SUBSCRIPTION AGREEMENT
You (the "Subscriber") hereby agree to purchase, and TelePad Corporation,
a Delaware corporation (the "Company") hereby agrees to issue and to sell to the
Subscriber, a convertible note of the Company in the principal amount as set
forth on the signature page hereof and in the form annexed as Exhibit A (the
"Note"), convertible in accordance with the terms thereof into shares of the
Company's Class A common stock ("Common Stock") and issue only to the placement
agents (identified on Schedule D hereto, "Placement Agents") 13,333 Common Stock
Purchase Warrants for each $100,000 of Note principal (the "Warrants"). (The
common shares issuable upon conversion of the Note and exercise of the Warrants
are sometimes referred to herein as the "Company Shares", "Shares" or "Common
Shares"). (The Note, the Company Shares, the Warrants and the shares of Common
Stock issuable upon conversion of the Note and exercise of the Warrants 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 and issue and deliver the Warrants to the Placement Agents
against payment, by federal funds (U.S.) wire transfer by the Subscriber of the
amount designated on the signature page hereof pursuant to the terms of a Funds
Escrow Agreement annexed hereto as Exhibit B.
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 and has read the Company's most recent Form 10-K for the year
ended December 31, 1997 and subsequent Forms 10-Q and 8-K as filed with the U.S.
Securities and Exchange Commission (the "Commission") (collectively, with
exhibits thereto, 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, 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 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.
(c) PURCHASE OF NOTES. On the Closing Date, the Subscriber
will purchase its Notes 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
Securities Act of 1933, as amended (the "1933 Act") by reason of their issuance
in a transaction that does not require registration under the 1933 Act, and that
such Securities must be held unless a subsequent disposition is registered under
the 1933 Act or is exempt from such registration. The Subscriber agrees that if,
in the future, the Subscriber should decide to dispose of any of the Securities
acquired by it pursuant to this Agreement, the Subscriber will do so only
pursuant to a registration statement or by disposition exempt from registration
requirements under the 1933 Act.
(e) LEGEND. (i) The Notes which the Subscriber is acquiring
pursuant to this Agreement 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 OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO TELEPAD CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED."
(ii) The Shares of Common Stock issuable upon the
conversion of the Notes which the Subscriber is acquiring pursuant to this
Agreement shall bear the following legends:
"THESE SHARES OF COMMON STOCK HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SHARES OF COMMON STOCK MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO TELEPAD CORPORATION
THAT SUCH REGISTRATION IS NOT REQUIRED."
2
"THESE SHARES OF COMMON STOCK ARE SUBJECT TO THE TERMS
AND PROVISIONS OF THE SHARES ESCROW AGREEMENT EXECUTED
BY AND AMONG TELEPAD CORPORATION, GRUSHKO & XXXXXXX, AS
ESCROW AGENT, AND THE PARTIES IDENTIFIED ON SCHEDULE A
THERETO. THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT IN
CONFORMITY WITH THE TERMS AND PROVISIONS OF SUCH SHARES
ESCROW AGREEMENT."
(f) 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 state of its incorporation and has the requisite
corporate power to own its properties and to carry on its 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 have 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.
(d) ADDITIONAL ISSUANCES. There are no outstanding
agreements or preemptive or similar rights affecting the Company's common stock
and no outstanding rights,
3
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 is required for execution of this
Agreement, including, without limitation issuance and sale of the Securities, or
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 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 of 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 except as otherwise provided
pursuant to this Agreement;
(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 Warrants are exercised according to their terms, as the case may
be, the Shares, and the Warrants and common stock issuable upon exercise of the
Warrants, will be duly and validly issued, fully paid and nonassessable, except
as otherwise provided in this Agreement, and if registered under the Securities
Act of 1933, as amended, or otherwise exempt, free trading and unrestricted;
4
(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;
(iv) will not subject the holders thereof to personal
liability by reason of being such holders; and
(v) the Company Shares, are quoted on, and are listed
for trading on the NASDAQ SmallCap Market. Except as set forth on Schedule
2(g)(v), the Company has received no notice, either oral or written, with
respect to the continued eligibility of the Common Stock for such listing, and
the Company has maintained all requirements for the continuation of such
listing.
(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 materially affect the
execution by the Company or the performance by the Company of its obligations
under this Agreement.
(i) REPORTING COMPANY. The Company is a publicly-held
company whose common stock is (and has been for the past twelve months)
registered pursuant to Section 12(g) of the Securities Exchange Act of 1934 (the
"1934 Act") and is duly listed for trading on the NASDAQ SmallCap Market.
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, and is eligible
presently and as of the Closing Date to file a Form S-3 to register the Company
Shares.
(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 Company Shares or affect the price at which the Shares 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 set forth 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.
