SUBSCRIPTION AGREEMENT
Dear Subscriber:
You (the "Subscriber") hereby agree to purchase, and Tech Laboratories,
Inc., a New Jersey corporation (the "Company") hereby agrees to issue and to
sell to the Subscriber, 6.5% Convertible Notes (the "Notes") convertible in
accordance with the terms thereof into shares of the Company's $.01 par value
common stock (the "Company Shares") for the aggregate consideration as set forth
on the signature page hereof ("Purchase Price"). The form of Convertible Note is
annexed hereto as Exhibit A. (The Company Shares included in the Securities (as
hereinafter defined) are sometimes referred to herein as the "Shares" or "Common
Stock"). (The Notes, the Company Shares, Common Stock Purchase Warrants
("Warrants") issuable to the recipients identified on Schedule B hereto, the
Common Stock issuable upon exercise of the Warrants, and the Put Securities (as
herein defined) 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 (U.S.) 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, 1999 as filed with the
Securities and Exchange Commission (the "Commission") together with all
subsequently filed forms 10-QSB (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, 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.
(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
TECH LABORATORIES, INC. 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 TECH LABORATORIES, INC. 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 TECH LABORATORIES, INC. 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.
(i) Short Sales. Provided no Event of Default has occurred (as defined in
the Note), Subscriber shall not engage in short sales of the Common Stock at a
per share price less than $7.00; provided, however, that the Subscriber may
enter into any short sale or other hedging or similar arrangement it deems
appropriate with respect to Shares (restricted or otherwise) owned by the
Subscriber or anticipated to be received by the Subscriber in connection with
conversion of a Note or Put Note.
(j) 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. Except as described on Schedule 2(d) hereto,
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, 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:
(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 articles
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.
(i) Reporting Company. The Company is a publicly-held company whose common
stock is registered pursuant to Section 12(g) of the Securities Exchange Act of
1934, as amended (the "1934 Act"). The Company's common stock is trading on the
NASD OTC Bulletin Board. Pursuant to the provisions of the 1934 Act, the Company
has timely filed all reports and other materials required to be filed thereunder
with the Securities and Exchange Commission during the preceding twelve months.
(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.
(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 Articles 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. 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 which would prevent the Company from selling the Securities
pursuant to Rule 506 under the 1933 Act, or any applicable exchange-related
stockholder approval provisions. 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.
(q) Listing. The Company's Common Stock is listed for trading on the NASD
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 NASD OTC Bulletin Board or that the Common Stock does not meet
all requirements for the continuation of such listing.
(r) 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 dispose of
such Securities pursuant to Rule 144(k) under the 1933 Act, or (b) upon resale
subject to an effective registration statement after the Securities are
registered under the Act. 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 at the Company's expense necessary to allow such resales provided
the Company and its counsel receive reasonably requested 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 such failure and for each day during
the pendency of a Legend Removal Failure, 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 such Shares then held
by such Subscriber or assignee 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 shares subject to a Legend Removal Failure may, at its option,
in addition to any other remedies available to the Subscriber require the
Company to purchase all or any portion of the Shares held by such Subscriber or
Assignee at a price per share equal to 120% of the per Share Purchase Price.
Payments required to be made pursuant to this Paragraph 4 shall be payable upon
demand.
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) On the Closing Date, the Company shall pay to counsel to the Subscriber
its fees of $20,000 for services rendered to Subscribers in connection with this
Agreement and the other Subscription Agreements for aggregate subscription
amounts of up to $1,500,000 (the "Initial Offering") and up to $500,000 of Put
Purchase Price as defined in Section 11.1(a) and acting as escrow agent for the
Initial Offering. The Company will pay a cash fee in the amount of six percent
(6%) of the Purchase Price and Put Purchase Price set forth on the signature
page hereto ("Finder's Fee") to the Finders identified on Schedule B hereto. The
Finder'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 Warrant Recipients
identified on Schedule B hereto, Warrants in the amounts designated on Schedule
B hereto in connection
with the Initial Offering and exercise of the Put. A form of Warrant is annexed
hereto as Exhibit D. The respective Warrants must be delivered on the Closing
Date or Put Closing Date, as the case may be. Failure to timely deliver the
Warrants or Finder's Fee shall be deemed an Event of Default as defined in
Article III of the Note and Put Note.
