EXHIBIT 10.6
NAME OF SUBSCRIBER:_____________________________
TO: Sterling Financial Investment Group, Inc.
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AMENDED AND RESTATED SUBSCRIPTION AGREEMENT
This Amended and Restated Subscription Agreement (this "Agreement") is
being delivered to you in connection with your investment in a publicly-traded
company ("Pubco") and the anticipated merger (the "Merger") of DOBI Acquisition
Corp., a wholly-owned subsidiary of Pubco, with and into DOBI Medical Systems,
Inc., a Delaware corporation ("DOBI Medical" or the "Company"). Your obligation
to invest in Pubco shall be subject to, among other things, (a) the notification
to you of the identity of Pubco and (b) your receipt of the draft Current Report
on Form 8-K in accordance with Section 2.1 below. Sterling Financial Investment
Group, Inc. shall serve as the Placement Agent of Pubco (the "Placement Agent")
in conducting a private placement (the "Private Placement") of units ("Units"),
each Unit consisting of (i) 100,000 shares of Pubco's common stock ("Common
Stock") at a purchase price of $1.00 per share (the "Per Share Price"), and (ii)
a detachable, three-year warrant to purchase 50,000 shares of Common Stock
("Warrant" and, together with the Common Stock, "Securities"), at an exercise
price of $1.54 per share (the "Exercise Price"). The purchase price per Unit is
$100,000. All funds received in the Private Placement shall be held in escrow by
a banking institution (the "Escrow Agent") and, upon fulfillment of the other
conditions precedent set forth herein, shall be released from escrow and
delivered to Pubco at which time the securities subscribed for as further
described below shall, subject to Section 9 hereof, be delivered to you.
1. SUBSCRIPTION AND PURCHASE PRICE
1.1 SUBSCRIPTION. Subject to the conditions set forth in Section 2
hereof, the undersigned hereby subscribes for and agrees to purchase the number
of Units indicated on page 11 hereof on the terms and conditions described
herein. The minimum number of Units that may be purchased is one (1).
Subscriptions for lesser amounts may be accepted at the discretion of Pubco and
the Placement Agent.
1.2 PURCHASE OF SECURITIES. The undersigned understands and
acknowledges that the purchase price to be remitted to the Placement Agent in
exchange for the Unit(s) shall be $100,000 per Unit, for an aggregate purchase
price of $______________ (the "Aggregate Purchase Price"). The Securities
underlying the Units subscribed for hereunder shall be issued in two tranches.
The first tranche of such Securities (the "First Tranche") shall consist of
64.7% of the number of shares of Common Stock and the number of Warrants
underlying the Units subscribed for hereunder. The second tranche of such
Securities (the "Second Tranche") shall consist of 35.3% of the number of shares
of Common Stock and the number of Warrants underlying the Units subscribed for
hereunder. Payment for the Units subscribed for hereunder shall be made by the
undersigned, by check or wire transfer to the Escrow Agent, pursuant to the
terms of the Escrow Agreement attached hereto, (a) with respect to the First
Tranche, contemporaneously with the undersigned's delivery of this Agreement to
the Placement Agent and (b) with respect to the Second Tranche, within five (5)
Business Days (as hereinafter defined)
following receipt of notice from the Company or the Placement Agent that the
conditions to the consummation of the Final Closing (as defined in Section 2.2
hereof) set forth in Section 2.3 have been satisfied. The undersigned
understands and agrees that, subject to Sections 2.1(a) and 2.3 and applicable
laws, by executing this Agreement, it is entering into a binding agreement to
acquire both the First Tranche and the Second Tranche. The undersigned further
understands and acknowledges that the undersigned, pursuant to Section 9 hereof,
is pledging the shares of Common Stock deliverable at the Initial Closing (as
defined in Section 2.2 hereof) to the Company to secure the undersigned's
obligation to acquire the Second Tranche.
2. ACCEPTANCE AND CLOSING PROCEDURES
2.1 ACCEPTANCE OR REJECTION.
(a) The undersigned and the Placement Agent understand and
agree that this subscription shall be revocable by the undersigned up until five
(5) days after a Draft Form 8-K (as defined in Section 5.1 hereof) is prepared
and sent to the undersigned (at the address set forth on the signature page of
this Agreement) in accordance with the terms and conditions set forth in Section
4 hereof (the "Revocation Period"). Provided that the undersigned shall not
have, within the Revocation Period, delivered a written notice via facsimile to
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, LLP, counsel to Pubco (Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇) at
(▇▇▇) ▇▇▇-▇▇▇▇, electing to withdraw his subscription, the obligation of the
undersigned to purchase the Units shall become irrevocable, and the undersigned
shall be legally bound to purchase the Units subject to the terms set forth in
this Agreement.
