AUGMENT SYSTEMS, INC.
SUBSCRIPTION AGREEMENT
STATE NOTICES
-------------
FOR CALIFORNIA RESIDENTS: THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA DOES NOT RECOMMEND OR ENDORSE THE PURCHASE OF THE UNITS.
THE SALE OF THE SHARES PURSUANT TO THIS OFFERING HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
UNITS OR THE PAYMENT OR RECEIPT OF ANY PART OF THE ISSUANCE OF SUCH UNITS OR THE
PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SHARES IS EXEMPT FROM THE
QUALIFICATION REQUIREMENTS UNDER SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CODE.
FOR CONNECTICUT RESIDENTS: THE UNITS HAVE NOT BEEN REGISTERED UNDER SECTION
36-485 OF THE CONNECTICUT UNIFORM SECURITIES ACT BUT WILL BE SOLD IN RELIANCE ON
AN EXEMPTION FROM SUCH REGISTRATION SET FORTH IN SECTION 36-490(b)(9)(A) OF SAID
ACT AND REGULATIONS PROMULGATED THEREUNDER. THE UNITS CANNOT BE RESOLD WITHOUT
REGISTRATION UNDER SECTION 36-485 OF SAID ACT OR AN EXEMPTION FROM REGISTRATION
PURSUANT TO SECTION 36-490 OF SAID ACT.
FOR FLORIDA RESIDENTS: THE UNITS IN THIS OFFERING WILL NOT BE SOLD TO, AND
ACQUIRED BY, THE SUBSCRIBER IN A TRANSACTION EXEMPT UNDER ss.517.061 OF THE
FLORIDA SECURITIES ACT. THE UNITS HAVE NOT BEEN REGISTERED UNDER SAID ACT IN THE
STATE OF FLORIDA. ALL FLORIDA RESIDENTS SHALL HAVE THE PRIVILEGE OF VOIDING THE
PURCHASE WITHIN THREE DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS MADE FOR
SUCH SHARES TO THE ISSUER, AN AGENT OF THE ISSUER, OR THE ESCROW AGENT OR WITHIN
THREE DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO SUCH
PURCHASER, WITHEVER OCCURS LATER.
THE FLORIDA DEPARTMENT OF BANKING AND FINANCE HAS NOT REVIEWED THIS OFFERING OR
THIS SUBSCRIPTION AGREEMENT AND THE UNITS OFFERED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE FLORIDA SECURITIES AND INVESTOR PROTECTION ACT. UNLESS THE
UNITS OFFERED HEREBY ARE REGISTERED, THEY MAY NOT BE SOLD OR TRANSFERRED IN
FLORIDA EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER THAT ACT.
FOR NEW JERSEY RESIDENTS: THE OFFERING DOCUMENS HAVE NOT BEEN FILED WITH OR
REVIEWED BY THE NEW JERSEY BUREAU OF SECURITIES OR THE DEPARTMENT OF LAW AND
PUBLIC SAFETY OF THE STATE OF NEW JERSEY
i
PRIOR TO ITS ISSUANCE AND USE. NEITHER THE ATTORNEY GENERAL OF THE STATE OF NEW
JERSEY NOR THE BUREAU OF SECURITIES HAS PASSED ON OR ENDORSED THE MERITS OF THE
OFFERING DOCUMENTS. ANY REPRESENTATIONS TO THE CONTRARY ARE UNLAWFUL.
FOR NEW YORK RESIDENTS: THE OFFERING DOCUMENTS HAVE NOT BEEN FILED WITH OR
REVIEWED BY THE ATTORNEY GENERAL OF THE STATE OF NEW YORK PRIOR TO THEIR
ISSUANCE AND USE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED
ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATIONS TO THE CONTRARY
ARE UNLAWFUL. THE OFFERING DOCUMENTS DO NOT CONTAIN AN UNTRUE STATEMENT OF
MATERIAL FACT OR OMIT TO STATE A MATERIAL FACT NECESSARY TO MAKE THE STATEMENTS
MADE, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING.
IT CONTAINS A FAIR SUMMARY OF THE MATERIAL TERMS AND DOCUMENTS PURPORTED TO BE
SUMMARIZED HEREIN.
ii
Name of Purchaser:_____________________
AUGMENT SYSTEMS, INC.
SUBSCRIPTION AGREEMENT
Augment Systems, Inc.
▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Chief Executive Officer
Gentlemen:
1. SUBSCRIPTION. The undersigned (the "Purchaser"), intending to be legally
bound, hereby irrevocably agrees to purchase from Augment Systems, Inc. (the
"Company") the number of units (the "Units") set forth on the signature page
hereof, at a purchase price of $50,000 per Unit. Each Unit consists of a $50,000
principal amount 8% Convertible Promissory Note (the "Notes") and warrants (the
"Warrants") to purchase up to 25,000 shares of the Company's common stock, $.01
par value per share ("Common Stock"). The minimum subscription is for one Unit
or $50,000 per investor (the "Minimum Investment"). The Company may accept
offers to purchase less than Minimum Investment from an investor. This
subscription is submitted to the Company in accordance with and subject to the
terms and conditions described in a certain Loan Agreement, Secured Convertible
Promissory Note, and Security Agreement, each dated as of even date herewith, as
amended or supplemented from time to time, including all attachments, schedules
and exhibits thereto (collectively, the "Loan Documents"), relating to this
offering (the "Offering") by the Company of up to 30 Units on a "best efforts,
all or none" basis (the "Offering Amount") through ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ &
Associates, Ltd. ("AKH" or the "Placement Agent"), as Placement Agent for the
Company. Forms of the Loan Agreement, Promissory Note, and Security Agreement
are attached hereto as Exhibit A, B and C, respectively.
Certain terms used but not otherwise defined herein shall have the
respective meanings provided in the Loan Documents.
2. PAYMENT OF PURCHASE PRICE. The Purchaser hereby deposits with Republic
National Bank via check payable to "Augment Systems, Inc. - Marine Midland Bank,
as Escrow Agent" or via wire transfer an amount (the "Purchase Price") equal to
the number of Units subscribed for hereunder multiplied by $50,000. See
Subscription Instructions attached hereto as EXHIBIT D for wire transfer
instructions. The Purchase Price shall be held in escrow by Marine Midland Bank
until the Minimum Proceeds are accepted by the Company and the Closing occurs
(as defined in Section 3.2 below). Together with this Subscription Agreement and
the check for, or wire transfer of, the full Purchase Price, the Purchaser is
delivering a completed and executed signature page to the Loan Agreement,
attached hereto.
3. ACCEPTANCE OF SUBSCRIPTION BY THE COMPANY.
3.1 Units subscribed for herein shall not be deemed issued to or owned by the
Purchaser until this Subscription Agreement ("Subscription Agreement"),
together with the Accredited Investor Certificate set forth in Section 20 of
this Subscription Agreement, have been completed and executed by the
Purchaser, and countersigned by the Company. The Purchaser understands and
agrees that the Company reserves the right to accept or reject this or any
other subscription for Units, in whole or in part, notwithstanding prior
receipt by the Purchaser of notice of acceptance of this subscription. The
Company shall have no obligation hereunder until the Company shall execute and
deliver to the Purchaser an executed copy of this Subscription Agreement. If
this subscription is rejected in whole or the Offering is terminated prior to
the Closing (as described in Section 3.2 below), all funds received from the
Purchaser will be returned without interest, penalty, expense or deduction,
and this Subscription Agreement shall thereafter be of no further force or
effect. If this subscription is rejected in part, the funds for the rejected
portion of this subscription will be returned, without interest, penalty,
expense or deduction, and this Subscription Agreement will continue in full
force and effect to the extent this subscription was accepted.
3.2 Upon receipt by Marine Midland Bank on behalf of the Company of
subscriptions for 30 Units or $1,500,000 (the "Minimum Proceeds") pursuant to
Subscription Agreements, there shall be a closing (the "Closing") of the
purchase of the Units and the Company shall deliver to the Purchaser an
accepted Subscription Agreement, the Loan Documents and the Warrants. Upon the
Closing, the Company will repay in full its indebtedness to Fleet Bank under
that certain Loan Agreement, dated August 4, 1997, as amended. The Offering
shall terminate on August 17, 1998, unless extended for up to 30 days upon
mutual agreement by and between the Company and AKH. Upon the Closing, the
Company shall deliver to the Purchasers an accepted Subscription Agreement,
the Loan Documents and the Warrant.
3.3 Purchaser agrees that he will not transfer or assign this Subscription
Agreement or any of Purchaser's interest herein. Purchaser may not cancel,
terminate or revoke this Subscription Agreement, and this Subscription
Agreement will be binding upon Purchaser's successors and assigns.