(c) The Finder's Fee and legal fees will be paid to the Finders and
Subscriber's attorneys only when, as, and if a corresponding subscription amount
is released from escrow to the Company and out of the escrow proceeds. All the
representations, covenants, warranties, undertakings, and indemnification, other
rights including but not limited to registration rights, and rights in Section 9
hereof, made or granted to or for the benefit of the Subscriber are hereby also
made and granted to the Warrant Recipients in respect of the Warrants and
Company Shares issuable upon exercise of the Warrants.
7. Covenants of the Company. The Company covenants and agrees with the
Subscriber as follows:
(a) The Company will advise the Subscriber, promptly after it receives
notice of issuance by the Securities and Exchange Commission, any state
securities commission or any other regulatory authority of any stop order or of
any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the Common Stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
(b) The Company shall promptly secure the listing of the Company Shares,
and Common Stock issuable upon the exercise of the Warrants upon each national
securities exchange, or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance) and shall
maintain such listing so long as any other shares of Common Stock shall be so
listed. The Company will maintain the listing of its Common Stock on the NASD
OTC Bulletin Board, NASDAQ National Market System, New York Stock Exchange, or
NASDAQ SmallCap Market (whichever of the foregoing is at the time the principal
trading exchange or market for the Common Stock, the "Principal Market"), and
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the NASD OTC Bulletin Board 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, 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 S-3 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 earlier of (x) two (2) years after the effective date of the
Registration Statement on Form SB-2 or such other Registration Statement
described in Section 10.1(iv) hereof, (y) upon the sale by the Subscribers and
Warrant Recipients of all the Company Shares, Securities and Put Securities
issuable by the Company pursuant to this Agreement, or (z) until such time as
all the Securities and Put Securities are able to be resold pursuant to Rule
144(k) of the 1933 Act. 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 NASDAQ OTC Bulletin Board 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 working capital, and expenses of this offering. Note Purchase Price and Put
Note Purchase Price may not and will not be used to pay debt or non-trade
obligations outstanding on the Closing Date or Put Closing Date.
(f) The Company undertakes to reserve pro rata on behalf of each holder of
a Note, Put Note or Warrant, from its authorized but unissued Common Stock, at
all times that Notes, Put 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 and Put Notes, at the then applicable Conversion Price and one Common
Share for each Common Share issuable upon exercise of the Warrants.
8.1. Covenants of the Company and Subscriber Regarding Idemnification.
(a) The Company agrees to indemnify, hold harmless, reimburse and defend
Subscriber, Subscriber's officers, directors, agents, affiliates, control
persons, and principal shareholders, against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of any
nature, incurred by or imposed upon Subscriber or any such person which results,
arises out of or is based upon (i) any misrepresentation by Company or breach of
any warranty by Company in this Agreement or in any Exhibits or Schedules
attached hereto; or (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, agents, affiliates,
control persons and principal shareholders 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 (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 8.1(a) and 8.1(b) above.
8.2. Conversion to Preferred Stock.
(a) Company and Subscriber acknowledge that the Company intends to apply
for listing of the Common Stock on the NASDAQ SmallCap Market ("NASDAQ") or the
American Stock Exchange ("Amex"). Company and Subscriber agree to negotiate in
good faith to convert a portion of the Note into convertible preferred stock
containing terms nearly identical to the terms of this Subscription Agreement
and Note. The aforedescribed conversion into preferred stock will be conditioned
upon all of the following:
(i) The Company shall meet each and every of the conditions for
listing without waiver or exception other than the net equity requirement which
shortfall may not be greater than $1,000,000.
(ii) The maximum amount of the Note convertible into preferred stock
will be no more than two-thirds (2/3) of the Purchase Price set forth on the
signature page hereto, without the consent of the Subscriber.
(iii) Conversions must be made by all Subscribers to the Initial
Offering in the same proportion as Notes purchased in the Initial Offering.
(iv) Application must have been made to NASDAQ or Amex for listing and
provisional approval granted subject only to the conversion of the Note into
preferred stock. The Company will send a copy of the listing application to the
Subscriber within five business days of transmission to NASDAQ or Amex.
(v) No Event of Default shall have occurred.
(vi) The Common Shares to be issued upon conversion of the preferred
stock will be registered in a registration statement in the same amounts and
manner set forth in Section 10 hereof.
(b) Additional Conversion. Provided that all other conditions for
conversion to Preferred Stock as described in Section 8.2(a) have been
satisfied, the Subscriber will convert up to an additional one-third (1/3) of
the Purchase Price provided such additional equity will satisfy the final
listing requirement for the NASDAQ or Amex listing.