5
The Company specifically acknowledges that its obligation to issue the
Securities is binding upon the Company and enforceable regardless of the
dilution such issuance may have on the ownership interests of other shareholders
of the Company.
(m) STOP TRANSFER. The Company has not issued, and will not
issue any stop transfer order or other order impeding the sale and delivery of
the Securities.
(n) DEFAULTS. Neither the Company nor any of its
subsidiaries is in violation of its Certificate of Incorporation or ByLaws.
Except as described in the Reports and Other Written Information, 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 material to its business.
(o) NO INTEGRATED OFFERING. Neither the Comany, nor any of
its affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
NASDAQ SmallCap, as applicable, nor will the Company or any of its subsidiaries
take any action or steps that would require or cause the offering of the
Securities to be integrated with other offerings. The Company has not conducted
and will not conduct any offering that will be integrated with the issuance of
the Securities solely for purposes of Rule 4460(i) of the NASDAQ Stock Market,
Inc.'s Marketplace Rules.
(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) USE OF PROCEEDS. The Company will use not less than
$1,000,000 of the proceeds of this subscription and other subscriptions in this
offering aggregating $1,500,000 exclusively to pay the cash portion of the
acquisition by the Company of all the shares of L&E Mobile Computer Mounts,
Incorporated (a Pennsylvania corporation) pursuant to a form of Shares Purchase
Agreement provided to counsel to Subscriber. The Closing on this Subscription
Agreement is contingent on a concurrent closing of the acquisition of L&E
pursuant to the Shares Purchase Agreement.
6
(r) CORRECTNESS OF REPRESENTATIONS. The Company represents
that the foregoing representations and warranties are true and correct as of the
date hereof and, unless the Company otherwise notifies the Subscriber prior to
the Closing Date, shall be true and correct 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, and
conversion of the Note and exercise of the Warrants. A form of the legal opinion
is annexed hereto as Exhibit C.
4. CONVERSION OF NOTE. The Note will be immediately convertible
by Subscriber.
5. REVERSE SPLIT. The Company shall give the Subscriber not less
than twenty (20) days' prior written notice of any proposed combination of
shares or other reclassification or recapitalization of the common stock
resulting in a reduction of the number of Shares issuable upon conversion of the
Note, and the Subscriber shall have the right to consult with the Company with
respect to such proposed combination or recapitalization.
6. LEGAL FEES/COMMISSIONS. The Company shall pay to Grushko &
Xxxxxxx as counsel to the Subscribers its xxxx for $17,500 for services rendered
to the Subscriber in reviewing this Agreement and other subscription agreements
for the aggregate subscription amounts of up to $1,500,000. The Company will pay
at the time of Closing an aggregate cash commission of ten percent (10%) of the
principal amount of the Note subscribed for, to the Placement Agents identified
on Schedule D hereto. The Company will also issue the Warrants to the Placement
Agents at the time of Closing. The commissions and legal fees will be payable
out of funds held pursuant to a Funds Escrow Agreement to be entered into by the
Company and Subscriber. Additional aggregate cash commissions of 10% will be
payable to the Placement Agents in connection with any funds raised by the
Company by exercise of the Put described in Section 11 of this Subscription
Agreement.
7.1. 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 (the
"Commission"), any state securities commission or any other regulatory authority
of any stop order or of any order preventing or suspending the use of 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.
7
(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 so long as any other shares of Common Stock shall
be so listed, such listing of all Common Stock from time to time issuable upon
conversion of the Note and exercise of the Warrants. The Company will use its
reasonable efforts to maintain the listing and trading of its Common Stock on
NASDAQ SmallCap Market, and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
National Association of Securities Dealers ("NASD") and such exchanges, as
applicable. The Company shall promptly provide to each Subscriber copies of any
notices it receives regarding the continued eligibility of the Common Stock for
listing on such exchanges or quotation systems, or any other exchange or
quotation system on which the Common Stock is then listed.
(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 and promptly
provide copies thereof to the Subscriber.
(d) Until at least three (3) 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 use its reasonable
efforts (i) to cause its Common Stock to continue to be registered under
Sections 12(b) or 12(g) of the Exchange Act, (ii) to comply in all respects with
its reporting and filing obligations under such Exchange Act, and (iii) to
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, except as permitted
herein, until the earlier of (i) three (3) years after the effectiveness of the
Registration Statement on Form S-3 or such other Registration Statement
described in Section 10.1(iv) hereof, (ii) repayment of the amounts due under
Notes, or (iii) the sale by the Subscribers and Placement Agents of all the
shares of common stock issuable by the Company pursuant to this Agreement. Until
at least three (3) years after the Warrants have been converted into Common
Stock, the Company will take all action within its power to continue the listing
or trading of its Common Stock on the NASDAQ SmallCap Market and will comply in
all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the NASD and NASDAQ.