(b) The undersigned understands and agrees that Pubco and the
Placement Agent reserve the right to reject this subscription for the Units in
whole or part in any order at any time prior to the Initial Closing if, in their
reasonable judgment, they deem such action in the best interest of Pubco,
notwithstanding the undersigned's prior receipt of notice of acceptance of the
undersigned's subscription.
(c) In the event of the revocation of this subscription by the
undersigned in accordance with Section 2.1(a), rejection by Pubco or the
Placement Agent in accordance with Section 2.1(b), or the sale of the Units is
not consummated by the Placement Agent for any reason, this Agreement and any
other agreement entered into between the undersigned and the Placement Agent
relating to this subscription shall thereafter have no force or effect, and the
Placement Agent shall promptly return or cause to be returned to the undersigned
the purchase price remitted to the Escrow Agent, without interest thereon or
deduction therefrom.
(d) Notwithstanding anything to the contrary contained in this
Agreement, in the event that the Private Placement is terminated, the Placement
Agent shall promptly return or cause to be returned to the undersigned the
purchase price remitted to the Escrow Agent, without interest thereon or
deduction therefrom. For the avoidance of doubt, Pubco shall not permit the
Private Placement to be consummated unless the Merger has been or is
simultaneously being consummated.
2.2 CLOSINGS.
The closing (the "Initial Closing") of the purchase and sale
of the First Tranche shall take place at the offices of ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, LLP,
counsel to Pubco, at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, or
such other place as determined by the Placement Agent, on the first (1st)
Business Day immediately following the Revocation Period (the "Initial
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Closing Date"), or such other date as is mutually agreed to by the parties and
the undersigned. The closing (the "Final Closing" and, together with the Initial
Closing, the "Closings") of the purchase and sale of the Second Tranche shall
take place at the aforementioned offices of ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, LLP, or such
other place as determined by the Placement Agent, as soon as reasonably
practicable following satisfaction of the conditions set forth in Section 2.3.
"Business Day" shall mean from the hours of 9:00 a.m. (E.S.T.) through 5:00 p.m.
(E.S.T.) of a day other than a Saturday, Sunday or other day on which commercial
banks in New York City are authorized or required to be closed.
2.3 CONDITIONS TO FINAL CLOSING.
(a) Notwithstanding anything to the contrary contained in this
Agreement, the Final Closing shall not occur until, and shall be expressly
contingent upon, the satisfaction of the following performance milestones: (i)
after the commencement of FDA Modular 5, at least 20 patient DOBI clinical test
scans have been completed; (ii) shipment of at least 10 revenue-producing and
production level ComfortScan(TM) systems; and (iii) Pubco's net loss (calculated
in accordance with generally accepted accounting principles) being not more than
10% greater on a cumulative basis than $(1,900,000) and $(1,200,000) for the two
fiscal quarters ended immediately following the Final Closing, respectively
(collectively, the "Performance Milestones").
(b) In the event the Performance Milestones are not satisfied
18 months after the Initial Closing, the undersigned will be released from its
obligation to fund the Second Tranche investment.
3. INVESTOR'S REPRESENTATIONS AND WARRANTIES
The undersigned hereby acknowledges, agrees with and
represents and warrants to the Placement Agent and its affiliates, as follows:
(a) The undersigned has full power and authority to enter into
this Agreement, the execution and delivery of which has been duly authorized, if
applicable, and this Agreement constitutes a valid and legally binding
obligation of the undersigned.
(b) The undersigned acknowledges his understanding that the
offering and sale of the Units is intended to be exempt from registration under
the Securities Act of 1933, as amended (the "Securities Act"), by virtue of
Section 4(2) of the Securities Act and the provisions of Regulation D (Rule 506)
promulgated thereunder ("Regulation D"). In furtherance thereof, the undersigned
represents and warrants to the Placement Agent and its affiliates as follows:
(i) The undersigned realizes that the basis for the
exemption from registration may not be available if, notwithstanding
the undersigned's representations contained herein, the undersigned is
merely acquiring the Units for a fixed or determinable period in the
future, or for a market rise, or for sale if the market does not rise.
The undersigned does not have any such intention.
(ii) The undersigned is acquiring the Unit(s) solely
for the undersigned's own beneficial account, for investment purposes,
and not with view to, or resale in connection with, any distribution of
the shares of Common Stock, including such shares into which the
Warrants are exercised, underlying such Unit(s).
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(iii) The undersigned has the financial ability to
bear the economic risk of his investment, has adequate means for
providing for his current needs and contingencies and has no need for
liquidity with respect to his investment in the Company;
(iv) _______________________ [insert name of
Purchaser Representative: if none, so state] has acted as the
undersigned's Purchaser Representative for purposes of the private
placement exemption under the Securities Act. If the undersigned has
appointed a Purchaser Representative (which term is used herein with
the same meaning as given in Rule 501(h) of Regulation D), the
undersigned has been advised by his Purchaser Representative as to the
merits and risks of an investment in the Company in general, and the
suitability of an investment in the Units for the undersigned in
particular; and
(v) The undersigned (together with his Purchaser
Representative(s), if any) has such knowledge and experience in
financial and business matters as to be capable of evaluating the
merits and risks of the prospective investment in the Units. If other
than an individual, the undersigned also represents it has not been
organized for the purpose of acquiring the Units.