3.4 Purchaser undertakes to execute and deliver to the Company within five (5)
days after receipt of the Company's request therefor, such further
designations, powers of attorney and other instruments as the Company deems
reasonably necessary or appropriate to carry out the provisions of this
Subscription Agreement.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser acknowledges
that the Company is offering the Units in reliance upon the representations,
warranties and other information presented by the Purchaser herein and the
Purchaser's accredited investor certificate. In order to induce the Company to
accept the subscription made hereby, the Purchaser hereby acknowledges,
represents and warrants to and agrees with the Company as follows:
2
4.1 RESTRICTED SECURITIES. None of the Notes, securities issuable upon
conversion of the Notes, Warrants, or securities issuable upon exercise of the
Warrants (collectively, the "Securities") are registered under the Securities
Act of 1933, as amended (the "Securities Act") or any state securities laws.
The Purchaser understands that the offering and sale of the Units is intended
to be exempt from registration under the Securities Act, by virtue of Section
4(2) thereof, based, in part, upon the representations, warranties and
agreements of the Purchaser contained in this Subscription Agreement. The
Company is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings set forth herein in
order to determine the suitability of Purchaser to subscribe for and acquire
the Units.
4.2 RISK FACTORS. The Purchaser confirms that he understands and has fully
considered the risks of an investment in the Units and understands that (i)
this investment is suitable only for an investor who is able to bear the
economic consequences of losing his entire investment, (ii) the purchase of
the Units is a speculative investment and involves a high degree of risk, and
(iii) there are substantial restrictions on the transferability of, and there
will be no immediate public or private market for, the Units, or any of the
Securities, and accordingly, it may not be possible for Purchaser to liquidate
Purchaser's investment. The Purchaser hereby acknowledges and understands that
an investment in the Company is subject, but is not limited, to the following
risks:
History of Losses and Accumulated Deficit; No Assurance of Significant Revenues
or Operating Profit; Independent Certified Public Accountants' Qualified Report.
To date, the Company has recognized limited revenues from product sales and has
experienced significant operating losses since inception. As of March 31, 1998,
the Company had an accumulated deficit of approximately $17,871,000, working
capital of approximately $2,674,000 and stockholders' equity of approximately
$3,188,000. The Company expects to incur substantial additional costs, including
costs related to ongoing research and development activities, resulting in
operating losses for at least the next 12 months following the completion of the
Offering. The Company's ability to achieve significant revenue and profitability
is dependent on successful marketing of its existing products and successful
completion of enhancements to its existing products and the development of
future products, of which there can be no assurance. The report of the Company's
independent certified public accountants with respect to the financial
statements of the Company for the year ended December 31, 1997 contains a
paragraph expressing doubt as to the Company's ability to continue as a going
concern. Among the factors cited by the auditors as raising substantial doubt as
to the Company's ability to continue as a going concern is that the Company has
incurred recurring operating losses and is dependent on obtaining additional
financing to continue its operations.
Delisting by NASDAQ. On July 7, 1998, the Company's Common Stock ceased trading
on the NASDAQ SmallCap Market because the Company failed to comply with the
continued listing requirements and criteria of that market. As a result, the
market for the Company's Common Stock is extremely limited, and no assurance can
be given that the Company will in the future be able to have its Common Stock
listed on the NASDAQ Stock Market.
SUBSTANTIAL AMOUNT OF PROCEEDS USED TO SATISFY INDEBTEDNESS: Approximately
$750,000 of the proceeds received by the Company from the Offering will be used
to repay outstanding indebtedness and, therefore, will not be available for
future operations. The remaining proceeds received by the Company from the
Offering, if any, will be used for general working capital purposes, and
accordingly, management will have broad discretion to use the proceeds from the
Offering. As a result, investors in the Offering will not know in advance how
such proceeds will be used by the Company.
3
NEED FOR ADDITIONAL CAPITAL. The Company's future capital requirements will
depend on many factors, including cash flow from operations, continued progress
in its research and development programs, competing technological and market
developments and the Company's ability to market its products successfully. The
Company anticipates that it will need to raise at least an additional $6,000,000
in the next 6 months to meet its capital requirements (including repayment of
the Notes) and fund operations and development of products. There can be no
assurance that the Company will be able to obtain additional funding on terms
favorable to the Company, if at all. If adequate funds are not available, there
would be a material adverse affect on the Company's ability to continue its
operations.
NO ASSURANCE OF SUCCESSFUL PRODUCT DEVELOPMENT; RAPID TECHNOLOGY CHANGE;
TECHNOLOGICAL OBSOLESCENCE; INTRODUCTION OF NEW PRODUCTS. The Company has
ongoing research and development programs to develop new products and further
enhance its existing products. If the Company is unsuccessful in enhancing its
existing and developing future products, then the Company's sales and operations
will be adversely affected. There can be no assurance that any of the Company's
existing and future products will be successfully developed or, if developed,
will be successfully marketed. The storage area network market is characterized
by extensive research and development and rapid technological change resulting
in product life cycles of 18 to 24 months. The Company's future success will
depend in large part on the Company's ability to develop and introduce products
that keep pace with technological developments, achieve market acceptance and
respond to customer requirements that are constantly evolving. Development by
others of new or improved products, processes or technologies may make the
Company's products or proposed products obsolete or less competitive. The
Company will be required to devote substantial efforts and financial resources
to enhance its existing products and to develop new products. Any failure by the
Company to anticipate or respond adequately to technological developments and
customer requirements or any significant delays in product development or
introduction could result in a loss of competitiveness or could materially and
adversely affect the Company's operating results.
SOFTWARE AND HARDWARE BUGS. The Company's products incorporate internally
developed software and hardware components and software and hardware components
purchased from third parties. There is a substantial risk that the integration
of internally developed and externally purchased components will have or could
develop certain errors, omissions, or bugs that may render the Company's
products unfit for the purpose for which they were intended. There can be no
assurance that such errors, omissions, or bugs do not currently exist or will
not develop in the Company's current or future products. Any such error,
omission or bug found in the Company's products could lead to delays in
shipments, recalls of previously shipped products, damage to the Company's
reputation, and other related problems which would have a material adverse
effect on the Company. Although the Company believes it will resolve these
integration problems, there can be no assurance that such problems will be
completely resolved and that delays in shipments, recalls of previously shipped
products, damage to the Company's reputation, and other related problems will
not occur.
4
NO ASSURANCE OF MARKET ACCEPTANCE. The Company's current target market is the
electronic printing and publishing industry. The Company's initial products,
which were first shipped in February 1997, are high speed storage area network
systems. The Company's success is dependent upon its ability to gain market
acceptance of its products, which will depend upon the ability of the Company to
demonstrate the advantages of its products over other technology offered by
other companies. The failure of the Company to penetrate its target markets
would have a material adverse effect upon its operations and prospects.
COMPETITION. Many of the Company's competitors, including Sun Microsystems Inc.,
Hewlett-Packard Co., International Business Machines Corp., Apple, Digital
Equipment Corporation and Silicon Graphics Inc., have significantly greater
market recognition and greater financial, technical, marketing and human
resources than the Company. The Company's competitors can be expected to
continue to improve the design and performance of their products and to
introduce new products with competitive price-to-performance characteristics.
Competitive pressures often necessitate price reduction, which can adversely
affect operating results. Although the Company believes that it presently has
certain technical and other advantages over its competitors, maintaining such
advantages will require a continued high level of investment by the Company in
research and development and sales and marketing. There can be no assurance that
the Company will have sufficient resources to continue to make such investment
or that the Company will be able to make the technological advances necessary to
maintain such competitive advantages. There can be no assurance that the Company
will be able to compete successfully against existing competitors or new
entrants to the marketplace.
DEPENDENCE ON PROPRIETARY TECHNOLOGY OF OTHERS. The Company's current products
incorporate technology licensed from Radius, Inc. ("Radius"), a publicly-held
company that manufactures Macintosh controller cards and accessories. The
Company has a non-exclusive license and Radius may license the technology to
other parties. In addition, if the Company fails to fulfill its obligations
under the Radius agreement, including its obligation to pay royalties, Radius
may terminate the license. The Company's current products also incorporate
certain critical technology licensed from Polybus Systems Corporation
("Polybus"). If the Company fails to fulfill its obligations under the Polybus
agreement, including its obligation to pay royalties, Polybus may license the
technology to third parties in the publishing market.
DEPENDENCE ON PROPRIETARY KNOW-HOW AND TRADE SECRETS; LACK OF PATENTED
TECHNOLOGY; RISK OF INFRINGEMENT. The Company relies on unpatented proprietary
know-how and trade secrets, and employs various methods, including
confidentiality agreements with employees, consultants and marketing partners,
to protect its trade secrets and know-how. There can be no assurance, however,
that the Company will be able to maintain the confidentiality of any of its
proprietary technology, know-how or trade secrets, or that others will not
independently develop substantially equivalent technology. The failure or
inability to protect these rights could have a material adverse effect on the
Company's results of operations. Moreover, there can be no assurance that the
Company's proposed products will not infringe on the rights of others. The
Company may be forced to expend substantial resources if the Company is required
to defend against any such infringement claims. The Company also may desire or
be required to obtain licenses from others in order to develop new products or
applications for its products. There can be no assurance that such licenses will
be obtainable on commercially reasonable terms, if at all, that the patents
underlying such licenses will be valid and enforceable or that the proprietary
nature of the unpatented technology underlying such licenses will remain
proprietary.