7.2. COVENANTS OF SUBSCRIBER.
(a) The Subscriber covenants and agrees to provide for
itself and any beneficial holder of a Note or other securities issuable pursuant
to this Agreement all information and documents reasonably required by the
Company for the Company to comply with its
8
governmental and regulatory obligations including but not limited to Securities
and Exchange Commission, blue sky and NASDAQ requirements.
(b) The Subscriber agrees and covenants to comply with all
regulations of the United States Securities and Exchange Commission applicable
to the Securities and Put Note.
(c) The Subscriber agrees and covenants that it will not
directly or indirectly engage in the short selling of the Company's securities
prior to the repayment or conversion of the Note, and if applicable, the Put
Note.
8. COVENANTS OF THE COMPANY AND SUBSCRIBER REGARDING
INDEMNIFICATIONS.
(a) The Company agrees to indemnify, hold harmless,
reimburse and defend Subscriber against any claim, costs, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon Subscriber which results, arises out of or is based
upon (i) any material misrepresentation by Company or material breach of any
warranty by Company in this Agreement or in any Exhibits or Schedules attached
hereto, or Reports or other Written Information; or (ii) any material breach or
default in performance by Company of any covenant or undertaking to be performed
by Company hereunder.
(b) Subscriber agrees to indemnify, hold harmless, reimburse
and defend the Company at all times against any claim, costs, expense,
liability, obligation, loss or damage (including reasonable legal fees) of any
nature, incurred by or imposed upon the Company which results, arises out of or
is based upon (a) any material misrepresentation by Subscriber or material
breach of any warranty by Subscriber in this Agreement or in any Exhibits or
Schedules attached hereto; or (b) any material breach or default in performance
by Subscriber of any covenant or undertaking to be performed by Subscriber
hereunder.
9. DELIVERY OF SHARES ON CONVERSION.
a. Upon the conversion of the Note or part thereof, and
exercise of the Warrants, the Company shall, at its expense, take all necessary
and reasonable action, including the issuance of an opinion of counsel, to
assure that the Company's transfer agent shall issue stock certificates without
restrictive legend or stop orders (if such issuance is subsequent to the
effective date of a registration statement described in Section 10 hereof) 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, as
applicable. The Company warrants that no instructions other than these
instructions will be given to the transfer agent of the Company's Common Stock.
9
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 to the Company or Escrow Agent (described in
Section 9(f) below) and delivering within five business days thereafter, the
original Note to the escrow agent or to the Company by express courier. Each
date on which a Notice of Conversion is telecopied to the Company or Escrow
Agent in accordance with the provisions hereof shall be deemed a Conversion
Date. The Company will or cause the transfer agent or escrow agent [as described
in Section 9(f) below], as the case may be, 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) to the
Subscriber via express courier for receipt by such Subscriber within ten
business days after receipt by the Company or escrow agent of the original Note
(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, and failure to
deliver a Note representing the unconverted balance of the Note tendered for
conversion beyond the Delivery Date 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 and late
delivery of a Note for the unconverted portion of a Note, in the amount of $100
per business day after the Delivery Date for each $10,000 of Note principal
amount being converted and per $10,000 of Note principal for which a Note is not
delivered. 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 within ten business days
after the Delivery Date, the Subscriber will be entitled to revoke the relevant
Notice of Conversion 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 of
revocation, except that late payment charges described above shall be payable
through the date notice of revocation is given to the Company. A delay arising
out of a default by the Escrow Agent (identified in Section 9(e) hereof), or
action or omission of the Subscriber shall not be deemed a default by the
Company.
d. Nothing contained herein or in any document referred to
herein 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 required to be paid or other charges hereunder
or pursuant to the Note 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.
10
e. The Company shall deliver to Grushko & Xxxxxxx (the
"Escrow Agent"), prior or on the Closing Date 10,000 shares of Common Stock of
the Company for each $10,000 of principal amount of Notes subscribed for, (the
"Escrowed Shares") to be held in escrow. While held in escrow, the Escrowed
Shares and any additional shares of Common Stock which may be later delivered by
the Company to be held in escrow as set forth below shall not be deemed issued
and outstanding for any purpose nor shall any holder of the Note have any voting
or dispositive rights thereto for so long as such Shares are held in escrow. The
terms and conditions of escrow shall be set forth in a shares escrow agreement
in the form annexed as Exhibit E hereto (the "Escrow Agreement"). The Company
shall deliver to the Escrow Agent, from time to time, at the request of the
Subscriber within seven (7) business days after notice to the Company of such
request, such additional Company Shares as would be necessary to allow
conversion of the entire principal and interest of the Note at the then
applicable Conversion Price, as defined in Section 2 of the Note, and deliver
without demand or notice such additional Shares pursuant to the terms of Section
2 of the Note (collectively, the "Additional Shares"), subject to the
limitations and requirements of Section 9(f) of this Agreement. All such Shares
delivered to the Escrow Agent shall include the legends set forth in Section
2.1(e)(ii) of this Agreement.