(c) The information provided by the undersigned pursuant to
this Agreement is accurate and true in all respects, and the undersigned is an
"accredited investor," as that term is defined in Rule 501(a) of Regulation D.
(d) The undersigned (and his Purchaser Representative, if any)
has been furnished with a copy of the Confidential Private Placement Memorandum,
dated October 22, 2003, and the First Supplement to such Confidential Private
Placement Memorandum, dated November 20, 2003, in each case together with all
annexes thereto (as such documents may be amended or supplemented, the
"Memorandum"), relating to the private placement by Pubco of the Units.
(e) The undersigned is not relying on the Placement Agent or
its affiliates with respect to economic considerations involved in this
investment. The undersigned has relied on the advice of, or has consulted with
only the person(s), if any, named as Purchaser Representative(s) herein. Each
Purchaser Representative, if any, is capable of evaluating the merits and risks
of an investment in the Units as such are described in the Memorandum, and each
Purchaser Representative, if any, has disclosed to the undersigned in writing (a
copy of which is annexed to this Agreement) the specific details of any and all
past, present or future relationships, actual or contemplated, between himself
and the Placement Agent or any affiliate or subsidiary thereof.
(f) The undersigned represents, warrants and agrees that he
will not sell or otherwise transfer the shares of Common Stock (including such
shares into which the Warrants are exercisable) or Warrants without registration
under the Securities Act or an exemption therefrom, and fully understands and
agrees that he must bear the economic risk of his purchase because, among other
reasons, neither the shares of Common Stock nor the Warrants have been
registered under the Securities Act or under the securities laws of any state
and, therefore, cannot be resold, pledged, assigned or otherwise disposed of
unless they are subsequently registered under the Securities Act and under the
applicable securities laws of such states, or an exemption from such
registration is available. In particular, the undersigned is aware that the
shares of Common Stock and Warrants are "restricted securities," as such term is
defined in Rule 144
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promulgated under the Securities Act ("Rule 144"), and they may not be sold
pursuant to Rule 144 unless all of the conditions of Rule 144 are met. The
undersigned also understands that, except as otherwise provided herein, the
Company is under no obligation to register the shares of Common Stock or
Warrants on his behalf or to assist him in complying with any exemption from
registration under the Securities Act or applicable state securities laws. The
undersigned understands that any sales or transfers of the shares of Common
Stock and Warrants are further restricted by state securities laws and the
provisions of this Agreement.
(g) No representations or warranties have been made to the
undersigned by Pubco, DOBI Medical or the Placement Agent, or any of their
respective officers, employees, agents, affiliates or subsidiaries, other than
any representations of the Placement Agent contained herein and in the
Memorandum, and in subscribing for Units the undersigned is not relying upon any
representations other than any contained herein or in the Memorandum.
(h) The undersigned understands and acknowledges that his
purchase of the Units is a speculative investment that involves a high degree of
risk and the potential loss of his entire investment.
(i) The undersigned's overall commitment to investments that
are not readily marketable is not disproportionate to the undersigned's net
worth, and an investment in the Units will not cause such overall commitment to
become excessive.
(j) The undersigned understands and agrees that the
certificates for the shares of Common Stock (including such shares into which
the Warrants are exercisable) and Warrants shall bear substantially the
following legend until (i) such securities shall have been registered under the
Securities Act and effectively disposed of in accordance with a registration
statement that has been declared effective or (ii) in the opinion of counsel for
the Company such securities may be sold without registration under the
Securities Act as well as any applicable "blue sky" or state securities laws:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
APPLICABLE STATE SECURITIES LAWS. SUCH SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT PURPOSES AND MAY NOT BE OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE,
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FILED BY THE ISSUER WITH THE SECURITIES AND EXCHANGE COMMISSION
COVERING SUCH SECURITIES UNDER THE SECURITIES ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED.
(k) The foregoing representations, warranties and agreements
shall survive the Closings.
4. PUBCO'S REPRESENTATIONS AND WARRANTIES
Pubco hereby acknowledges, agrees with and represents and warrants to
each of the undersigned, as follows:
(a) Pubco has the corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder. This Agreement
has been duly authorized,
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executed and delivered by Pubco and is valid, binding and enforceable against
Pubco in accordance with its terms.
(b) The Units, Common Stock and Warrants to be issued to the
undersigned pursuant to this Agreement, when issued and delivered in accordance
with the terms of this Agreement, will be duly and validly issued and will be
fully paid and nonassessable.