5
RELATED PARTY TRANSACTIONS; POSSIBLE CONFLICTS OF INTEREST. The Company has
engaged in certain transactions with certain of its directors, and is a party to
a consulting agreement with an affiliate of one of its directors, which will
continue after the consummation of the Offering. Ownership interests of
directors of the Company in entities providing services to the Company or
service as a director of both the Company and such entities could create, or
appear to create, potential conflicts of interest. All transactions between the
Company and any of its officers, directors, principal stockholders or affiliates
are subject to the approval of a committee of the Board of Directors, a majority
of the members of which shall be independent directors, or, if required by law,
a majority of disinterested directors, and must be on terms no less favorable to
the Company than could be obtained in arm's length transactions from
unaffiliated third parties.
DEPENDENCE ON QUALIFIED PERSONNEL. The ability to attract and retain highly
competent executives, professionals, sales personnel and other employees is
critical to the ongoing success of the Company. There can be no assurance that
the Company will be able to continue to attract and retain qualified executive
professionals, salespersons and other personnel.
POSSIBLE VOLATILITY OF STOCK PRICE. The price of the Company's Common Stock has
fallen substantially since its initial public offering ("IPO") and NASDAQ's
decision to delist the Company's securities from the NASDAQ SmallCap Market. The
market price of the shares of the Company's Common Stock, like that of the
common stock of many other high technology companies, is likely to be highly
volatile. The Company's Common Stock is not heavily traded, which could increase
the volatility of such stock. Factors such as announcements of technological
innovations or new products by the Company or its competitors, governmental
regulation, developments in patent or other proprietary rights of the Company or
its competitors, litigation, fluctuations in the Company's operating results,
and market conditions for high technology stocks in general could have a
significant impact on the future price of the Common Stock.
COMMON STOCK ELIGIBLE FOR FUTURE SALE; REGISTRATION OBLIGATIONS. Sales of the
Company's Common Stock in the public market by existing stockholders and by
holders of outstanding options and warrants could adversely affect the market
price of the Common Stock. The following charts reflect the number of
outstanding shares of Common Stock, shares of Common Stock underlying warrants
issued by the Company, and warrants to purchase Common Stock that the Company
has agreed to register for resale under the Securities Act:
6
SHARES OF ISSUED AND OUTSTANDING
COMMON STOCK Amount
------------ ---------
By June 8, 1998 (1)..................................... 7,185,630
By June 11, 1998 (2).................................... 1,871,997
Best efforts to register as part of any registration
of securities of the Company (3)(4)(5)..................
227,085
---------
Total.......................................... 9,284,712
=========
(1) Including 6,755,000 shares of Common Stock issued pursuant to a private
placement (the "Sunrise Placement") commenced in December 1997 and
completed in May 1998 through Sunrise Securities, Inc. ("Sunrise") and
430,632 shares of Common Stock issued to Sunrise.
(2) Issued as part of a private placement of convertible promissory notes
undertaken by the Company from October 1995 through April 1996.
(3) Subject to the discretion of the managing underwriter, if any, to
exclude such shares from registration.
(4) Including 47,808 shares of Common Stock issued pursuant to the exercise
of warrants.
(5) Of which 179,280 were issued in connection with the issuance of
promissory notes in April 1997 and May 1997.
SHARES OF COMMON STOCK
UNDERLYING WARRANTS AMOUNT
------------------- ---------
Best efforts to register as part of 678,309
any registration of securities of the Company (1)....
By June 8, 1998 (2).................................. 1,468,563
By June 11, 1998 .................................... 35,565
Best efforts to register (3) ........................ 2,474,271
---------
Total..................................... 4,656,708
=========
(1) These shares were required to be registered by May 13, 1998, but they
have not been. The Company is required to use its best efforts to
register these shares as part of any other registration of securities
by the Company until November 30, 2002.
(2) Of which, 13,599 were issued in the conversion of a promissory note
issued in a private placement of promissory notes and common stock
purchase warrants completed in December 1996 and February 1997.
(3) Registration of 1,724,271 of these shares underlying warrants is
subject to the discretion of the managing underwriter, if any.
7
WARRANTS AMOUNT
-------- -------
Best efforts to register as part 678,309
of any registration of securities of the Company (1).
Best efforts to register (2)......................... 40,000
------
Total.......................................... 718,309
=======
(1) These warrants were required to be registered by May 13, 1998, but they
have not been. The Company is required to use its best efforts to
register these warrants as part of any other registration of securities
by the Company until November 30, 2002.
(2) Subject to the discretion of the managing underwriter, if any.
CONTINGENT ISSUANCES; FUTURE DILUTION. Prior to this Offering, the Company has
outstanding warrants to purchase an aggregate of up to 5,393,112 shares of
Common Stock. This amount includes 2,070,000 shares underlying the warrants
issued in the Company's initial public offering ("Public Warrants") and
3,323,110 shares underlying other warrants outstanding prior to this Offering,
with exercise prices between $1.00 per share and $5.33 per share, of which
warrants to purchase 3,283,110 shares are immediately exercisable and of which a
warrant to purchase 40,000 shares becomes exercisable in September 1998. In
addition, there will be outstanding stock options granted pursuant to the
Company's Stock Option Plan to purchase an aggregate of approximately 2,682,183
shares of Common Stock at exercise prices ranging from $.80 per share to $5.50
per share, of which 1,763,954 were granted to the Company's President and CEO in
May 1998. The Company also issued to the underwriters for its initial public
offering an option to acquire up to 180,000 shares of Common Stock for $9.08 per
share and 180,000 Public Warrants for $.25 per Public Warrant (the
"Underwriters' Option"). The exercise of any such outstanding Public Warrants,
other warrants, stock options or the Underwriters' Option will dilute the
percentage ownership of the Company's stockholders, and any sales in the public
market of Common Stock underlying such Public Warrants, other warrants, stock
options and the Underwriters' Option may adversely affect prevailing market
prices for the Common Stock. Moreover, the terms upon which the Company will be
able to obtain additional equity capital may be adversely affected, since the
holders of such outstanding securities can be expected to exercise them at a
time when the Company would, in all likelihood, be able to obtain any needed
capital on terms more favorable to the Company than those provided in such
Public Warrants, other warrants, stock options and the Underwriters' Option. In
addition, pursuant to the Sunrise Placement, the Company is obligated to issue
3,592,815 shares if it does not meet certain revenue milestones in 1998. The
Company anticipates that these 3,592,815 shares, will need to be issued, and a
request for such issuance has been made by Sunrise. To date, the Company has not
registered any of the foregoing shares.
POTENTIAL ADVERSE EFFECTS OF ISSUANCE OF PREFERRED STOCK; ANTI-TAKEOVER
PROVISIONS. The Company is authorized to issue up to 2,000,000 shares of
preferred stock, $.01 par value ("Preferred Stock"). Preferred Stock may be
issued in one or more series, the terms of which may be determined at the time
of issuance by the Board of Directors, without further action by stockholders,
and may include voting rights (including the right to vote as a series on
particular
8
matters), preferences as to dividends and liquidation, conversion and redemption
rights and sinking fund provisions. No Preferred Stock is currently outstanding
and the Company has no present plans for the issuance thereof. Issuance of such
Preferred Stock, depending upon the rights, preferences and designations
thereof, may have the effect of delaying, deterring or preventing a change in
control of the Company, or could result in the dilution of the voting power of
the Common Stock issuable upon conversion of the notes or exercise of the
warrants purchased in this Offering. In addition, certain "anti-takeover"
provisions of the Delaware General Corporation Law, among other things, may
restrict the ability of the stockholders to effect a merger or business
combination or to obtain control of the Company.
No Dividends. The Company has never paid any cash dividends on its Common Stock.
The Board of Directors anticipates that for the foreseeable future the Company's
earnings, if any, will be retained for use in the business and that no cash
dividends will be paid on the Common Stock.
4.3 LACK OF LIQUIDITY. The Purchaser confirms that he is able (i) to
bear the economic risk of this investment, and (ii) to hold the Units and the
Securities underlying the Units for an indefinite period of time. The Purchaser
has sufficient liquid assets so that the illiquidity associated with an
investment in the Units will not cause any undue financial difficulties or
affect the Purchaser's ability to provide for his current needs and possible
financial contingencies, and that his commitment to all speculative investments
is reasonable in relation to his net worth and annual income.