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. Each date on which a
Notice of Conversion is actually received by the Company or is telecopied to the
Company in accordance with the provisions hereof shall be deemed a Conversion
Date. The Subscriber will transmit the original Note for receipt by the Company
within three business days after the 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 (and a Note
representing the balance of the Note not so converted ("Balance Note"), to the
Subscriber via express courier for receipt by such Subscriber within six (6)
business days after receipt by the Company of the Notice of Conversion (the
"Delivery Date").
(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, or a Note representing the unconverted
balance of a surrendered Note, 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 or late delivery of a Balance Note,
in the amount of $100 per business day for the first ten business days (and $200
per business day after the first ten business days) commencing two business days
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, or
Balance Note principal. 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, or
timely deliver a Balance Note, 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 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 five
(5) business days after request by the Subscriber or on the Delivery Date (if
requested by the Subscriber) a sum of money determined by multiplying the
principal amount of the Note designated by the Subscriber by 120%, 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 five (5) 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 and Put 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 and Put Note with respect to which the
determination of this proviso is being made on a Conversion Date, which would
result in beneficial ownership by the Subscriber and its affiliates of more than
9.99% of the outstanding shares of Common Stock of the Company on such
Conversion Date. For the purposes of the proviso 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 9.99%. The Subscriber may void the conversion
limitation described in this Section 9.3 upon 75 days prior notice to the
Company. The Subscriber may allocate which of the equity of the Company deemed
beneficially owned by the Subscriber shall be included in the 9.99% amount
described above and which shall be allocated to the excess above 9.99%.
9.4. Injunction - Posting of Bond. In the event a Subscriber shall elect to
convert a Note or part thereof, the Company may not refuse conversion based on
any claim that such Subscriber or any one associated or affiliated with such
Subscriber has been engaged in any violation of law, or for any other reason,
unless, an injunction from a court, on notice, restraining and or enjoining
conversion of all or part of said Note shall have been sought and obtained by
the Company 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 it 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 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. Optional Redemption. The Company will have the option of redeeming any
outstanding Notes and outstanding Put Notes ("Optional Redemption") by paying to
the Subscriber a sum of money equal to the principal amount of the Note or Put
Note together with accrued but unpaid interest thereon ("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 or Put 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 seven (7) 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 and Put Note principal and interest which was the
subject of the Notice of Redemption. A Notice of Redemption must be accompanied
by a certificate signed by the chief executive officer or chief financial
officer of the Company stating that the Company has on deposit and segregated
ready funds equal to the Redemption Amount. The Redemption Amount must be paid
in good funds to the Subscriber no later than the tenth (10th) business day
after the Redemption Date. In the event the Company fails to pay the Redemption
Amount by such date, then the Redemption Notice will be null and void and the
Company will thereafter have no further right to effect an Optional Redemption.
Such failure will also be deemed an Event of Default under the Note and Put
Note. Any Notice of Redemption must be given to all holders of Notes and Put
Notes issued in connection with the Initial Offering, in proportion to their
holdings of Note and Put 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 and Put Note
principal are included in a registration statement effective as of the
Redemption Date and the average closing price of the common stock on the
Principal Market for the twenty (20) consecutive trading days prior to the
Redemption Date is not less than $10 (subject to customary anti-dilution
adjustments) and the average daily trading volume during such period is not less
than 150,000 Common Shares per day.
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 121 days after the
Closing Date, but not later than four 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 Note and the Put Notes which are actually issued
(the Common Stock issued or issuable upon conversion or exercise of the
Securities, Put Securities and securities issued or issuable by virtue of
ownership of the Securities, and Put Securities, 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 30 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 forgoing
provisions, or Section 10.4 hereof, the Company may withdraw or delay or
suffer a delay of any registration statement referred to in this Section
10.1(ii) without thereby incurring any liability to the Seller.
(iii) If, at the time any written request for registration is received
by the Company pursuant to Section 10.1(i), the Company has determined to
proceed with the actual preparation and filing of a registration statement under
the 1933 Act in connection with the proposed offer and sale for cash of any of
its securities for the Company's own account, such written request shall be
deemed to have been given pursuant to Section 10.1(ii) rather than Section
10.1(i), and the rights of the holders of Registrable Securities covered by such
written request shall be governed by Section 10.1(ii). The Seller shall not have
the registration rights set forth in Section 10.1(i) and 10.1(ii) in relation to
any of the Registrable Securities that are included in an effective registration
statement in compliance with the time periods set forth in Section 10.2(b).