(c) Neither the execution and delivery nor the performance of
this Agreement by Pubco will conflict with Pubco's Certificate of Incorporation,
as amended, or By-laws, or result in a breach of any terms or provisions of, or
constitute a default under, any material contract, agreement or instrument to
which Pubco is a party or by which Pubco is bound.
(d) After giving effect to the transactions contemplated by
this Agreement and immediately after the Final Closing, Pubco will have the
outstanding capital stock as described in the Memorandum.
(e) The information contained in the Memorandum is true and
correct in all material respects as of its date.
5. COVENANTS
5.1 PREPARATION AND DELIVERY OF THE DRAFT FORM 8-K; WITHDRAWAL OF
SUBSCRIPTION. At least five (5) days prior to the date of closing of the Merger,
the Company shall prepare and deliver to the undersigned via overnight courier
or facsimile, a draft copy of the Current Report on Form 8-K (the "Draft Form
8-K") proposed to be filed by Pubco, which shall describe the terms and
conditions of the Merger, in accordance with the requirements of the Securities
Exchange Act of 1934 and the Accounting and Financial Reporting Interpretations
and Guidance issued by the accounting staff members of the Division of Corporate
Finance of the Securities and Exchange Commission on March 31, 2001, as the same
relates to "Reverse Acquisitions-Reporting Issues."
5.2 REGISTRATION RIGHTS; LOCK-UP.
(a) The Company shall file a registration statement (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC") covering the resale of the shares of Common Stock (including such shares
into which the Warrants are exercisable) on or around, but not before, April 1,
2004. The Company shall use its best efforts to have the Registration Statement
declared effective by the SEC as soon as possible after the initial filing. The
Company will maintain the effectiveness of the Registration Statement for two
(2) years after the date of closing of the Merger; provided that, if at any time
or from time to time after the date of effectiveness of the Registration
Statement, the Company notifies the undersigned in writing of the existence of a
Potential Material Event (as defined below), the undersigned shall not offer or
sell any shares of Common Stock, or engage in any other transaction involving or
relating to such shares, from the time of the giving of notice with respect to a
Potential Material Event until the Company notifies the undersigned that such
Potential Material Event either has been disclosed to the public or no longer
constitutes a Potential Material Event; provided, further that, the Company may
not suspend the right of the undersigned pursuant to this Section 5.2(a) for
more than 90 days in the aggregate. "Potential Material Event" means the
possession by the Company of material information regarding a potential
transaction beneficial to the Company or its stockholders not ripe for
disclosure in a registration statement, which shall be evidenced by
determinations in good faith by the Board of Directors of the Company that
disclosure of such
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information in the registration statement would be detrimental to the business
and affairs of the Company.
(b) If the Company fails to (i) file the Registration
Statement with the SEC prior to May 1, 2004, or (ii) subject to Section 5.2(a)
and Section 5.2(c), maintain the effectiveness of the Registration Statement for
two (2) years after the date of the closing of the Merger, the Company shall be
obligated to issue to the undersigned additional shares of Common Stock computed
as follows: on the first day that the Company has failed to file, or to maintain
the effectiveness of, the Registration Statement, as the case may be (the "First
Determination Date"), the Company shall determine the number of shares of Common
Stock entitled to the benefit of the registration rights set forth in this
Section 5.2 that are held by the undersigned (the "Subject Shares") and the
number of shares purchasable pursuant to Warrants held by the undersigned (the
"Subject Warrants" and, together with the Subject Shares, the "Subject
Securities"). Within fifteen (15) days following the First Determination Date,
the Company shall issue to the undersigned shares of Common Stock equal to 2% of
the Subject Securities (the "Penalty Shares"). Penalty Shares shall also be
issuable upon the expiration of each 30-day period following the First
Determination Date during which the Company has continued to fail to obtain
effectiveness of, or maintain effectiveness of, the Registration Statement, as
the case may be (the expiration date of each such 30-day period being a
"Subsequent Determination Date"). The number of Penalty Shares issuable
following each Subsequent Determination Date shall be determined and issued in
accordance with this section on the same basis applicable to the First
Determination Date; provided, however, that Penalty Shares previously issued to
the undersigned shall be excluded from the calculation of Subject Securities.
Notwithstanding the foregoing, the Company shall not be obligated to issue to
the undersigned in respect of the Penalty an aggregate number of shares of
Common Stock greater than 12% of the Subject Securities held by the undersigned
as of the first day of the last month in which payments in respect of the
Penalty are required to be made.
(c) The Company shall notify the undersigned at any time when
a prospectus relating thereto is required to be delivered under the Securities
Act, upon discovery that, or upon the happening of any event as a result of
which, the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing. At the
request of the undersigned, the Company shall also prepare, file and furnish to
the undersigned a reasonable number of copies of a supplement to or an amendment
of such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such shares, such prospectus shall not include an 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 in light of
the circumstances then existing. The undersigned agrees not to offer or sell any
shares covered by the Registration Statement after receipt of such notification
until the receipt of such supplement or amendment.