4.4 ACCESS TO INFORMATION. The Purchaser and the Purchaser's attorney,
accountant and/or tax advisor, if any (collectively, the "Advisors"):
(a) have received the Loan Documents and all other documents
requested by the Purchaser, have carefully reviewed them and understand the
information contained therein;
(b) have been furnished with the Company's Proxy Statement mailed to
Stockholders on June 15, 1998 ("Proxy Statement"), annual report on Form 10-KSB
for the fiscal year ended December 31, 1997 ("10-KSB"), quarterly report on Form
10-QSB for the fiscal quarter ended March 31, 1998 ("First Quarter 10-QSB"),
quarterly report on Form 10-QSB for the fiscal quarter ended June 30, 1998
("Second Quarter 10-QSB"), and any documents which may have been made available
upon request, and he or his Advisors have carefully read Proxy Statement, the
10-KSB, First Quarter 10-QSB, and Second Quarter 10-QSB and understand and have
evaluated the risks of a purchase of Units, including the risks set forth under
"Risk Factors" in Section 4.2 above;
(c) have been provided an opportunity to obtain additional
information concerning the Offering, the Company and all other information to
the extent the Company possesses such information or can acquire it without
unreasonable effort or expense. All documents, records and books pertaining to
the investment in the Units (including, without limitation, the Loan Documents)
have been made available for inspection by such Purchaser and the Advisors, if
any;
9
(d) have been given the opportunity to ask questions of and receive
answers from the Company concerning any and all matters relating to the Company
and this investment, and has been given the opportunity to obtain such
additional information necessary to verify the accuracy of the information
provided in order to evaluate the merits and risks of purchase of the Units;
(e) are satisfied that they have received adequate information with
respect to all matters which they consider material to their decision to make an
investment in this Offering.
(f) have not relied upon any representation or other information
(oral or written) other than as stated in the Loan Documents or this
Subscription Agreement or as contained in documents or answers to questions so
furnished to the Purchaser or the Advisors by the Company; and
(g) have determined that the Units are a suitable investment for him
and that at this time he can bear a complete loss of his investment.
4.5 INVESTMENT INTENT. The Units are being acquired by the undersigned
solely for his own personal account, for investment purposes only, and not with
a view to, or in connection with, any resale or distribution thereof. The
Purchaser has no contract, undertaking, understanding, agreement or arrangement,
formal or informal, with any person to sell, transfer or pledge to any person
the Units, or any of the Securities underlying the Units, for which he hereby
subscribes, or any part thereof, or any interest therein or any rights thereto.
The Purchaser has no present plans to enter into any such contract, undertaking,
agreement or arrangement. The Purchaser must bear economic risk of the
investment for an indefinite period of time because neither the Units, nor the
Securities underlying the Units, have been registered under the Securities Act
and applicable state securities laws and, therefore, cannot be sold unless they
are subsequently registered under the Securities Act and applicable state
securities laws or unless an exemption from such registration is available.
4.6 FEDERAL AND STATE SECURITIES APPROVAL. Neither the Securities and
Exchange Commission ("SEC") nor any state securities commission has approved the
Units, or passed upon or endorsed the merits of the Offering or confirmed the
accuracy or determined the adequacy of this Subscription Agreement or the Loan
Documents or made any finding or determination as to the fairness of the Units
for investment. Neither this Subscription Agreement, nor any of the Loan
Documents, have been reviewed by any Federal, state or other regulatory
authority.
4.7 NO GENERAL SOLICITATION. The Purchaser is unaware of, is no way
relying on, and did not become aware of the offering of the Units through or as
a result of, any form of general solicitation or general advertising, including,
without limitation, any article, notice, advertisement or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio, in connection with this Offering and is not subscribing for
Units and did not become aware of the Offering through or as a result of any
seminar or meeting to which the Purchaser was invited by, or any solicitation of
a subscription by, a person not previously known to the Purchaser in connection
with investments in securities generally.
10
4.8 INVESTMENT EXPERIENCE. The Purchaser, together with the Advisors,
has such knowledge and experience in financial, tax and business matters and, in
particular, investments in securities, so as to enable them to utilize the
information made available to them in connection with the Offering to evaluate
the merits and risks of an investment in the Company and to make an informed
investment decision with respect thereto. The Purchaser has significant prior
investment experience, including investment in non-registered securities. The
Purchaser has a sufficient net worth to sustain a loss of its entire investment
in the Company in the event such a loss should occur. The investment is a
suitable one for the Purchaser.
4.9 RELIANCE ON PURCHASER'S ADVISORS. The Purchaser is not relying on
the Company, the Placement Agent or any of their respective employees or agents
with respect to the legal, tax, economic and related considerations of an
investment in the Units, and the Purchaser has relied on the advice of, or has
consulted with, only his own Advisors.
4.10 NONTRANSFERABILITY OF UNITS AND SECURITIES. The Purchaser must
bear the substantial economic risks of the investment in the Units indefinitely
because none of the Units or the Securities underlying the Units may be sold,
hypothecated or otherwise disposed of unless subsequently registered under the
Securities Act and applicable state securities laws or an exemption from such
registration is available. Legends shall be placed on the Securities underlying
the Units to the effect that they have not been registered under the Securities
Act or applicable state securities laws, and appropriate notations thereof will
be made in the Company's stock books. Stop transfer instructions will be placed
with the transfer agent of the Securities underlying the Units. It is not
anticipated that there will be any market for resale of the Securities
underlying the Units, and such Securities will not be freely transferable at any
time in the foreseeable future.
4.11 ACCREDITED INVESTOR STATUS. The Purchaser meets the requirements
of at least one of the suitability standards for an "accredited investor" as set
forth on the Accredited Investor Certificate contained in Section 20 of this
Subscription Agreement.
4.12 AUTHORITY OF PURCHASER. The Purchaser: (i) if a natural person,
represents that the Purchaser has reached the age of 21 and has full power and
authority to execute and deliver this Subscription Agreement and all other
related agreements or certificates and to carry out the provisions hereof and
thereof and this Subscription Agreement constitutes a legal, valid and binding
obligation of the Purchaser; (ii) if a corporation, partnership, limited
liability company or partnership, association, joint stock company, trust,
unincorporated organization or other entity, represents that such entity was not
formed for the specific purposes of subscribing for and acquiring the Units,
such entity is duly organized, validly existing and in good standing under the
laws of the state of its organization, the consummation of the transactions
contemplated hereby is authorized by, and will not result in a violation of
state law or its charter or other organizational documents, such entity has full
power and authority to execute and deliver this Subscription Agreement and all
other related agreements or certificates and to carry out the provisions hereof
and thereof and to purchase and hold the Units, and the Securities underlying
the Units, the execution and delivery of this Subscription Agreement have been
duly authorized by all necessary actions, this Subscription Agreement has been
duly executed and delivered on behalf of such entity and is a legal, valid and
binding obligation of such entity; and (iii) if executing this Subscription
Agreement in a representative or fiduciary capacity, represents that it has full
power and authority to execute and deliver this Subscription Agreement in such
capacity and on behalf of the subscribing individual,
▇▇
▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇, corporation, limited liability company or
partnership, or other entity for whom the Purchaser is executing this
Subscription Agreement and such individual, ▇▇▇▇, partnership, trust, estate,
corporation, limited liability company or partnership, or other entity, has full
right and power to perform pursuant to this Subscription Agreement and make an
investment in the Company, and that this Subscription Agreement constitutes a
legal, valid and binding obligation of such entity. The execution and delivery
of this Subscription Agreement and the purchase of the Units will not violate or
be in conflict with any order, judgment, injunction, agreement or controlling
document to which the Purchaser is a party or by which it is bound and is
legally permitted by all laws and regulations to which the Purchaser is subject.
All consents, approvals, authorizations of or designations, declarations or
filings that are necessary to be obtained by the Purchaser in connection with
the valid execution and delivery of this Subscription Agreement by the Purchaser
or the purchase of the Units by the Purchaser have been obtained or will be
obtained.
4.13 ACCURACY OF INFORMATION FURNISHED BY PURCHASER. The Purchaser
represents to the Company that any information which the Purchaser has
heretofore furnished or furnishes herewith to the Company or the Placement Agent
is complete and accurate and may be relied upon by the Company in determining
the availability of an exemption from registration under Federal and state
securities laws in connection with the Offering. The Purchaser further
represents and warrants that it will notify and supply corrective information to
the Company and the Placement Agent immediately upon the occurrence of any
change therein occurring prior to the Company's issuance of the Units.