(iv) The Company shall file with the Commission within 35 days of the
Closing Date (the "Filing Date"), and use its reasonable commercial efforts to
cause to be declared effective a Form S-3 registration statement (or such other
form that it is eligible to use) within 90 days of the Closing Date in order to
register the Registrable Securities for resale and distribution under the Act.
The registration statement described in this paragraph must be declared
effective by the Commission within 90 days of the Closing Date (as defined
herein) ("Effective Date"). The Company will register pro rata on behalf of each
holder of Securities, not less than a number of shares of Common Stock in the
aforedescribed registration statement that is equal to 200% 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 and Put Notes which are issuable, and one
share of common stock for each common share issuable upon exercise of the
Warrants which are issuable in connection with the Initial Offering and the Put
(employing the Conversion Price that would result in the greater number of
Shares). The Registrable Securities shall be reserved and set aside exclusively
for the benefit of the Subscriber and Warrant Recipients, as the case may be,
and not issued, employed or reserved for anyone other than the Subscriber and
Warrant Recipients. 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) except as described on Schedule 10.1(iv) hereto.
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 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 later
of(i) two years after the later of the Closing Date or Put Closing Date; or (ii)
two years after the first day of the calendar month in which the registration
statement including the Registrable Securities is declared effective, 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. (The registration statement is not required to be
kept effective at any time when all the Registrable Securities may be resold as
free-trading stock without transfer or volume restrictions pursuant to Rule 144
of the Act);
(c) furnish to the Seller, and to each underwriter if any, such number of
copies of the registration statement and the prospectus included therein
(including each preliminary prospectus) as such persons reasonably may request
in order to facilitate the public sale or their disposition of the securities
covered by such registration statement;
(d) use its best efforts to register or qualify the Seller's Registrable
Securities covered by such registration statement under the securities or "blue
sky" laws of such jurisdictions as the Seller and in the case of an underwritten
public offering, the managing underwriter shall reasonably request, provided,
however, that the Company shall not for any such purpose be required to qualify
generally to transact business as a foreign corporation in any jurisdiction
where it is not so qualified or to consent to general service of process in any
such jurisdiction;
(e) list the Registrable Securities covered by such registration statement
with any securities exchange on which the Common Stock of the Company is then
listed;
(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 60 days after written
request by the Holder and not declared effective by the Commission within 120
days after such request [or the Filing Date and Effective Date, respectively, in
reference to the Registration Statement on Form S-3 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 60 days
of such written request, or is not declared effective by the Commission on or
prior to the date that is 120 days after such request, or (ii) the registration
statement on Form S-3 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 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 ("No Review"), or
(iii) any registration statement described in Sections 10.1(i), 10.1(ii) or
10.1(iv) is filed and declared effective but shall thereafter cease to be
effective (without being succeeded immediately by an additional registration
statement filed and declared effective) for a period of time which shall exceed
30 days in the aggregate per year but not more than 20 consecutive calendar days
(defined as a period of 365 days commencing on the date the Registration
Statement is declared effective) (each such event referred to in clauses (i),
(ii) and (iii) of this Section 10.4 is referred to herein as a "Non-Registration
Event"), then, for so long as such Non-Registration Event shall continue, the
Company shall pay, at the Subscriber's option, in cash or stock at the
applicable Conversion Price, as Liquidated Damages to each holder of any
Registrable
Securities an amount equal to two (2%) percent for the first thirty days or part
thereof and thereafter three (3%) percent per thirty days or part thereof during
the pendency of such Non-Registration Event, of (i) the principal of the Notes
issued in connection with the Initial Offering, whether or not converted; (ii)
the principal amount of Put Notes actually issued, 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 immediately upon 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 be deemed a Non-Registration Event to the extent
that all the Common Stock included in and issuable by virtue of the Notes, Put
Notes, Warrants and Registrable Securities is not included in an effective
registration statement as of and after the Effective Date at the Conversion
Price in effect from and after the Effective Date. Except in a No-Review
circumstance and provided the Company has filed the registration statement on or
before the Filing Date, in the event the registration statement described in
Section 10.1(iv) hereof is declared effective on or before 30 days after the
Effective Date, Liquidated Damages arising from the Company's failure to obtain
effectiveness on or before the Effective Date shall not be payable by the
Company, nor shall such non-timely effectiveness be an Event of Default under
Article III of the Note in connection only with such default. In any event, the
Liquidated Damages, if payable in connection with up to the first thirty days
after the Effective Date for the default described in the previous sentence,
shall be limited to $10,000 to be apportioned among all Subscribers to the
Initial Offering. It shall not be deemed a Non-Registration Event for the period
of time that such Non-Registration Event directly results from the Subscriber's
or Warrant Recipient's non-compliance with its obligations pursuant to this
Agreement and there is no other cause or reason for the occurrence of a
Non-Registration Event.