f. The Company and Subscriber agree that until the Company
either obtains shareholder approval of the issuance of the Shares, or an
exemption from NASDAQ's corporate governance rules as they may apply to the
Shares, the Subscriber may not and will not convert the Notes into more than the
number of Shares designated on the signature page hereof. The Company represents
that this number together with the aggregate of such amounts designated for all
investors in the $1,500,000 offering to which this Subscription Agreement
relates, and the Shares of Common Stock to be issued with respect to the
acquisition of L&E is not greater than 19.99% of the shares of Company's common
stock outstanding on the Closing Date. The Company undertakes to obtain the
approval of its shareholders required pursuant to the NASDAQ's corporate
governance rules to allow conversion of the entire Note and exercise of all the
Warrants and conversion of the Put Note. The Company covenants to obtain the
shareholder approval no later than 60 days from the Closing Date. Failure to
obtain shareholder approval on or before 60 days from the Closing Date shall be
deemed an Acceleration Event pursuant to Article III of the Note, but only to
the extent of the Note that may not be converted due to the Company's failure to
obtain such shareholder approval.
10. REGISTRATION RIGHTS; PROCEDURE; INDEMNIFICATION.
10.1. REGISTRATION RIGHTS. The Company hereby grants the
following registration rights to holders of the Company Shares and the Warrants
(hereinafter "Seller" or "Holder").
(i) On one occasion, for a period commencing 125 days
after the Closing Date, but not later than three years from the date hereof, the
Company, to the extent not otherwise included in a registration statement, upon
a written request therefor from any record holder or holders of more than 50% of
the aggregate of the Company's Shares and Common Stock
11
issuable upon exercise of the Warrants (the Company Shares and Common Stock
issuable upon exercise of the Warrants and all common stock issuable by virtue
of ownership of any of the 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. 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 20 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. As a condition precedent to the inclusion of Registrable
Securities, the holder thereof shall provide the Company with such information,
and representations and warranties 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 pursuant to an effective registration statement, each such time
it will give at least 15 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 10 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, the Company may withdraw 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 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
12
shall be governed by Section 10.1(ii) except that the Company, if any, may not
withdraw such registration or limit the amount of Registrable Securities
included in such registration.
(iv) The Company shall file with the Commission, within
sixty (60) days of the Closing Date, and cause to be declared effective a Form
S-3 registration statement 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 120 days of
the Closing Date. The Company will register not less than 20,000 shares of
Common Stock in the S-3 registration statement for each $10,000 of Aggregate
Principal Amount of Note as set forth on the signature page hereto and one share
of Common Stock for each share of Common Stock issuable upon exercise of the
Warrants. These shares to be registered shall be reserved and set aside
exclusively for the benefit of the Subscriber and Placement Agents and not
issued, employed or reserved for anyone other than the Subscriber and Placement
Agents. It is the intention of the parties that these shares include the
Additional Shares described in Section 9 hereof. No Shares or other securities
of the Company, other than the Registrable Securities and the Put Shares may be
included in the registration statement required pursuant to this section. In the
event the Company may not employ an S-3 Registration Statement, then the Company
will file such other form of registration statement as is appropriate to
register the Registrable Securities including Form S-1. One-fifth (1/5) of the
principal amount of the Note and a Note representing one-fifth (1/5) of the
principal amount of the Aggregate Principal Amount of Note purchased by the
Subscriber as set forth on the signature page of this Subscription Agreement
("Registration Escrow") shall be held in escrow pursuant to the Funds Escrow
Agreement until the acceptance for filing by the Securities and Exchange
Commission of the registration statement described in this Section 10.1(iv). In
the event the registration statement relating to the Registrable Securities is
not filed within 60 days from the Closing Date, then the Registration Escrow
shall be employed as a non-exclusive remedy, to pay the damages described in
Section 10.2(j) of this Subscription Agreement. In the event the Registration
Statement is not filed within 60 days from the Closing Date, unless otherwise
agreed to in writing by the Subscriber, then one-fifth of the principal amount
of the Note shall be released to the Subscriber, and the Note representing
one-fifth of the Aggregate Principal Amount of Note purchased shall be
returnable to the Company. In such event the Company shall not be released from
any of its obligations under this Subscription Agreement or any agreement
delivered in connection herewith including the Company's obligations pursuant to
this Section 10 except that the Company shall no longer be required to file a
registration statement in connection with only those Common Shares issuable by
virtue of the Note returned to the Company. Damages shall not accrue to the
Subscriber in relation to the Note releasable to the Company from and after the
date the corresponding portion of the Aggregate Principal Amount of Note is
returned to the Subscriber except that interest shall accrue on the Note and be
payable by the Company to the Holder until the date the funds portion of the
Registration Escrow is returned to the holder of the Note returnable to the
Company. The accrued interest on the Note released to the Company shall be
payable in cash immediately upon demand. To the extent any part of the funds
portion of the Registration Escrow is released to the Subscriber, then that
portion of the Registration Escrow may, at the Subscriber's election, first be
applied in satisfaction of payment by the Company of damages accrued to such
Subscriber under Section 9(e) and Section
13
10.2(j). Anything to the contrary herein or in the Funds Escrow Agreement
notwithstanding, the Note portion of the Registration Escrow will not be
released to the Company until all outstanding monetary obligations to the
Subscriber are satisfied. The Subscriber may elect to satisfy any such
outstanding Company obligations by converting such dollar amount at the
Conversion Price, as defined in the Note. In such event, common shares issued on
such conversion are granted all registration rights described herein, including
but not limited to the registration rights described in Section 10.1(iv) hereof.