4.14 COMMISSIONS. The Purchaser is not aware that any person, and has
been advised that no person, will receive from the Company any compensation as a
broker, finder, adviser or in any other capacity in connection with the purchase
of Units; provided, however, that the Purchaser understands and agrees that AKH,
or its designees, shall be entitled to receive (a) (i) a commission equal to ten
percent (10%) of the gross proceeds of the Units offered and sold in the
Offering, (ii) a non-accountable expense allowance equal to one percent (1%) of
the gross proceeds of the Units offered and sold in the Offering, and (iii)
five-year warrants to purchase 1,000,000 shares of Common Stock at an exercise
price of $.40 per share (the "AKH Warrants") if 30 Units are sold in the
Offering (with a pro-rata reduction to the extent less than 30 Units are sold);
and (b) financial advisory fees of $5,000 per month for a twelve-month period
commencing the date of the Initial Closing. The Company has also agreed to
indemnify AKH against certain liabilities under the Federal securities laws.
4.15 FURTHER ASSURANCES. Within five (5) days after receipt of a
request from the Company or the Placement Agent, the Purchaser will provide such
information and deliver such documents as may reasonably be necessary to comply
with any and all laws and ordinances to which the Company or the Placement Agent
is subject.
4.16 RESTRICTED SECURITIES. NEITHER THE UNITS OFFERED HEREBY, NOR THE
SECURITIES UNDERLYING THE UNITS HAVE BEEN REGISTERED WITH THE UNITED STATES
SECURITES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT, OR THE SECURITIES
12
COMMISSION OF ANY STATE UNDER ANY STATE SECURITIES LAW. THE UNITS ARE BEING
OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION PURSUANT TO SECTION 4(2) OF
THE SECURITIES ACT. THE UNITS, AND THE SECURITIES UNDERLYING THE UNITS, ARE
SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND
SUCH STATE SECURITIES LAWS PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM
WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE
REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, IS AVAILABLE. NEITHER THE
UNITS, NOR THE SECURITIES UNDERLYING THE UNITS, HAVE BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES
COMMISSION OR ANY OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING
AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY
OR ADEQUACY OF THE LOAN DOCUMENTS. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Purchaser as follows:
5.1 CORPORATE EXISTENCE AND QUALIFICATION. The Company is a
corporation duly organized and validly existing under the laws of the State of
Delaware and has the requisite power and authority to own, lease and operate its
assets and properties and to carry on its business as now conducted and as
proposed to be conducted. The Company is qualified or licensed to do business in
each jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualifications or licensing
necessary, except where the failure to be so qualified will not, when taken
together with all other such failures, have material adverse effect on the
business of the Company.
5.2 AUTHORITY; APPROVALS; NON-CONTRAVENTION.
(a) The Company has full corporate power and authority and has
taken all corporate action necessary to enter into this Subscription Agreement
and the Loan Documents to which it is a party and to consummate the transactions
contemplated hereby and thereby. This Subscription Agreement has been, and the
Loan Documents will be, duly and validly executed and delivered by the Company
and this Subscription Agreement, and the Loan Documents, constitute valid and
binding agreements of the Company enforceable against the Company in accordance
with their respective terms, except insofar as enforceability may be limited by
general equitable principles and to bankruptcy, insolvency, reorganization,
moratorium, or similar laws of general application affecting the rights and
remedies of creditors.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with any governmental authority is required
to be obtained or made by or with respect to the Company in connection with the
execution and delivery of this Subscription Agreement or the Loan Documents by
the Company or the performance by the Company of the transactions contemplated
hereby or thereby, except for those obtained or made.
13
(c) The execution and delivery of this Subscription Agreement and
each of the Loan Documents by the Company do not, and the consummation by
Company of the transactions contemplated hereby and thereby, will not, and the
performance of the Company of the transactions contemplated hereby or thereby
will not violate, conflict with or result in a breach of any provision of, or
constitute default (or result in any event that, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under any terms, conditions or provisions of (i) the Certificate of
Incorporation, as amended to date, or by-laws of the Company, (ii) any judgment,
decree order or award of any governmental authority applicable to the Company,
or any law, rule or regulation applicable to the Company or any note, bond,
mortgage, indenture, deed, trust, permit, lease, agreement or other instrument
to which the Company is now a party or by which the Company or any of its
properties or assets may be bound or subject.
5.3 Title to Properties; Encumbrances. The Company has good, valid
and marketable title to all of its properties and assets (personal, tangible and
intangible); in each case free and clear of all encumbrances, liens, claims,
charges or other restrictions of whatever kind or character, except as set forth
on Schedule 3(b) attached to the Loan Agreement.
5.4 SEC Documents. The Company has filed all required periodic
reports and proxy statements with the SEC since its initial public offering
completed in May, 1997 (the "SEC Documents"). As of their respective dates, none
of the SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make statements therein, in light of the circumstances under which they
were made, not misleading. As of their respective dates, the financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP applied in a consistent basis during the periods involved
(except as otherwise disclosed therein), and fairly present the financial
position of the Company as of the dates thereof and the results of operations
and cash flows for the periods then ended.
6. REGISTRATION RIGHTS. The Company hereby covenants with the Purchaser
as follows:
6.1 DEFINITIONS. For the purposes of this Subscription Agreement:
(a) The terms "register," "registered" and "registration" refer
to a registration effected by preparing and filing a registration statement or
statements or similar documents in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement or
document by the SEC.
(b) The term "Registrable Securities" means (i) the shares of the
Company's Common Stock issuable upon conversion of the Notes or exercise of the
Warrants (the "Purchasers' Shares"), (ii) shares of the Company's Common Stock,
if any, issued to Sunrise or AKH
14
in connection with prior private offerings of the Company or this Offering,
respectively, (iii) any shares of the Company's Common Stock issued as (or
issuable upon the conversion or exercise of any convertible security, warrant,
right or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of the Shares, including,
but not limited to, the shares underlying the AKH Warrants, and excluding in all
cases, however, any Registrable Securities sold by a Purchaser in a transaction
in which its registration rights under this Agreement are not assigned pursuant
to Section 6.8 of this Subscription Agreement, and (iv) any other shares or
securities of the Company that are subject to registration rights previously
granted by the Company (identified in Section 4.2, Common Stock Eligible for
Future Sale; Registration Obligations).
(c) The term "Purchaser" includes (i) each Purchaser in this
Offering, and (ii) each person who is a permitted transferee or assignee of the
Purchasers' Shares pursuant to Section 6.8 of this Subscription Agreement.
6.2 DEMAND REGISTRATION.
(a) REQUEST FOR REGISTRATION ON FORM OTHER THAN FORM S-3. Subject
to the terms of this Agreement, in the event that the Company shall receive from
the holders of at least fifty percent (50%) of the Purchasers' Shares (the
"Initiating Holders"), at any time after the earlier of (i) three (3) years
after the Closing of this Offering, or (ii) ninety (90) days after the effective
date of any public offering under the Securities Act of the Shares by the
Company for its account (the "Public Offering"), a written request that the
Company effect any registration with respect to all or a part of the Registrable
Securities on an applicable Securities Act form other than Form S-3 for an
offering covering the registration of Registrable Securities having a reasonably
anticipated aggregate offering price to the public in excess of One million
dollars ($1,000,000), the Company shall (A) promptly give written notice of the
proposed registration to all other holders of the Registrable Securities, and
(B) as soon as practicable, and in any event within ninety (90) days after such
request, use its best efforts to effect registration of the Registrable
Securities specified in such request, together with any Registrable Securities
of any holder thereof joining in such request as are specified in a written
request given within twenty (20) days after written notice from the Company. The
Company shall not be obligated to take any action to effect any such
registration pursuant to this Section 6.2(a): (i) within six (6) months after
the effective date of a registration of the Shares initiated by the Company; or
(ii) after the Company has effected two such registrations pursuant to this
Section 6.2(a) and such registrations have been declared effective by the SEC
and, if underwritten, have closed.
(b) RIGHT OF DEFERRAL OF REGISTRATION ON FORM OTHER THAN FORM
S-3. If the Company shall furnish to all the holders of Registrable Securities
who joined in the request for registration pursuant to Section 6.2(a) above a
certificate signed by the President of the Company stating that, in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company for any registration to be effected as requested
under Section 6.2(a), then the Company shall have the right to defer the filing
of a registration statement under the Securities Act with respect to such
requested offering for a period of not more than ninety (90) days from delivery
of the request of the Initiating Holders; provided, however, that the Company
may not utilize this right more than once in any twelve-month period.
15
(c) REQUEST FOR REGISTRATION ON FORM S-3. Subject to the terms of
this Agreement, if the Company receives from holders of a majority interest of
the Purchasers' Shares, at a time when the Company is eligible to register
securities for a secondary offering by its stockholders on SEC Securities Act
Form S-3 (or any successor form to Form S-3, regardless of its designation), a
written request that the Company effect any registration on Form S-3 (or any
successor form to Form S-3, regardless of its designation) for an offering of
Registrable Securities the reasonably anticipated aggregate offering price to
the public of which would exceed $500,000, then the Company will promptly give
written notice of the proposed registration to all the holders of Registrable
Securities specified in such request, together with all or such portion of the
Registrable Securities of any holder joining in such request as are specified in
a written request delivered to the Company within twenty (20) days after written
notice from the Company of the proposed registration.
