
(c) Promptly after receipt by an indemnified party hereunder of notice
of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party
hereunder, notify the indemnifying party in writing thereof, but the
omission so to notify the indemnifying party shall not relieve it from
any liability which it may have to such indemnified party other than
under this Section 10.6(c) and shall only relieve it from any liability
which it may have to such indemnified party under this Section 10.6(c),
except and only if and to the extent the indemnifying party is prejudiced
by such omission. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate in and, to the extent it shall wish, to assume and undertake
the defense thereof with counsel satisfactory to such indemnified party,
and, after notice from the indemnifying party to such indemnified party
of its election so to assume and undertake the defense thereof, the
indemnifying party shall not be liable to such indemnified party under
this Section 10.6(c) for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so
selected, provided, however, that, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be
reasonable defenses available to it which are different from or
additional to those available to the indemnifying party or if the
interests of the indemnified party reasonably may be deemed to conflict
with the interests of the indemnifying party, the indemnified parties
shall have the right to select one separate counsel and to assume such
legal defenses and otherwise to participate in the defense of such
action, with the reasonable expenses and fees of such separate counsel
and other expenses related to such participation to be reimbursed by the
indemnifying party as incurred.
-16-
(d) In order to provide for just and equitable contribution in the
event of joint liability under the Act in any case in which either (i)
the Seller, or any controlling person of the Seller, makes a claim for
indemnification pursuant to this Section 10.6 but it is judicially
determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial
of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 10.6
provides for indemnification in such case, or (ii) contribution under the
Act may be required on the part of the Seller or controlling person of
the Seller in circumstances for which indemnification is provided under
this Section 10.6; then, and in each such case, the Company and the
Seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others)
in such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its
securities offered by the registration statement bears to the public
offering price of all securities offered by such registration statement,
provided, however, that, in any such case, (y) the Seller will not be
required to contribute any amount in excess of the public offering price
of all such securities offered by it pursuant to such registration
statement; and (z) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 10(f) of the Act) will
be entitled to contribution from any person or entity who was not guilty
of such fraudulent misrepresentation.
10.7. Underwriter Liability. Nothing contained in this Agreement
or any document delivered herewith shall require or imply that the
Subscriber is or be an Underwriter as defined in the 1933 Act of 1934
Act, nor a "statutory underwriter." The Subscriber shall not be required
to take any action or assume any liability or obligation which would or
could impose Underwriter or "statutory underwriter" status or liability
on the Subscriber.
11. Offering Restrictions. Except (i) as disclosed in the Reports
or Other Written Information prior to the date of this Subscription
Agreement, and (ii) stock or stock options granted to employees or
directors of the Company pursuant to a plan which has been approved by
the shareholders of the Company (these exceptions hereinafter referred to
as the "Excepted Issuances"), the Company will not issue any equity,
convertible debt or other securities, prior to the expiration of a period
equal to the later of (x) 270 days during which the registration
statement described in Section 10.1(iv) above has been effective, or (y)
12 months after the Closing Date, other than with respect to a bona fide
business acquisition of or by the Company. The Excepted Issuances (other
than (i) above) may be issued during the above described time periods
provided such securities are not transferable until after a time period
equal to one year during which the registration statement described in
Section 10.1(iv) above has been effective.
12. Security Interest. The Company has delivered to the Subscriber
Common Shares of the Company owned by one or more shareholders of the
Company, together with signature guaranteed stock powers pursuant to a
Security Agreement dated May 22, 2001. It is hereby agreed by Innovative
Communications Technology, Ltd. and Golden Phoenix Limited Partnership
and acknowledged by the Company that the Note and any and all monetary
obligations arising under the Note or this Agreement are included in the
Obligations as defined in the Security Agreement, dated May 22, 2001.
13. Miscellaneous.
(a) Notices. All notices or other communications given
or made hereunder shall be in writing and shall be personally delivered
or deemed delivered the first business day after being telecopied
(provided that a copy is delivered by first class mail) to the party to
receive the same at its address set forth below or to such other address
as either party shall hereafter give to the other by notice duly made
under this Section: (i) if to the Company, Science Dynamics Corporation,
0000 Xxxxxxxxxx Xxxx, Xxxxxx Xxxx, XX 00000, telecopier number: (856)
751-7361, with a copy by telecopier only to: Xxxx Xxxxxxxxx, Esq., 0000
Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, XX 00000, telecopier number: (212) 930-
9725, and (ii) if to the Subscriber, to the name, address and telecopy
number set forth on the signature page hereto, with a copy by telecopier
only to Xxxxxx X. Xxxxxx, Esq., 000 Xxxx 00xx Xxxxxx, 0xx Xxxxx, Xxx Xxxx,
Xxx Xxxx 00000, telecopier number: (000) 000-0000.