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 hereinafter provided):
(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 for
the period specified in paragraph (a) above and comply with the provisions of
the Act with respect to the disposition of all of the Registrable Securities
covered by such registration statement in accordance with the Seller's intended
method of disposition set forth in such registration statement for such period;
(c) furnish to the Seller, and to each underwriter if any,
such number of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons reasonably may
request in order to facilitate the public sale or their disposition of the
securities covered by such registration statement;
(d) use its best efforts to register or qualify the Seller's
Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Seller and, in the
case of an underwritten public offering, the managing underwriter shall
reasonably request, provided, however, that the Company shall not for any such
purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction;
(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
14
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 financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by the seller,
underwriter, attorney, accountant or agent in connection with such registration
statement.
(h) 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. In the event of a firm commitment underwritten public offering in
which the Registrable Securities are so included, the lockup, if any, requested
by the managing underwriter may not exceed ninety (90) days after the effective
date thereof.
(i) In connection with each registration hereunder, the
Seller will furnish to the Company in writing such information 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.
(j) 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 45 days after request by the Holder and
not declared effective by the Commission within 130 days after such request [or
60 days and 120 days, respectively, after the Closing Date 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 45 days of such
request, or is not declared effective by the Commission on or prior to the date
that is 130 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 within 60 days
after the Closing Date or not declared effective within 120 days of the Closing
Date, 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
15
the date the Registration Statement is declared effective) (each such event
referred to in clauses (i), (ii) and (iii) of this Section 10.2(j) is referred
to herein as a "Non-Registration Event"), then, for so long as such
Non-Registration Event shall continue, the Company shall pay in cash as
Liquidated Damages to each holder of any Note an amount equal to two (2%)
percent per month for the initial thirty (30) days or part thereof and three
(3%) percent per month, or part thereof, thereafter, of the principal amount of
the Note then owned of record by such holder as of immediately following the
occurrence of such Non-Registration Event, unless such Non-Registration Event
arises from Subscriber's material default of Subscriber's obligations hereunder.
Payments to be made pursuant to this Section 10.2(j) shall be due and payable
immediately upon demand in immediately available funds. At the Company's
election, the Liquidated Damages payable in connection with the initial 60 day
period after the occurrence of a Non-Registration Event arising from a
Registration Statement required pursuant to Section 10.1(iv) hereof not being
declared effective by the Commission on or before 120 days after the Closing
Date, may be paid by the Company in common stock at a per share value equal to
the Conversion Price (as defined in the Note) that would then be in effect on
each day that such Non-Registration Event occurs or is continuing. A
Non-Registration Event arising from the Registration Statement described in
Section 10.1(iv) hereof not being declared effective by the Commission within
120 days from the date hereof, shall not be deemed an Acceleration Event under
the Note unless such Non-Registration default occurs or is continuing from and
after 180 days after the Closing Date. In the event the Company may not employ
an S-3 Registration Statement, then the Company will file such other form of
registration statement as is appropriate to register the Registrable Securities.
10.3. 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 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, fee of one counsel, if any, to represent
all the Sellers, 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 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.
10.4. 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
16
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 will not be liable in any such case
if and 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, the underwriter 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 proportion of any such loss, claim, damage, liability or expense which is
equal to the proportion that the public offering price of the Registrable
Securities sold by the Seller under such registration
17
statement bears to the total public offering price of all securities sold
thereunder, but not in any event to exceed 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 10.4(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 10.4(c) 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 10.4(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 10.4 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 10.4 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 10.4; 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, (A) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities offered by it
18
pursuant to such registration statement; and (B) 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. FUTURE OFFERINGS.