(d) The Company may request the undersigned to furnish the
Company such information with respect to the undersigned and the undersigned's
proposed distribution of shares of Common Stock pursuant to the Registration
Statement as the Company may from time to time reasonably request in writing or
as shall be required by law or by the SEC in connection therewith, and the
undersigned agrees to furnish the Company with such information.
(e) The undersigned shall not publicly sell or transfer,
contract to sell or transfer, or otherwise dispose of (a "Transfer") any Common
Stock beneficially owned by the undersigned for 180 days after the date of
closing of the Merger. From 180 days after the date of
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closing of the Merger to and through the one-year anniversary of the date of
closing of the Merger, the undersigned shall be permitted to Transfer the Common
Stock beneficially owned by the undersigned at a rate of 5% of the undersigned's
initial holdings per calendar month (or allocable portion thereof), and from the
one-year anniversary to and through the second-year anniversary of the date of
closing of the Merger, the undersigned shall be permitted to Transfer the Common
Stock beneficially owned by the undersigned at a rate of 10% of the
undersigned's initial holdings per calendar month (or allocable portion
thereof), in each case subject to applicable securities laws. Notwithstanding
the foregoing, (i) in the event the Company engages an underwriter or placement
agent during the first year after the date of closing of the Merger to raise a
minimum of $5,000,000 through the sale of Common Stock and/or other equity
securities, in a public offering or private placement, the undersigned will, if
required by, and upon notice from, the underwriter or placement agent, refrain
from making any Transfers in the course of such offering, but, in any event, for
not more than 90 days, and (ii) the shares of Common Stock issuable upon
exercise of the Warrants shall not be subject to the lock-up provisions
described above.
6. ANTI-DILUTION PROVISIONS.
6.1 ANTI-DILUTION ADJUSTMENT FOR SALE OF DISCOUNTED COMMON STOCK.
(a) Subject to Section 6.1(c), if Pubco shall, following any
Closing, sell shares of its Common Stock for a consideration per share less than
the Per Share Price, then the Per Share Price shall be adjusted immediately
thereafter so that it shall equal the price determined by multiplying the Per
Share Price by a fraction, the numerator of which shall be the sum of the number
of shares of Common Stock outstanding immediately prior to the sale of such
additional shares and the number of shares of Common Stock which the aggregate
consideration received for the issuance of such additional shares would purchase
at the Per Share Price, and the denominator of which shall be the number of
shares of Common Stock outstanding immediately after the sale of such additional
shares. Whenever any adjustment is made pursuant to this Section 6.1(a), the
number of shares of Common Stock issuable pursuant to this Agreement shall be
adjusted pursuant to Section 6.3 hereof, and such additional shares shall be
delivered to the Subscriber pursuant to Section 6.5 hereof.
(b) Adjustments to the Per Share Price pursuant to this
Section 6.1 shall be made successively whenever an issuance of shares triggering
such an adjustment is made, subject to Section 6.6 hereof.
(c) Notwithstanding anything to the contrary in this Section
6.1, no adjustment to the Per Share Price shall be made pursuant to this Section
6.1 in the case of shares issued: (i) in connection with any dividend or
distribution on, or subdivision, reclassification or combination of, the
outstanding shares of Common Stock of Pubco; (ii) upon the exercise of options
granted to Pubco's officers, directors, employees and consultants under a plan
or plans adopted by Pubco's Board of Directors and approved by its stockholders,
if such shares would otherwise be included in this Section 6.1; (iii) upon the
exercise of stock options, warrants, convertible securities and convertible
debentures outstanding as of the date hereof; (iv) to shareholders of any
corporation which merges into Pubco in proportion to their stock holdings of
such corporation immediately prior to such merger, upon such merger; or (v)
pursuant to any other anti-dilution provision affecting Pubco securities.
6.2 ANTI-DILUTION ADJUSTMENT FOR SALE OF DISCOUNTED CONVERTIBLE
STOCK.
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(a) Subject to Section 6.2(c), if Pubco shall, following any
Closing, issue any equity or debt securities convertible or excercisable into or
exchangeable for its Common Stock for a consideration per share of Common Stock
initially deliverable upon conversion or exchange of such securities (determined
as provided in Section 6.4 below) less than the Per Share Price, then the Per
Share Price shall be adjusted immediately thereafter so that it shall equal the
price determined by multiplying the Per Share Price by a fraction, the numerator
of which shall be the sum of the number of shares of Common Stock outstanding
immediately prior to the issuance of such securities and the number of shares of
Common Stock which the aggregate consideration received for such securities
would purchase at the Per Share Price, and the denominator of which shall be the
sum of the number of shares of Common Stock outstanding immediately prior to
such issuance and the maximum number of shares of Common Stock of Pubco
deliverable upon conversion of or in exchange for such securities at the initial
conversion or exchange price or rate. Whenever any adjustment is made pursuant
to this Section 6.2(a), the number of shares of Common Stock issuable pursuant
to this Agreement shall be adjusted pursuant to Section 6.3 hereof, and such
additional shares shall be delivered to the Subscriber pursuant to Section 6.5
hereof.