(d) REGISTRATION OF OTHER SECURITIES IN DEMAND REGISTRATION. Any
registration statement filed pursuant to the request of the Initiating Holders
under this Section 6.2 may, subject to the provisions of Sections 6.2(e), (f),
(g), (h) and (i), include securities of the Company other than Registrable
Securities.
(e) NOTICE OF UNDERWRITING. If the Initiating Holders intend to
distribute the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request made
pursuant to this Section 6.2, and the Company shall include such information in
the written notice referred to in Section 6.2(a). The right of any holder to
registration pursuant to Section 6.2(a) shall be conditioned upon such holder's
agreement to participate in such underwriting and the inclusion of such holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such holder with respect to
such participation and inclusion).
(f) INCLUSION OF OTHER HOLDERS IN DEMAND REGISTRATION. If the
Company, officers or directors of the Company holding Shares other than
Registrable Securities or holders of securities of the Company other than
Registrable Securities shall request inclusion in such registration, then, on
behalf of all holders of Registrable Securities, the Initiating Holders shall
offer (to the extent they deem advisable and consistent with the goals of such
registration and subject to the allocation provisions of Section 6.3(b) below)
to any or all of the Company, such officers or directors and such holders of
other securities, to include such securities held thereby in the underwriting.
The Initiating Holders may condition such offer on the acceptance by such
persons of the terms of this Section 6.2.
(g) SELECTION OF UNDERWRITING IN DEMAND REGISTRATION. The Company
shall (together with all holders proposing to distribute their securities
through such underwriting) enter into and perform its obligations under an
underwriting agreement in usual and customary form with the representative of
the underwriter or underwriters (the "Underwriter's Representative") selected
for such underwriting by the holders of a majority of the Registrable Securities
being registered by the Initiating Holders and consented to by the Company
(which consent shall not be unreasonably withheld).
(H) MARKETING LIMITATION IN DEMAND REGISTRATION. In the event the Underwriter's
Representative advises the Initiating Holders in writing that the market factors
16
(including, without limitation, the aggregate number of Shares requested to be
registered, the general condition of the market, and the status of the persons
proposing to sell securities pursuant to the registration) require a limitation
of the number of shares to be underwritten, then the Initiating Holders shall so
advise all holders of Registrable Securities, and the number of shares of
Registrable Securities that may be included in the registration and underwriting
shall be allocated among all holders in proportion, as nearly as practicable, to
the number of shares proposed to be included in such registration by such
holders; provided, however, that the number of Purchasers' Shares included in
the aggregate of the Registrable Securities to be so included shall not be
reduced unless all other Registrable Securities or other securities (other than
those to be sold by the Company) are first entirely excluded from the
underwriting. No Registrable Securities or other securities excluded from the
underwriting by reason of this Section 6.2(h) shall be included in such
Registration Statement.
(i) Right of Withdrawal in Demand Registration. If any holder of
Registrable Securities, or a holder of other securities entitled (upon request)
to be included in such registration, disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the underwriter and the Initiating Holders delivered at least seven
(7) business days prior to the effective date of the registration statement. The
securities so withdrawn shall also be withdrawn from the Registration Statement.
6.3 PIGGYBACK REGISTRATION.
(a) NOTICE OF PIGGYBACK REGISTRATION AND INCLUSION OF REGISTRABLE
SECURITIES. In the event the Company decides to register any of its shares of
Common Stock (either for its own account or the account of a security holder or
holders [other than in connection with a registration being effected pursuant to
Section 6.2 hereof]) on an SEC form that would be suitable for a registration
involving solely Registrable Securities, the Company will: (i) promptly give
each holder of Registrable Securities written notice thereof (which shall
include a list of the jurisdictions in which the Company intends to qualify such
securities under the applicable Blue Sky or other state securities laws) and
(ii) include in such registration (and in any related qualification under Blue
Sky laws or other state securities laws), and in any underwriting involved
therein, all the Registrable Securities specified in a written request delivered
to the Company by any holder or Registrable Securities within twenty (20) days
after delivery of such written notice from the Company.
(b) NOTICE OF UNDERWRITING IN PIGGYBACK REGISTRATION. If the
registration of which the Company gives notice pursuant to Section 6.3(a) is for
a registered public offering involving an underwriting, then the Company shall
so advise the holders of Registrable Securities as a part of the written notice
given pursuant to Section 6.3(a). In such event, the right of any such holder to
registration shall be conditioned upon such underwriting and the inclusion of
such holder's Registrable Securities proposing to distribute their securities
through such underwriting shall (together with the Company and the other holders
distributing their securities through such underwriting) enter into an
underwriting agreement with the Underwriter's Representative for such offering;
provided that such holders of Registrable Securities shall have no right to
participate in the selection of the underwriters for an offering pursuant to
this Section 6.3(b)
17
(c) MARKETING LIMITATION IN PIGGYBACK REGISTRATION. In the event
the Underwriter's Representative advises the holders seeking registration of
Registrable Securities pursuant to Section 6.3(b) in writing that market factors
(including, without limitation, the aggregate number of shares of Common Stock
requested to be registered, the general condition of the market, and the status
of the persons proposing to sell securities pursuant to the registration)
require a limitation of the number of shares to be underwritten, the
Underwriter's Representative may limit the number of shares of Registrable
Securities to be included in such registration and underwriting. In either such
event, the Underwriter's Representative shall so advise all holders of the
number of shares of Registrable Securities (if any) that may be included in the
registration and underwriting. The number of Purchasers' Shares included in the
aggregate of the Registrable Securities to be so included shall not be reduced
unless all other Registrable Securities or other securities (other than those to
be sold by the Company) are first entirely excluded from the underwriting. No
Registrable Securities or other securities excluded from the underwriting by
reason of this Section 6.3(c) shall be included in the applicable Registration
Statement.
(d) WITHDRAWAL IN PIGGYBACK REGISTRATION. If any holder of
Registrable Securities, or a holder of other securities (upon request) to be
included in such registration, disapproves of the terms of any such
underwriting, then such holder may elect to withdraw therefrom by written notice
to the Company and the underwriter delivered at least seven (7) business days
prior to the effective date of the registration statement. Any Registrable
Securities or other securities excluded or withdrawn from such underwriting
shall be withdrawn from such registration.
6.4 OBLIGATIONS OF THE COMPANY. When the Company is required by the
provisions of Section 6.2 or Section 6.3 to effect the registration of the
Registrable Securities under the Securities Act, the Company will:
(a) prepare and file with the SEC a registration statement (the
"Registration Statement") with respect to such securities, and use its best
efforts to cause the Registration Statement to become effective as soon as
reasonably possible after such filing, and, with respect to any registration
that does not involve an underwriting, to keep the Registration Statement
effective pursuant to Rule 415 under the Securities Act for a period of at least
two years after the close of this Offering, or such shorter period as prescribed
by Rule 144 promulgated under the Securities Act ("Rule 144") or during which
the Registrable Securities are sold, which Registration Statement (including any
amendments or supplements thereto and prospectuses contained therein) shall 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 in
light of the circumstances in which they were made, not misleading;
(b) prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and any
prospectus contained therein as may be necessary to keep the Registration
Statement effective (i) for such period as may be required by the Securities Act
with respect to an underwritten offering and (ii) for at least two years after
the close of the Offering, or such shorter period as prescribed by Rule 144,
with respect to a non-underwritten offering, and during such periods to comply
with the provisions of the Securities Act with respect to the disposition of all
securities covered by the Registration Statement;
(c) furnish to each Purchaser whose Registrable Securities are
included in the Registration Statement such reasonable number of copies of a
prospectus, including a preliminary prospectus, and all amendments and
18
supplements thereto, and such other documents as such Purchaser may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Purchaser;
(d) use its reasonable efforts to register or qualify the
Registrable Securities covered by the Registration Statement under such other
state securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Purchasers who hold a majority in interest of the Purchasers'
Shares covered by the Registration Statement and, with respect to a
non-underwritten offering, prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements and to take
such other actions as may be necessary to maintain such registration and
qualification in effect at all times for a period of at least two years after
the close of the Offering, or such shorter period as prescribed by Rule 144 or
during which the Registrable Securities are sold, and to take all other actions
necessary or advisable to enable the disposition of such securities in such
jurisdictions; provided, however, that the Company shall not be required in
connection therewith or as a condition thereto to (i) qualify to do business,
file a general consent to service of process or subject itself to general
taxation in any such states or jurisdictions or (ii) provide any undertaking or
make any change in its Certificate of Incorporation or by-laws;
(e) If the Registration Statement relates to an underwritten
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, including without limitation, customary
indemnification and contribution obligations, with the Underwriter's
Representative.