(a) OFFERING RESTRICTION. Until the later of (i) the
effective date of the S-3 Registration Statement or such other form of
registration statement described in Section 10.1(iv) hereof, or (ii) 180 days
after the Closing Date, and so long as Subscriber is not in default under
Section 11.2, the Company and its subsidiaries will not issue any equity, or
convertible debt or other securities or conduct any public or private offering
without the consent of the Subscribers holding a majority of the outstanding
principal amount of the Notes issued in the $1,500,000 offering to which this
Subscription Agreement relates, if such offering would or could result in the
issuance of Common Stock or any other security of the Company that would be
freely tradable on the books of the Company, with or without registration with
the Securities and Exchange Commission or in reliance on any exemption from
registration prior to the effective date of a Registration Statement described
in Sections 10.1(i) or 10.1(iv) relating to all the Registrable Securities. The
foregoing notwithstanding, the Company may raise no more than $1,000,000 in
non-convertible debt financing on reasonable commercial terms. In such event,
the security interest to be granted to the Subscriber in the Company's assets
will be subordinate to such $1,000,000 financing. Subscriber must be given not
less than seven (7) business days prior notice of such financing.
(b) RIGHT OF FIRST REFUSAL. Until the end of the period
described in Section 11.1(a) above, 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 or other securities. The Subscriber shall have the right
during the seven (7) business days following the notice to agree to purchase an
amount of securities in the same proportion as being purchased in the aggregate
offering to which this Subscription Agreement relates (i.e. $1,500,000 in the
aggregate), 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.
11.2. OBLIGATION TO PURCHASE.
(a) The Subscriber agrees to purchase from the Company a
Convertible Note of the Company (the "Put Note") in the principal amount and for
the aggregate consideration designated on the signature page hereof (the "Put").
The Put may be exercised by the Company only during the forty-five (45) day
period commencing thirty (30) days after the effective date of the S-3 or such
other form of Registration Statement described in Section 10.1(iv) hereof ("Put
Period").
19
(b) The agreement to purchase the Put Note is contingent on
the Company filing a registration statement relating to the common shares
issuable upon conversion of the Put Note ("Put Shares") with the Securities and
Exchange Commission on Form S-3 or such other registration statement described
in Section 10.1(iv) of this Subscription Agreement or another form suitable for
such purpose and with such States reasonably designated by the Purchaser on or
before 60 days from the Closing Date, and such registration statement being
declared effective by the Securities and Exchange Commission on or before 180
days from the Closing Date.
(c) The agreement to purchase is further contingent on the
following:
(1) As of the effective date of the registration
statement described in Section 11.2(b), and the Put Date (as hereinafter
defined), the Company will be a full reporting company with the class of Shares
registered pursuant to Section 12(g) of the Securities Exchange Act of 1934.
(2) The Company's Common Stock will have traded at an
average daily trading volume of 75,000 shares for the thirty trading days prior
to the Put Date with an average daily closing bid price of not less than $1.00
per share for the same period.
(3) The Company's financial condition will be at least
equivalent to the Company's financial condition as reported in the Company's
most recent financial statements included in the Reports and Other Information
and the Company will not have experienced the occurrence of an adverse material
event.
(4) None of the following events of default shall have
occurred or be continuing:
(i) The Company shall make an assignment for the
benefit of creditors, or apply for or consent to the appointment of a receiver
or trustee for it or for a substantial part of its property or business; or such
a receiver or trustee shall otherwise be appointed.
(ii) Any money judgment, writ or similar process shall
be entered or filed against Company or any of its property or other assets for
more than $50,000, and shall remain unvacated, unbonded or unstayed for a period
of forty-five (45) days.
(iii) Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings or relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or against the
Company.
20
(iv) Delisting of any of the Company's securities from
the NASDAQ SmallCap Market or such other principal exchange on which such
security is listed for trading, except for the Boston Exchange.
(v) A concession by the Company of a default under any
one or more obligation in an aggregate monetary amount in excess of $50,000.
(vi) An SEC stop trade order or NASDAQ trading
suspension, if either applies for a period of ten days or longer.
(vii) Any representation or warranty of the Company made
in this Subscription Agreement or in connection herewith, or in any agreement,
statement or certificate given in writing pursuant hereto or in connection
herewith shall be materially false or misleading.
(viii)The occurrence of a Non-Registration Event as
described in Section 10.2(j) of this Subscription Agreement.
(ix) Any material default by the Company of any
covenant or undertaking described in this Subscription Agreement or any document
delivered in connection herewith.