10.5. Expenses. All expenses incurred by the Company in complying with
Section 10, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including reasonable counsel
fees) incurred in connection with complying with state securities or "blue sky"
laws, fees of the National Association of Securities Dealers, Inc., transfer
taxes, fees of transfer agents and registrars, and costs of insurance are called
"Registration Expenses". All underwriting discounts and selling commissions
applicable to the sale of Registrable Securities, including any fees and
disbursements of any special counsel to the Seller, are called "Selling
Expenses". The Seller shall pay the fees of its own additional counsel, if any.
The Company will pay all Registration Expenses in connection with the
registration statement under Section 10. All Selling Expenses in connection with
each registration statement under Section 10 shall be borne by the Seller and
may be apportioned among the Sellers in proportion to the number of shares sold
by the Seller relative to the number of shares sold under such registration
statement or as all Sellers thereunder may agree.
10.6. Indemnification and Contribution.
(a) In the event of a registration of any Registrable Securities under the
Act pursuant to Section 10, the Company will indemnify and hold harmless the
Seller, each officer of the Seller, each director of the Seller, each
underwriter of such Registrable Securities thereunder and each other person, if
any, who controls such Seller or underwriter within the meaning of the 1933 Act,
against any losses, claims, damages or liabilities, joint or several, to which
the Seller, or such underwriter or controlling person may become subject under
the Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any registration
statement under which such Registrable Securities was registered under the Act
pursuant to Section 10, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse the Seller, each such underwriter and each such controlling
person for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company shall not be liable to the Seller to
the extent that any such damages arise out of or are based upon an untrue
statement or omission made in any preliminary prospectus if (i) the Seller
failed to send or deliver a copy of the final prospectus delivered by the
Company to the Seller with or prior to the delivery of written confirmation of
the sale by the Seller to the person asserting the claim from which such damages
arise, (ii) the final prospectus would have corrected such untrue
statement or alleged untrue statement or such omission or alleged omission, or
(iii) to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished by any such
Seller, or any such controlling person in writing specifically for use in such
registration statement or prospectus.
(b) In the event of a registration of any of the Registrable Securities
under the Act pursuant to Section 10, the Seller will indemnify and hold
harmless the Company, and each person, if any, who controls the Company within
the meaning of the Act, each officer of the Company who signs the registration
statement, each director of the Company, each underwriter and each person who
controls any underwriter within the meaning of the Act, against all losses,
claims, damages or liabilities, joint or several, to which the Company or such
officer, director, underwriter or controlling person may become subject under
the Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the registration
statement under which such Registrable Securities were registered under the Act
pursuant to Section 10, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse the Company and each such officer, director, underwriter and
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action, provided, however, that the Seller will be liable hereunder
in any such case if and only to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with information pertaining to such Seller, as such, furnished in
writing to the Company by such Seller specifically for use in such registration
statement or prospectus, and provided, further, however, that the liability of
the Seller hereunder shall be limited to the gross proceeds received by the
Seller from the sale of Registrable Securities covered by such registration
statement.
(c) Promptly after receipt by an indemnified party hereunder of notice of
the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
such indemnified party other than under this Section 10.6(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 10.6(c), except and only if and to the extent the indemnifying
party is prejudiced by such omission. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent it shall wish, to assume and undertake the defense thereof
with counsel satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 10.6(c) for any legal expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected, provided, however, that, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified parties shall have the right to select one separate
counsel and to assume such legal defenses and otherwise to participate in the
defense of such action, with the reasonable expenses and fees of such separate
counsel and other expenses related to such participation to be reimbursed by the
indemnifying party as incurred.