(b) Adjustments to the Per Share Price pursuant to this
Section 6.2 shall be made successively whenever an issuance of shares triggering
such an adjustment is made, subject to Section 6.6 hereof.
(c) Notwithstanding anything to the contrary in this Section
6.2, no adjustment to the Per Share Price shall be made pursuant to this Section
6.2 in the case of securities issued: (i) in transactions where Pubco has fixed
a record date for the issuance of rights or warrants to all holders of its
Common Stock entitling them to subscribe for or purchase shares of Common Stock
(or securities convertible into Common Stock) at a price (or having a conversion
price per share) less than the Per Share Price on such record dates; (ii) in
transactions where has Pubco distributed to the holders of its Common Stock
evidences of its indebtedness or assets (excluding cash dividends or
distributions and dividends or distributions or subscription rights or
warrants); or (iii) any of the transactions described in Section 6.1(c) hereof
(with any reference in Section 6.1(c) to price or quantity of shares issued
being understood, for purposes of this Section 6.2(c), to refer to the aggregate
price or quantity, as applicable, of the shares of Common Stock into which such
securities are convertible or exchangeable).
6.3 ADJUSTMENT OF SECURITIES. Whenever the Per Share Price is adjusted
pursuant to Sections 6.1 and 6.2 above, the number of shares of Common Stock
issuable pursuant to this Agreement shall simultaneously be adjusted by
multiplying the number of shares of Common Stock issuable hereunder by the Per
Share Price and dividing the product so obtained by the Per Share Price, as
adjusted.
6.4 COMPUTATION OF CERTAIN CONSIDERATION. For purposes of any
computation with respect to the consideration received pursuant to Sections 6.1
and 6.2 above, the following shall apply:
(a) in the case of the issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash, provided that in no
case shall any deduction be made for any commissions, discounts or other
expenses incurred by Pubco for any underwriting of the issue or otherwise in
connection therewith;
(b) in the case of the issuance of shares of Common Stock for
a consideration in whole or in part other than cash, the consideration other
than cash shall be
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deemed to be the fair market value thereof as determined in good faith by the
Board of Directors of Pubco (irrespective of the accounting treatment thereof),
whose determination shall be conclusive; and
(c) in the case of the issuance of securities convertible or
exercisable into or exchangeable for shares of Common Stock, the aggregate
consideration received therefor shall be deemed to be the consideration received
by Pubco for the issuance of such securities plus the additional minimum
consideration, if any, to be received by Pubco upon the conversion or exchange
thereof (the consideration in each case to be determined in the same manner as
provided in clauses (a) and (b) of this Section 6.4).
6.5 NOTICE OF ADJUSTMENT. Whenever the Per Share Price is adjusted as
herein provided, Pubco shall promptly, but no later than 10 days after any
request for such an adjustment by any Subscriber, cause a notice setting forth
the adjusted Per Share Price and adjusted number of shares of Common Stock
issuable hereunder, and, if requested, information describing the transactions
giving rise to such adjustments, to be mailed to the Subscribers at their last
addresses appearing in the share register, and shall cause a certified copy
thereof to be mailed to its transfer agent, if any. Pubco may retain a firm of
independent certified public accountants selected by the Board of Directors (who
may be the regular accountants employed by Pubco) to make any computation
required by this Section 6, and a certificate signed by such firm shall be
conclusive evidence of the correctness of such adjustment. Pubco shall, within
thirty (30) days of any anti-dilution adjustment pursuant to this Section 6,
issue and deliver to the Subscriber certificates evidencing the shares of Common
Stock to be issued pursuant to this Section 6.
6.6 TERMINATION OF ANTI-DILUTION PROVISIONS. The provisions of this
Section 6, other than Section 6.7 hereof, shall terminate and be of no further
force or effect on the date which is the earlier to occur of the following: (i)
eighteen (18) months following the completion of the Merger, or (ii) the
completion of an equity financing, following the completion of this Offering, in
which the gross proceeds received by Pubco are not less than Five Million
Dollars ($5,000,000).
6.7 ANTI-DILUTION PROVISIONS FOR WARRANTS. The shares of Common Stock
underlying the Warrants shall be entitled to the anti-dilution protections set
forth in Section 5(d) of the Warrant.