(x) Any material default by the Company under the
Note, including the occurrence of an Acceleration Event as defined in the Note.
(5) A Closing shall have occurred on an aggregate of
$1,500,000 on the same terms and conditions described in this Subscription
Agreement.
(6) The Put Shares on the Put Date (as hereinafter
defined) will be free- trading, unrestricted, unlegended and not subject to
volume or other resale limitations.
(7) The timely obtainment of the exemption from NASDAQ's
corporate governance rules or the approval of its shareholders of the issuance
of the Shares upon conversion of the Notes, Put Notes, and exercise of the
Warrants as described in Section 9(f) of this Subscription Agreement.
(d) The Subscriber is required to purchase the Put Note
within ten (10) business days of notice by the Company that the Company is
exercising the Put ("Put Notice"). The Put may be exercised by the Company only
one time. The date notice is given is the "Put Date". Unless otherwise agreed to
by the Subscribers, Put Notices must be given to all Subscribers undertaking to
purchase Put Shares in the $1,500,000 offering to which this Subscription
Agreement relates in the same proportion to their investment in the $1,500,000
offering to which this Subscription Agreement relates. Payment for the Put Note
will be made upon receipt of the Put Note by the Subscriber or by Grushko &
Xxxxxxx as escrow agent.
21
(e) The Put Note will be nearly identical to the Note
annexed hereto as Exhibit A and subject to the same terms as contained in this
Subscription Agreement except for Section 11 of this Subscription Agreement. A
form of Put Note is annexed as Exhibit F hereto.
(f) As a further condition of the exercise of the Put, the
Company is required to execute all documents reasonably necessary to memorialize
the rights and obligations of each of the parties.
(g) As a further condition of the exercise of the Put, the
Subscriber is required to execute all documents reasonably necessary to
memorialize the rights and obligations of each of the parties.
(h) The Company shall not be entitled to exercise the Put
without the consent of the Subscriber, in connection with an amount of Put Note
principal which corresponds to that number of Put Shares which would be issuable
upon conversion of the Put Note on the Put Date, in excess of the sum of (i) the
number of shares of Common Stock beneficially owned by the Subscriber and its
affiliates on the Closing Date, and (ii) the number of shares of Common Stock
issuable upon the exercise of the Put 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. 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, except as otherwise provided
in clause (i) of such proviso.
(i) The Company may not exercise the Put at any time when
there is not then an effective registration statement relating to the Put
Shares, nor on or within five trading days of any trading suspension of any of
the Company's securities.
(j) The Company irrevocably agrees to exercise the Put in
connection with not less than 33% of the Aggregate Put Consideration subject to
the Put being exercisable hereunder. During the Put Period, the Subscriber may
exercise the Put on the Company's behalf for an amount up to 33% of the
Aggregate Put Consideration subject to the Put being exercisable hereunder but
only to the extent the Company has not previously exercised the Put in an amount
up to 33% of the Aggregate Put Consideration.
(k) In the event the Subscriber fails to comply with a valid
Put Notice, then the Company will be released from its obligations to the
Subscriber pursuant to Section 11(a) and Section 11(b) hereof.
22
12. SECURITY INTEREST. The Company shall grant the Subscriber a
senior security interest in certain of its assets pursuant to a Security
Agreement. Except as described in Section 11(a) hereof, the security interest
shall be effective until the later of (i) the effective date of the S-3
Registration Statement described in Section 10.1(iv) hereof, and (ii) until the
Company has deposited or replaced the shares deposited in escrow pursuant to
Section 9(e) hereof, with unlegended, unrestricted, registered common shares of
the Company sufficient to allow complete conversion of the Note at the
Conversion Price that would be in effect on the day the S-3 Registration
Statement is declared effective. In the event an Acceleration Event, as defined
in the Note, shall have occurred, then the security interest shall remain in
effect until the Note has been satisfied or converted.
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 overnight courier) 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
TelePad Corporation, 000 Xxxxxxx Xxxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxx 00000,
telecopier number: (000) 000-0000, with a copy via telecopier to: Parker,
Chapin, Flattau & Klimpl, Attn: Xxxxx Xxxxxxx, Esq., (000) 000-0000, and (ii) if
to the Subscriber, to the name, address and telecopy number set forth on the
signature page hereto.
(b) CLOSING. The consummation of the transactions
contemplated herein shall take place at the offices of Grushko & Xxxxxxx, 000
Xxxxxxxx, Xxxxx 000, 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
aggregate subscriptions of $1,500,000 are transmitted by wire transfer to the
Company and the Registration Escrow is received by the Escrow Agent identified
in the Funds Escrow Agreement (the "Closing Date").