(d) In order to provide for just and equitable contribution in the event of
joint liability under the Act in any case in which either (i) the Seller, or any
controlling person of the Seller, makes a claim for indemnification pursuant to
this Section 10.6 but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 10.6 provides for indemnification in such case, or (ii)
contribution under the Act may be required on the part of the Seller or
controlling person of the Seller in circumstances for which indemnification is
provided under this Section 10.6; then, and in each such case, the Company and
the Seller will contribute to the aggregate losses, claims, damages or
liabilities to
which they may be subject (after contribution from others) in such proportion so
that the Seller is responsible only for the portion represented by the
percentage that the public offering price of its securities offered by the
registration statement bears to the public offering price of all securities
offered by such registration statement, provided, however, that, in any such
case, (y) the Seller will not be required to contribute any amount in excess of
the public offering price of all such securities offered by it pursuant to such
registration statement; unless such person is actually found guilty of
fraudulent misrepresentation (within the meaning of Section 10(f) of the Act);
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.
11.1. Obligation To Purchase.
(a) The Subscriber agrees to purchase from the Company on one occasion,
convertible notes ("Put Notes") in up to the principal amount set forth on the
signature page hereto for up to the aggregate amount of Put Note principal ("Put
Purchase Price") designated on the signature page hereto (the "Put").
Collectively the Put Notes, Warrants issuable in connection with the Put, and
Common Stock issuable upon conversion of the Put Notes and exercise of the
Warrants are referred to as the "Put Securities".) The Warrants issuable in
connection with the Put Notes are referred to herein as Warrants or Put
Warrants. Each Put Note will be identical to the Note except that the Maturity
Date will be two years from the Put Closing Date (as hereinafter defined). The
Maximum Base Price (as defined in the Note) of the Note will be the Maximum Base
Price for the Put Note. The Holders of the Put Securities are granted all the
rights, undertakings, remedies, liquidated damages and indemnification granted
to the Subscriber in connection with the Note, including but not limited to, the
rights and procedures set forth in Section 7, Section 9 and the registration
rights described in Section 10 hereof.
(b) The agreement to purchase the Put Notes is contingent on the following
any, some or all of which may be waived by the Subscriber:
(i) As of a Put Date and Put Closing Date (as hereinafter defined),
the Common Shares issuable upon conversion of a Put Note and exercise of Put
Warrants must be included in an effective registration statement described in
Section 10 hereof.
(ii) As of a Put Date and Put Closing Date, the Company will be a
reporting company with the class of Shares registered pursuant to Section 12(b)
or 12(g) of the Securities Exchange Act of 1934.
(iii) No material adverse change in the Company's business or business
prospects shall have occurred after the date of the most recent financial
statements included in the Reports. Material adverse change is defined as any
effect on the business, operations, properties, prospects, or financial
condition of the Company that is material and adverse to the Company and its
subsidiaries and affiliates, taken as a whole, and/or any condition,
circumstance, or situation that would prohibit or otherwise interfere with the
ability of the Company to enter into and perform any of its obligations under
this Agreement, or any other agreement entered into or to be entered into in
connection herewith, in any material respect. There shall not have been a
material negative restatement of the Company's financial statements included in
the Reports.
(iv) An Event of Default as described in Article III of the Note shall
not have occurred.
(v) The execution and delivery to the Subscriber of a certificate
signed by its chief executive officer representing the truth and accuracy of all
the Company's representations and warranties contained in this Subscription
Agreement as of the Put Date, and Put Closing Date and confirming the
undertakings contained herein, and representing the satisfaction of all
contingencies and conditions required for the exercise of the Put.
(vi) The Company's listing on, and compliance with the listing
requirements of the Principal Market.
(vii) The Company's not having received notice from NASD OTC Bulletin
Board, or any Principal Market that the Company is not in compliance with the
requirements for continued listing.
(viii) The execution by the Company and delivery to the Subscriber of
all required documents in relation to the Put set forth in Section 11.2 below
and such other documents which may be reasonably requested by the Subscriber.
(ix) No issuance of a SEC stop trade order.
(x) The Company shall have no knowledge that any of the foregoing
conditions shall not be true and accurate as of a date fifteen days after a Put
Closing Date.
11.2. Exercise of Put.
(a) The Company's right to exercise the Put commences on the actual
effective date of the registration statement described in Section 10.1(iv)
hereof and expires thirty (30) days after the Effective Date ("Put Exercise
Period").
(b) The Put may be exercised by the Company by giving the Subscriber
written notice of exercise ("Put Notice") during the Put Exercise Period in
relation to up to the maximum principal amount of Put Note that the Subscriber
has agreed to purchase subject to the limits described in this Agreement. The
date a Put Notice is given is a Put Date. Each Put Notice must be accompanied by
(i) the officer's certificate described in Section 11.1(b)(v) above; (ii) a
legal opinion relating to the Put Securities in form reasonably acceptable to
Subscriber substantially similar to the opinion annexed hereto as Exhibit C;
(iii) proof of effectiveness of the registration statement described in Section
10 above, together with five copies of the prospectus portion thereof; and (iv)
such other documents and certificates reasonably requested by the Subscriber.