7. USE OF PROCEEDS
The Company shall use the net proceeds from the offering of the Units
in accordance with the "Use of Proceeds" section of the Confidential Private
Placement Memorandum dated October 22, 2003, and the First Supplement thereto
dated November 20, 2003. Upon receipt of the proceeds of this Offering from the
Escrow Agent, the Company shall deposit and maintain the net proceeds in a
segregated bank account and funds shall be released into the Company's operating
account in a manner consistent with foregoing plan and upon periodic
authorization from the Board of Directors of the Company.
8. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ PROHIBITION; INDEMNITY
(a) Commencing as of the date upon which the Draft Form 8-K is
sent to the undersigned and until the filing by the Company of the Form 8-K with
the SEC, the undersigned hereby agrees to (i) refrain from (a) engaging in any
transactions with respect to the capital stock of the Company or securities
exercisable or convertible into or exchangeable for any shares of
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capital stock of the Company, and (b) entering into any transaction which would
have the same effect, or entering into any swap, hedge or other arrangement that
transfers, in whole or in part, any of the economic consequences of ownership of
the capital stock of the Company and (ii) indemnify and hold harmless the
Company, the Placement Agent, and their respective officers and directors,
employees and affiliates and each other person, if any, who controls any of the
foregoing, against any loss, liability, claim, damage and expense whatsoever
(including, but not limited to, any and all expenses whatsoever reasonably
incurred in investigating, preparing or defending against any litigation
commenced or threatened or any claim whatsoever) arising out of or based upon
any violation of this Section 8 by the undersigned.
(b) The undersigned agrees to indemnify and hold harmless the
Company, the Placement Agent, the Escrow Agent and their respective officers and
directors, employees and affiliates and each other person, if any, who controls
any of the foregoing, against any loss, liability, claim, damage and expense
whatsoever (including, but not limited to, any and all expenses whatsoever
reasonably incurred in investigating, preparing or defending against any
litigation commenced or threatened or any claim whatsoever) arising out of or
based upon any false representation or warranty by the undersigned, or the
undersigned's breach of, or failure to comply with, any covenant or agreement
made by the undersigned herein or in any other document furnished by the
undersigned to the Company, its officers and directors, employees and its
affiliates and each other person, if any, who controls any of the foregoing in
connection with this transaction.
9. PLEDGE AND LIQUIDATED DAMAGES
9.1 PLEDGE. The undersigned hereby grants to the Company a continuing
and unconditional security interest in the shares of Common Stock issued to the
undersigned at the Initial Closing and all other rights, contractual or
otherwise, now existing or hereafter arising with respect to the shares of
Common Stock issued to the undersigned at the Initial Closing and all dividends,
cash, securities, instruments and other property from time to time paid, payable
or otherwise distributed in respect of or in exchange for any or all of the
undersigned's interests in such shares to secure the prompt, timely and complete
payment of the amount payable to the Company hereunder by the undersigned at the
Final Closing. All of the certificates evidencing the Common Stock issued to the
undersigned at the Initial Closing will be delivered to the Company, accompanied
by a stock power in the form of Exhibit A attached hereto and made a part
hereof, duly executed in blank. So long as the security interest granted herein
is not terminated, the undersigned will keep the shares of Common Stock free of
all security interests, voting trust agreements, or other instruments and
encumbrances, except the security interest granted herein. So long as the Final
Closing has not been consummated by the undersigned and the undersigned has not
failed to make payment thereat when due, the undersigned shall be entitled to
exercise any and all voting and other rights pertaining to such shares. The
security interest granted herein shall terminate and the shares of Common Stock
issued to the undersigned at the Initial Closing shall be delivered to the
undersigned, upon the earliest of (i) the timely and complete payment of the
amount payable by the undersigned to the Company at the Final Closing, (ii) the
date the shares of Common Stock are no longer subject to the lock-up provisions
of Section 5.2(e) and (iii) 18 months after the Initial Closing in the event the
Performance Milestones are not satisfied by such date; provided, however, that
in the case of clause (ii), the security interest shall terminate only with
respect to that number of shares of Common Stock as to which the lock-up
provisions have expired. The foregoing provisions of this Section 9.1 shall not
apply to the Warrants issued to the undersigned at the Initial Closing or the
shares of Common Stock into which such Warrants are exercisable.
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9.2 LIQUIDATED DAMAGES. The undersigned understands and acknowledges
that its failure to deliver the amount payable by the undersigned at the Final
Closing will cause serious damage to the Company and on account of the great
difficulty if not impossibility of ascertaining and proving the amount of such
damage, the undersigned authorizes and appoints the Company, as liquidated
damages sustained by the Company resulting from such nonpayment, as the
undersigned's attorney-in-fact to transfer to the Company all or any part of the
shares of Common Stock purchased in the First Tranche. It is further agreed that
such shares, without proof of the same, shall be deemed to represent damages
actually sustained by the Company by reason of such nonpayment on or prior to
the Final Closing by the undersigned.