(c) ENTIRE AGREEMENT; ASSIGNMENT. This Agreement represents
the entire agreement between the parties hereto with respect to the subject
matter hereof and may be amended only by a writing executed by both parties. No
right or obligation of either party shall be assigned by that party without
prior notice to and the written consent of the other party.
(d) EXECUTION. This Agreement may be executed by facsimile
transmission, followed by delivery of an executed original copy.
(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
23
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 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) CANCELLATION. Until a Closing actually takes place,
either or both the Company or Subscriber may withdraw without penalty from the
transactions described herein.
(g) AUTOMATIC TERMINATION. This Agreement shall
automatically terminate without any further action of either party hereto if the
Closing shall not have occurred by the seventh (7th) business day following the
date this Agreement is accepted by the Subscriber, or June 3, 1998, whichever is
sooner, provided, however, that any such termination shall not terminate the
liability of any party which is then in breach of the Agreement.
(h) ORIGINAL COUNTERPARTS. This Agreement may be executed in
counterparts, each of which will be deemed an original.
24
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.
Very truly yours,
TELEPAD CORPORATION
By:________________________________
Dated: May ____, 1998
Accepted:
AUSTOST ANSTALT XXXXXX
(a Lichenstein corporation)
7440 Fuerstentum
Xxxxxxxxxxx, Xxxxxxxxxxx 000
Fax: 000-000-000000000
By:____________________________
Title:_________________________
Dated as of May ____, 1998
Aggregate Principal Amount of Notes: $375,000.00
Aggregate Put Consideration: $250,000.00
Section 9(f) Conversion Shares
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.
Very truly yours,
TELEPAD CORPORATION
By:________________________________
Dated: May ____, 1998
Accepted:
BALMORE FUNDS S.A.
(a X.X.X. xxxxxxxxxxx)
X.X. Xxx 0000
Xxxxxx, Xxxxxxxxxxx
Fax: 000-000-000-0000
By:____________________________
Title:_________________________
Dated as of May ____, 1998
Aggregate Principal Amount of Notes: $375,000.00
Aggregate Put Consideration: $250,000.00
Section 9(f) Conversion Shares
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.
Very truly yours,
TELEPAD CORPORATION
By:________________________________
Dated: May ____, 1998
Accepted:
BEESTON INVESTMENTS LTD.
(an Israel corporation)
000 Xxxxxxxxxx Xxxxxxxxx
Xxx Xxxx, Xxxxxx
Fax: 000-000-00000000
By:____________________________
Title:_________________________
Dated as of May ____, 1998
Aggregate Principal Amount of Notes: $100,000.00
Aggregate Put Consideration: $73,334.00
Section 9(f) Conversion Shares
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.
Very truly yours,
TELEPAD CORPORATION
By:________________________________
Dated: May ____, 1998
Accepted:
XXXXX ENTERPRISES LTD.
(a U.K. corporation)
00X Xxxxxxxx Xxxx
Xxxxxx, Xxxxxxx
XX0 0XX
Fax: 000-000-000000000
By:____________________________
Title:_________________________
Dated as of May ____, 1998
Aggregate Principal Amount of Notes: $50,000.00
Aggregate Put Consideration: $33,333.00
Section 9(f) Conversion Shares
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.
Very truly yours,
TELEPAD CORPORATION
By:________________________________
Dated: May ____, 1998
Accepted:
THE GROSS FOUNDATION INC.
(a New York corporation)
0000 00xx Xxxxxx
Xxxxxxxx, Xxx Xxxx
Fax: 000-000-0000
By:____________________________
Title:_________________________
Dated as of May ____, 1998
Aggregate Principal Amount of Notes: $350,000.00
Aggregate Put Consideration: $233,333.00
Section 9(f) Conversion Shares
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.
Very truly yours,
TELEPAD CORPORATION
By:________________________________
Dated: May ____, 1998
Accepted:
THE HEWLETT FUND, INC.
(a New York corporation)
0000 Xxxxxx X, Xxxxx 000
Xxxxxxxx, Xxx Xxxx 00000
Fax: 000-000-0000
By:____________________________
Title:_________________________
Dated as of May ____, 1998
Aggregate Principal Amount of Notes: $90,000.00
Aggregate Put Consideration: $60,000.00
Section 9(f) Conversion Shares
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.
Very truly yours,
TELEPAD CORPORATION
By:________________________________
Dated: May ____, 1998
Accepted:
INVESTCOR LLC
(a Delaware LLC)
0000 00xx Xxxxxx
Xxxxxxxx, Xxx Xxxx 00000
Fax: 000-000-0000
By:____________________________
Title:_________________________
Dated as of May ____, 1998
Aggregate Principal Amount of Notes: $150,000.00
Aggregate Put Consideration: $100,000.00
Section 9(f) Conversion Shares