(c) Unless otherwise agreed to by the Subscribers, Put Notices must be
given to all Subscribers in proportion to the amounts agreed to be purchased by
all Subscribers undertaking to purchase Put Notes in the Initial Offering.
(d) Payment by the Subscriber in relation to a Put Notice relating to a Put
must be made within twenty (20) business days after receipt of a Put Notice and
the items set forth in Section 11.2(b) above. Payment will be made against
delivery to the Subscriber and Warrant Recipients or an escrow agent to be
agreed upon by the Company and Subscriber, of the Put Securities, and delivery
to the Finders of the Put Commissions relating to the Put being exercised.
(e) The Company may exercise the Put subject to the following limitation:
The Company may not give the Subscriber a Put Notice in connection with
that amount of Put Note which could be converted as of the Put Date into a
number of shares of Common Stock which would be in excess of the sum of (y) the
number of shares of Common Stock beneficially owned by the Subscriber and its
affiliates on such Put Date, and (z) the number of shares of Common Stock
issuable upon the conversion of the Put Note with respect to which the
determination of this proviso is being made on a Put Date, which would result in
beneficial ownership by the Subscriber and its affiliates of more than 9.99% of
the outstanding shares of Common Stock of the Company on such Put Date. For the
purposes of the proviso 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 9.99%. The Subscriber may revoke the restriction described in this
paragraph upon 75 days prior notice to the Company. The Subscriber shall have
the right to determine which of the equity of the Company deemed beneficially
owned by the Subscriber shall be included in the 9.99% described above and which
shall be allocated to the excess above 9.99%.
(f) In the event the Company does not exercise the Put during the Put
Exercise Period for the entire Put amount, then the Subscriber may exercise the
Put in relation only to such Subscriber, by giving notice to the Company of such
exercise during the seven (7) business days following the Put Exercise Period.
11.3. Put Finders Fees. The Finders identified on Schedule B hereto shall
receive on each Put Closing Date aggregate Finder's Fees as described in Section
6 hereof in connection with the closing of each Put as set forth on Schedule B
hereto. Put Finder's Fees shall be payable only in
connection with the Put Purchase Price actually paid by a Subscriber. The Put
Finder's Fees shall be paid at each Put Closing. In the event there is more than
one Put Closing for all the Subscribers to the Initial Offering, the Company
shall pay reasonable legal fees to the attorneys for the Subscribers.
11.4. Warrants.
(a) The Company shall issue Put Warrants to the Warrant Recipients in the
amounts approved by Subscriber as designated on Schedule B hereto and as
described in Section 6 of this Subscription Agreement. The Put Warrants will be
identical to the Warrants except that the Expiration Date (as defined in the
Warrant) shall be three years from the Issue Date (as defined in the Warrant) of
the Put Warrant. The Purchase Price (as defined in the Warrant) of the Put
Warrant will be the same Purchase Price as determined for the Warrants issued in
connection with the Initial Offering.
(b) Failure to timely pay Finder's Fees, legal fees or deliver any Warrants
issuable in connection with the Initial Offering and Put shall be deemed an
Event of Default under the Note and a material breach of the Company's
obligations hereunder, for which no notice to cure is required unless such
default is due to the Escrow Agent.
11.5 Assignment of Put. Anything to the contrary herein notwithstanding,
the Subscriber may assign to another party, reasonably acceptable to the
Company, either before or after exercise of the Put by the Company, the
Subscriber's obligations and right to pay all or some of the Put Purchase Price
and receive the corresponding Put Securities. Such assignment must be in
writing. The assignment will be effective only if the assignee consents in
writing to be bound by all of the Subscriber's obligations to the Company in
connection with such assignment. Upon an effective assignment, the assignee will
succeed to all of the Subscriber's rights under this Subscription Agreement, and
all other agreements relating to the assigned portion of the Put.
11.6 Adjustments. The Conversion Price, trading prices described herein and
amount of Shares issuable upon conversion of the Notes and Put Notes and
exercise of Warrants shall be adjusted consistent with customary anti-dilution
adjustments.