10. MISCELLANEOUS PROVISIONS
10.1 MODIFICATION. Neither this Agreement, nor any provisions hereof,
shall be waived, modified, discharged or terminated except by an instrument in
writing signed by the party against whom any waiver, modification, discharge or
termination is sought.
10.2 NOTICES. Any party may send any notice, request, demand, claim or
other communication hereunder to the intended recipient at the address set forth
above using any other means (including personal delivery, expedited courier,
messenger service, fax, ordinary mail or electronic mail), but no such notice,
request, demand, claim or other communication will be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims and
other communications hereunder are to be delivered by giving the other parties
notice in the manner herein set forth.
10.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.4 BINDING EFFECT. Except as otherwise provided herein, this
Agreement shall be binding upon, and inure to the benefit of, the parties to
this Agreement and their heirs, executors, administrators, successors, legal
representatives and assigns. If the undersigned is more than one person or
entity, the obligation of the undersigned shall be joint and several and the
agreements, representations, warranties and acknowledgments contained herein
shall be deemed to be made by, and be binding upon, each such person or entity
and his or its heirs, executors, administrators, successors, legal
representatives and assigns.
10.5 ASSIGNABILITY. This Agreement is not transferable or assignable by
the undersigned. This Agreement shall be transferable or assignable by the
Placement Agent to the Company.
10.6 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without giving effect to
conflicts of law principles.
[Intentionally Left Blank]
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ALL SUBSCRIBERS MUST COMPLETE THIS PAGE
IN WITNESS WHEREOF, the undersigned has executed this Agreement on the ___
day of ____________ 2003.
________________________ X $100,000 for each Unit = $_____________________;
Units subscribed for Aggregate Purchase Price
Payable $__________ [64.7%] in the First Tranche, and $__________ [35.3%] in the
Second Tranche.
Manner in which Title is to be held (Please Check One):
1. ___ Individual 7. ___ Trust/Estate/Pension or Profit sharing Plan
Date Opened:_______________
2. ___ Joint Tenants with Right of 8. ___ As a Custodian for
Survivorship ___________________________
Under the Uniform Gift to Minors Act of the
State of
___________________________
3. ___ Community Property 9. ___ Married with Separate Property
4. ___ Tenants in Common 10. ___ ▇▇▇▇▇
5. ___ Corporation/Partnership/ 11. ___ Tenants by the Entirety
Limited Liability Company
6. ___ IRA
IF MORE THAN ONE SUBSCRIBER, EACH SUBSCRIBER MUST SIGN.
INDIVIDUAL SUBSCRIBERS MUST COMPLETE PAGE 15.
SUBSCRIBERS WHICH ARE ENTITIES MUST COMPLETE PAGE 16.
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EXECUTION BY NATURAL PERSONS
--------------------------------------------------------------------------------
Exact Name in Which Title is to be Held
--------------------------------------- ---------------------------------------
Name (Please Print) Name of Additional Purchaser
--------------------------------------- ---------------------------------------
Residence: Number and Street Address of Additional Purchaser
--------------------------------------- ---------------------------------------
City, State and Zip Code City, State and Zip Code
--------------------------------------- ---------------------------------------
Social Security Number Social Security Number
--------------------------------------- ---------------------------------------
Telephone Number Telephone Number
--------------------------------------- ---------------------------------------
Fax Number (if available) Fax Number (if available)
--------------------------------------- ---------------------------------------
E-Mail (if available) E-Mail (if available)
--------------------------------------- ---------------------------------------
(Signature) (Signature of Additional Purchaser)
ACCEPTED this ___ day of _________ 2003, on behalf of Pubco.
By:
--------------------------------------------
Name:
Title:
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EXECUTION BY SUBSCRIBER WHICH IS AN ENTITY
(Corporation, Partnership, Trust, Etc.)
--------------------------------------------------------------------------------
Name of Entity (Please Print)
Date of Incorporation or Organization:__________________________________________
State of Principal Office:______________________________________________________
Federal Taxpayer Identification Number:_________________________________________
--------------------------------------------
Office Address
--------------------------------------------
City, State and Zip Code
--------------------------------------------
Telephone Number
--------------------------------------------
Fax Number (if available)
--------------------------------------------
E-Mail (if available)
By:___________________________________________________
Name:
Title:
-------------------------------------------------------
[seal]
Attest:________________________________________________
(If Entity is a Corporation)
ACCEPTED this ___ day of _________ 2003, on behalf of Pubco.
By:
--------------------------------------------
Name:
Title:
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IRREVOCABLE STOCK POWER
FOR VALUE RECEIVED, hereby sells, assigns and transfer unto DOBI
Medical Systems, Inc. or its successor and assigns, ( ) shares of common stock
of _____________________, a _____________ corporation, standing in the
undersigned's name on the books of such corporation represented by
Certificate(s) No. __________, as attorney to transfer such stock on the books
of such corporation with full power of substitution in the premises.
Dated: ____________, 2003
--------------------------------------------
Name:
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