-17-
(b) Closing. The consummation of the transactions
contemplated herein shall take place at the offices of Xxxxxx X. Xxxxxx,
Esq., 000 Xxxx 00xx Xxxxxx, 0xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, upon the
satisfaction of all conditions to Closing set forth in this Agreement.
The closing date shall be the date that subscriber funds representing the
net amount due the Company from the Purchase Price are transmitted by
wire transfer to the Company (the "Closing Date").
(c) Entire Agreement; Assignment. This Agreement
represents the entire agreement between the parties hereto with respect
to the subject matter hereof and may be amended only by a writing
executed by both parties. No right or obligation of either party shall
be assigned by that party without prior notice to and the written consent
of the other party.
(d) Execution. This Agreement may be executed by
facsimile transmission, and in counterparts, each of which will be deemed
an original.
(e) Law Governing this Agreement. This Agreement shall
be governed by and construed in accordance with the laws of the State of
New York without regard to principles of conflicts of laws. Any action
brought by either party against the other concerning the transactions
contemplated by this Agreement shall be brought only in the state courts
of New York or in the federal courts located in the state of New York.
Both parties and the individuals executing this Agreement and other
agreements on behalf of the Company agree to submit to the jurisdiction
of such courts and waive trial by jury. The prevailing party shall be
entitled to recover from the other party its reasonable attorney's fees
and costs. In the event that any provision of this Agreement or any
other agreement delivered in connection herewith is invalid or
unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or
rule of law. Any such provision which may prove invalid or unenforceable
under any law shall not affect the validity or enforceability of any
other provision of any agreement.
(f) Specific Enforcement, Consent to Jurisdiction. The
Company and Subscriber acknowledge and agree that irreparable damage
would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent or cure breaches of
the provisions of this Agreement and to enforce specifically the terms
and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity. Subject to
Section 13(e) hereof, each of the Company and Subscriber hereby waives,
and agrees not to assert in any such suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction of such
court, that the suit, action or proceeding is brought in an inconvenient
forum or that the venue of the suit, action or proceeding is improper.
Nothing in this Section shall affect or limit any right to serve process
in any other manner permitted by law.
(g) Confidentiality. The Company agrees that it will not disclose
publicly or privately the identity of the Subscriber unless expressly
agreed to in writing by the Subscriber or only to the extent required by
law.
-18-
(h) Automatic Termination. This Agreement shall
automatically terminate without any further action of either party hereto
if the Closing shall not have occurred by the tenth (10th) business day
following the date this Agreement is accepted by the Subscriber.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-19-
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
SCIENCE DYNAMICS CORPORATION
A Delaware Corporation
By:_________________________________
Name:
Title:
Dated: Xxxxx 00, 0000
XXXXXX:
By:___________________________________
-----------------------------------------------------------------------------
Purchase Price: $147,380.00
Warrants: 150,000
ACCEPTED: Dated as of March 25, 2002
LAURUS MASTER FUND, LTD. - Subscriber
A Cayman Island corporation
c/o Ironshore Corporate Services Ltd.
X.X. Xxx 0000 G.T.
Xxxxxxxxxx Xxxxx, Xxxxx Xxxxxx Xxxxxx
Xxxxx Xxxxxx, Xxxxxx Xxxxxxx
Fax: 000-000-0000
By:______________________________
Agreed and accepted as to Section 12:
___________________________________
INNOVATIVE COMMUNICATIONS
TECHNOLOGY, LTD.
___________________________________
GOLDEN PHOENIX LIMITED PARTNERSHIP
-20-
SCHEDULE B TO SUBSCRIPTION AGREEMENT
------------------------------------
------------------------------------------------------------------------
FUND MANAGER FUND MANAGER'S FEES AND WARRANT
EXERCISE COMPENSATION
------------------------------------------------------------------------
LAURUS CAPITAL MANAGEMENT, L.L.C. 8% Fund Manager's Fees and Warrant
000 Xxxx 00xx Xxxxxx, 0xx Xxxxx Exercise Compensation payable in
Xxx Xxxx, Xxx Xxxx 00000 connection with investment by
Fax: 000-000-0000 Laurus Master Fund Ltd. for which
Laurus Capital Management, L.L.C.
is the Fund Manager.
-21-