(f) Notify Purchasers who hold Registrable Securities being sold
(or in the event of an underwritten offering, the Underwriter's Representative),
at any time when a prospectus relating to Registrable Securities covered by the
Registration Statement is required to be delivered under the Securities Act, of
the happening of any event as a result of which the prospectus included in the
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. The Company shall use its best efforts promptly to
amend or supplement the Registration Statement to correct any such untrue
statement or omission.
(g) Notify the Purchasers who hold Registrable Securities being
sold (or in the event of an underwritten offering, the Underwriter's
Representative) of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any proceedings
for that purpose. The Company will make every reasonable effort to prevent the
issuance of any stock order and, if any stop order is issued, to obtain the
lifting thereof at the earliest possible time.
(h) Permit a single firm of counsel, designated as selling shareholders' counsel
by the holders of a majority in interest of the Purchasers' Shares being sold,
19
to review the Registration Statement and all amendments and supplements thereto
a reasonable period of time prior to their filing, and shall not file any
document in a form to which such counsel reasonably objects.
(i) Make generally available to its security holders as soon as
practicable, but not later than forty five (45) days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the Securities Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement.
(j) At the request of the Purchasers who hold a majority in
interest of the Purchasers' Shares being sold, furnish to the underwriters, if
any, on the date that Registrable Securities are delivered to the underwriters
for sale in connection with a registration pursuant to this Agreement (i) an
opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the underwriters,
and (ii) a letter, dated such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters.
(k) Make available for inspection by any underwriters
participating in the offering and the counsel, accountants or other agents
retained by such underwriter, all pertinent financial and other records,
corporate documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all information reasonably requested
by such underwriters in connection with the Registration Statement.
(l) Take all actions reasonably necessary to facilitate the
timely preparation and delivery of certificates (not bearing any restrictive
legend) representing the Registrable Securities sold pursuant to the
Registration Statement and to enable such certificates to be in such
denominations as registered in such names as the Purchasers or any underwriters
may reasonably request;
(m) Take all other actions reasonably necessary to expedite and
facilitate disposition by the Purchasers of the Registrable Securities pursuant
to the Registration Statement; and
(n) Notwithstanding anything contained in this Section 6.4 to the
contrary, the Company shall have no obligation pursuant to this Subscription
Agreement for the registration of Registrable Securities held by any Purchaser
(i) where such Purchaser would then be entitled to sell under Rule 144 within
any three-month period (or such other period prescribed under Rule 144 or as may
be provided by amendment thereof) all of the Registrable Securities then held by
such Purchaser, and (ii) where the number of Registrable Securities held by such
Purchaser is within the volume limitations under paragraph (e) of Rule 144
(calculated as if such Purchaser were an affiliate of the Company within the
meaning of Rule 144).
20
6.5 OBLIGATIONS OF THE PURCHASERS. In connection with the
registration of the Registrable Securities pursuant to this Subscription
Agreement, the Purchaser shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Agreement with respect to each
Purchaser that such Purchaser shall furnish to the Company such information
regarding itself, the Registrable Securities held by it, and the intended
methods of disposition of such securities as shall be reasonably required to
effect the registration of the Registrable Securities and shall execute such
documents in connection with such registration as the Company may reasonably
request. At least thirty (30) days prior to the first anticipated filing date of
the Registration Statement, the Company shall notify each Purchaser of the
information the Company requires from each such Purchaser (the "Requested
Information") if it elects to have any of his Registrable Securities included in
the Registration Statement. If within seven (7) business days of the filing date
the Company has not received the Requested Information from a Purchaser (a
"Non-Responsive Purchaser"), then the Company may file the Registration
Statement without including the Registrable Securities of such Non-Responsive
Purchaser.
(b) Each Purchaser by his acceptance of the Registrable
Securities agrees to cooperate with the Company in connection with the
preparation and filing of any Registration Statement hereunder, unless such
Purchaser has notified the Company in writing of its election to exclude all of
its Registrable Securities from the Registration Statement.
(c) In the event Purchasers holding a majority in interest of the
Purchasers' Shares select underwriters for the offering, each Purchaser agrees
to enter into and perform its obligations under an underwriting agreement, in
usual and customary form, including, without limitation, customary
indemnification and contribution obligations and market stand-off obligations,
with the managing underwriter of such offering and to take such other actions as
are reasonably required in order to expedite or facilitate the disposition of
the Registrable Securities, unless such Purchaser has notified the Company in
writing of its election to exclude all of his Registrable Securities from the
Registration Statement.
(d) Each Purchaser agrees that, upon receipt of any notice from
the Company of the happening of any event of any kind described in Section
6.3(f), such Purchaser will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Purchaser's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 6.3(f) and, if so desired by the
Company, such Purchaser shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of such
destruction) all copies, other than the permanent file copies then in such
Purchaser's possession, of the prospectus covering such Registrable Securities
current at the time of receipt of such notice.
(e) No Purchaser may participate in any underwritten registration
hereunder unless such Purchaser (i) agrees to sell such Purchaser's Registrable
Securities on the basis provided in any underwriting arrangements approved by
the Purchasers entitled hereunder to approve such arrangements, (ii) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to pay such Purchaser's pro rata
portion of all underwriting discounts and commissions.
21
6.6 EXPENSES OF REGISTRATION. With respect to the registration, all
fees, costs and expenses of and incidental to such registration and public
offering (as specified below) in connection therewith shall be borne by the
Company, provided, however, that any security holders participating in such
registration shall bear their pro rata share of the underwriting discount and
commission and transfer taxes. The fees, costs and expenses of registration to
be borne by the Company as provided above shall include, without limitation, all
registration, filing and NASD fees, printing expenses, fees and disbursements of
counsel and accountants for the Company, fees and disbursements of one counsel
and one accountant for the selling security holders, and all legal fees and
disbursements and other expenses of complying with state securities or blue sky
laws of any jurisdictions in which the securities to be offered are to be
registered and qualified. Fees and disbursements of more than one counsel and
one accountant for the selling security holders, and any other expenses incurred
by the selling security holders not expressly included above shall be borne by
the selling security holders.
6.7 INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Purchaser, the directors, if any, of such Purchaser, the
officers, if any, of such Purchaser who sign the Registration Statement, each
person, if any, who controls such Purchaser, any underwriter (as defined in the
Securities Act) for the Purchasers and each person, if any, who controls any
such underwriter within the meaning of the Securities Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), against any losses,
claims, damages, expenses or liabilities, joint or several) to which any of them
may become subject under the Securities Act, the Exchange Act, other federal or
state law or otherwise, insofar as such losses, claims, damages, expenses or
liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof, arise out of or are based upon any of the following statements,
omissions or violations (collectively, a "Violation"): (i) any untrue statement
or alleged untrue statement of material fact contained in the Registration
Statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading or (iii) any violation or alleged violation by
the Company of the Securities Act, the Exchange Act, any state securities law or
any rule or regulation promulgated under the Securities Act, the Exchange Act or
any state securities law. Subject to the restrictions set forth in Section
6.7(c) with respect to the number of legal counsel, the Company will reimburse
the Purchasers, directors, officers, and each such underwriter or controlling
person, promptly as such expenses are incurred, for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, action or proceeding. Notwithstanding
anything contained in this Agreement to the contrary, the indemnity agreement
contained above in this Section 6.7(a) (I) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld, (II) shall not apply to any such
case for any such loss, claim, damage, liability or action arising out of or
based upon a Violation which occurs in reliance upon and in
22
conformity with written information furnished expressly for use in connection
with such registration by the Purchasers or any such underwriter or controlling
person, as the case may be, and (III) with respect to any preliminary
prospectus, shall not inure to the benefit of any person from whom the person
asserting any such claim purchased the Registrable Securities that are the
subject thereof (or to the benefit of any person controlling such person) if the
untrue statement or omission of material fact contained in the preliminary
prospectus was corrected in the prospectus, as then amended or supplemented.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Purchasers or any such underwriter or
controlling person and shall survive the transfer of the Registrable Securities
by a Purchaser pursuant to Section 6.9.
(b) To the extent permitted by law, each Purchaser, severally and
not jointly, will indemnity and hold harmless, to the same extent and in the
same manner set forth in Section 6.7(a), the Company, each of its directors,
each of its officers who have signed the Registration Statement, each person, if
any, who controls the Company within the meaning of the Securities Act or the
Exchange Act, any underwriter and any other stockholder selling securities
pursuant to the Registration Statement or any of its directors or officers or
any person who controls such holder or underwriter, against any losses, claims,
damages or liabilities (joint or several), to which any of them may become
subject, under the Securities Act, the Exchange Act, other federal or state law
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by such Purchaser
expressly for use in connection with such registration; and such Purchaser will
reimburse any legal or other expenses reasonably incurred by any of them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Purchaser shall be liable under
this Section 6.7(b) for only that amount of losses, claims, damages and
liabilities as does not exceed the proceeds received by such Purchaser as a
result of the sale of Registrable Securities pursuant to such registration. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such indemnified party and shall survive the transfer of
the Registrable Securities by the Purchasers pursuant to Section 6.9 The Company
shall be entitled to receive indemnities from underwriters, selling brokers,
dealer managers and similar securities industry professionals participating in
the distribution, to the same extent as provided above, with respect to
information about such persons so furnished in writing by such persons for
inclusion in the Registration Statement.