12. (a) Right of First Refusal. Until 210 days after the actual effective
date of the Registration Statement described in Section 10.1(iv) hereof
("Exclusion Period"), the Subscriber shall be given not less than ten (10)
business days prior written notice of any proposed sale by the Company of its
Common Stock, other securities or debt obligations except (i) as disclosed in
the Reports or Other Written Information; (ii) stock or stock options granted to
employees or directors or consultants (not in connection with capital formation)
of the Company; (iii) an underwritten public offering at a per common share
price at not less than 200% of the Closing Price of the Common Stock on the
Closing Date; or (iv) non-financing issuances in connection with strategic
acquisitions or joint ventures provided the Common Stock components issued or
issuable in connection therewith are restricted from resale for not less than
one year from the closing date of the acquisition (these exceptions hereinafter
referred to as the "Excepted Issuances"). The Subscriber shall have the right
during the ten (10) business days following the notice to agree to purchase an
amount of Company Shares in the same proportion as being purchased in the
Initial Offering of those securities proposed to be issued and sold, in
accordance with the terms and conditions set forth in the notice of sale. In the
event such terms and conditions are modified during the notice period, the
Subscriber shall be given prompt notice of such modification and shall have the
right during the original notice period or for a period of ten (10) business
days following the notice of modification, whichever is longer, to exercise such
right. In the event the right of first refusal described in this Section is
exercised by the Subscriber and the Company thereby receives net proceeds from
such exercise, then commissions and fees will be paid by the Company to the
Finders in the same amounts as would be payable in connection with the offering
described in the notice of sale.
(b) Offering Restrictions. Except with respect to the Excepted Issuances,
the Company will not issue any equity, convertible debt or other securities
until 180 days after the actual effective date of the Registration Statement
described in Section 10.1(iv) hereof.
13. Miscellaneous.
(a) Notices. All notices or other communications given or made hereunder
shall be in writing and shall be personally delivered or deemed delivered the
first business day after being telecopied (provided that a copy is delivered by
first class mail) to the party to receive the same at
its address set forth below or to such other address as either party shall
hereafter give to the other by notice duly made under this Section: (i) if to
the Company, to Tech Laboratories, Inc., 000 Xxxxxxx Xxxxxx, Xxxxx Xxxxxxx, XX
00000, telecopier number: (000) 000-0000, with a copy by telecopier only to
Stursberg & Xxxxx, 000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, XX 00000-0000, Attn: Xxxxxx
Xxxxxxxxx, Esq., telecopier number: (000) 000-0000, and (ii) if to the
Subscriber, to the name, address and telecopy number set forth on the signature
page hereto, with a copy by telecopier only to Grushko & Xxxxxxx, P.C., 000
Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000, telecopier number: (212)
697-3575.
(b) Closing. The consummation of the transactions contemplated herein shall
take place at the offices of Grushko & Xxxxxxx, P.C., 000 Xxxxx Xxxxxx, Xxxxx
0000, 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"). The
closing date for the Put shall be the date on which Subscriber funds
representing the net amount due the Company from the Put Purchase Price is
transmitted to or on behalf of the Company ("Put 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 injuction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof or thereof, this being
in addition to any other remedy to which any of them may be entitled by law or
equity. Subject to Section 13(e) hereof, each of the Company and Subscriber
hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Nothing in this Section
shall affect or limit any right to serve process in any other manner permitted
by law.
(g) Confidentiality. The Company agrees that it will not disclose publicly
or privately the identity of the Subscriber unless expressly agreed to in
writing by the Subscriber or only to the extent required by law.
(h) Automatic Termination. This Agreement shall automatically terminate
without any further action of either party hereto if the Closing shall not have
occurred by the tenth (10th) business day following the date this Agreement is
accepted by the Subscriber.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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.
TECH LABORATORIES, INC.
A Delaware Corporation
By:______________________________
Dated: October ___, 2000
Purchase Price:
PUT
Put Note Purchase Price:
ACCEPTED: Dated as of October ____, 2000
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.
TECH LABORATORIES, INC.
A Delaware Corporation
By:______________________________
Dated: October ____, 2000
Purchase Price:
PUT
Put Note Purchase Price:
ACCEPTED: Dated as of October ____, 2000
By:______________________________
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.
TECH LABORATORIES, INC.
A Delaware Corporation
By:______________________________
Dated: October ____, 2000
Purchase Price:
PUT
Put Note Purchase Price:
ACCEPTED: Dated as of October ____, 2000
By:______________________________