(c) Promptly after receipt by an indemnified party under this
Section 6.7 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 6.7, deliver to
the indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof with counsel
satisfactory to the indemnifying party; provided, however, that an indemnified
party shall have the right to retain its own counsel, with the fees and expenses
to be paid by the indemnifying party, if, in the reasonable opinion of counsel
for the indemnifying party, representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding.
23
The Company shall pay for only one legal counsel for the Purchasers. Such legal
counsel shall be selected by the Purchasers holding a majority in interest of
the Purchasers' Shares. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall relieve such indemnifying party of any liability to the indemnified
party under this Section 6.7 only to the extent prejudicial to its ability to
defend such action, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under Section 6.7. The indemnification required
by this Section 6.7 shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, promptly as such expense,
loss, damage or liability is incurred and is due and payable.
(d) To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under this Section 6.7 to the extent permitted by law; provided, however, that
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in this
Section 6.7, (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11 of the Securities Act) shall
be entitled to contribution from any seller of Registrable Securities who was
not guilty of such fraudulent misrepresentation, and (iii) contribution by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
6.8 Reports Under the Exchange Act. With a view to making available
to the Purchasers the benefits of Rule 144 and any other rule or regulation of
the SEC that may at any time permit Purchasers to sell securities of the Company
to the public without registration, the Company agrees to:
(a) File with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act.
(b) Furnish to each Purchaser, so long as such Purchaser owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144 (at any
time after 90 days after the effective date of the first registration statement
filed by the Company), the Securities Act and the Exchange Act, (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information as may
be reasonably requested in availing the Purchasers of any rule or regulation of
the SEC which permits the selling of any such securities without registration.
6.9 Assignment of Registration Rights. The rights to have the
Company register securities pursuant to this Agreement may be assigned by the
Purchasers to transferees or assignees of such securities provided that (i) the
Company is, within a reasonable time after such transfer, furnished with written
notice of the name and address of such transferee or assignee and the securities
with respect to which such registration rights are being assigned, (ii) such
assignment is in accordance with and permitted by all other agreements between
the Company and the transferor or assignor, and (ii) such assignments shall be
effective only if immediately following such transfer the further disposition of
such securities by the transferee or assignee is restricted under the Securities
Act. The term "Purchasers" as used in Section 6 of this Subscription Agreement
shall include permitted assignees.
24
7. IRREVOCABILITY; BINDING EFFECT. The Purchaser hereby acknowledges
and agrees that the subscription hereunder is irrevocable by the Purchaser,
except as required by applicable law, and that this Subscription Agreement shall
survive the death or disability of the Purchaser and shall be binding upon and
inure to the benefit of the parties and their heirs, executors, administrators,
successors, legal representatives, and permitted assigns. If the Purchaser is
more than one person, the obligations of the Purchaser hereunder shall be joint
and several and the agreements, representations, warranties and acknowledgments
herein shall be deemed to be made by and be binding upon each such person and
each such person's heirs, executors, administrators, successors, legal
representatives and permitted assigns.
8. MODIFICATION. This Subscription Agreement shall not be modified or
waived except by an instrument in writing signed by the party against whom any
such modification or waiver is sought.
9. NOTICES. Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, by Federal Express, or delivered against receipt to
the party to whom it is to be given (a) if to the Company, at the address set
forth above, or (b) if to the Purchaser, at the address set forth on the
signature page hereof (or, in either case, to such other address as the party
shall have furnished in writing in accordance with the provisions of this
Section 9). Any notice or other communication given by certified mail shall be
deemed given at the time of certification thereof, except for a notice changing
a party's address which shall be deemed given a the time of receipt thereof.
10. ASSIGNABILITY. This Subscription Agreement and the rights, interest
and obligations hereunder are not transferable or assignable by the Purchaser,
and the transfer or assignment of the Units, or the Securities underlying the
Units, shall be made only in accordance with all applicable laws.
11. APPLICABLE LAW. This Subscription Agreement shall be governed by
and construed in accordance with the laws of the State of New York relating to
contracts entered into and to be performed wholly within such State. The
Purchaser and the Company each hereby irrevocably submits to the jurisdiction of
any ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ Federal court sitting in New York
County over any action or proceeding arising out of or relating to this
Subscription Agreement or any agreement contemplated hereby, and the Purchaser
and the Company each hereby irrevocably agrees that all claims in respect of
such actions or proceeding may be heard and determined in such New York State or
Federal court. The Purchaser and the Company further waives any objection to
venue in such State and any obligation to an action or proceeding in such State
on the basis of a non-convenient forum. The Purchaser further agrees that any
action or proceeding brought against the Company or the Placement Agent shall be
brought only in New York State or United States Federal courts sitting in New
York County.
12. BLUE SKY QUALIFICATION. The purchase of the Units under this Subscription
Agreement is expressly conditioned upon the exemption from qualification of the
offer and sale of the Units from applicable Federal and state securities laws.
25
The Company shall not be required to qualify this transaction, under the
securities laws of any jurisdiction and, should qualification be necessary, the
Company shall be released from any and all obligations to maintain its offer,
and may rescind any sale contracted, in the jurisdiction.
13. USE OF PRONOUNS. All pronouns and any variations thereof used
herein shall be deemed to refer to the masculine, feminine, neuter, singular or
plural as the identify of the person or persons referred to may require.
14. CONFIDENTIALITY. The Purchaser acknowledges and agrees that any
information or data it has acquired from or about the Company not otherwise
properly in the public domain, was received in confidence. The Purchaser agrees
not to divulge, communicate or disclose, except as may be required by law or for
the performance of this Subscription Agreement, or use to the detriment of the
Company or for the benefit of any other person or persons, or misuse in any way,
any confidential information of the Company, including any scientific,
technical, trade or business secrets of the Company and any scientific,
technical, trade or business materials that are treated by the Company as
confidential or proprietary, including, but not limited to, ideas, discoveries,
inventions, developments and improvements belonging to the Company and
confidential information obtained by or given to the Company about or belonging
to third parties.
15. ENTIRE AGREEMENT. This Subscription Agreement, together with the
Loan Documents, constitutes the entire agreement between the Purchaser and the
Company with respect to the subject matter hereof and supersedes all prior oral
or written agreements and understandings, if any, relating to the subject matter
hereof. The terms and provisions of this Subscription Agreement may be waived,
or consent for the departure therefrom granted, only by a written document
executed by the party entitled to the benefits of such terms or provisions.
16. FEES AND EXPENSES. Each of the parties hereto shall pay its own
fees and expenses (including the fees of any attorneys, accountants, appraisers
or others engaged by such party) in connection with this Subscription Agreement
and the transactions contemplated hereby, whether or not the transactions
contemplated hereby are consummated.
17. COUNTERPARTS. This Subscription Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
shall together constitute one and the same instrument.
18. SEPARABLE PROVISIONS. Each provision of this Subscription Agreement
shall be considered separable and if for any reason any provision or provisions
hereof are determined to be invalid or contrary to applicable law, such
invalidity or illegality shall not impair the operation of or affect the
remaining portions of this Subscription Agreement.
19. HEADINGS. Paragraph titles are for descriptive purposes only and
shall not control or alter the meaning of this Subscription Agreement as set
forth in the text.
20. ACCREDITED INVESTOR STATUS. The Purchaser certifies that he is an
"accredited investor" as that term is defined in Rule 501(a) of Regulation D
adopted pursuant to the Securities Act. The Purchaser further certifies that he
is a "sophisticated investor" as that term is defined in Rule 506(b)(2)(ii) of
Regulation D adopted pursuant to the Securities Act in that the undersigned is a
natural person or entity with such knowledge and experience in financial and
business matters that such investor is capable of evaluating the merits and
risks of the prospective investment. The Purchaser represents that he has
completed the Accredited Investor Certificate below, and that the information is
true and correct.
26
Accredited Investor Certificate
The specific category or categories of accredited investor
qualification applicable to the Purchaser are checked below:
_____ a natural person whose individual net worth, or joint net
worth with that person's spouse, exceeds $1,000,000;
_____ a natural person who had individual income in excess of
$200,000 in 1996 or 1997 or who had joint income with that
person's spouse in excess of $300,000 in each of those years
and who reasonably expects to reach that income level in 1998;
_____ a bank as defined in Section 3(a)(2) of the Securities Act; or
a savings and loan association or other institution as defined
in Section 3(a)(5)(A) of the Securities Act whether acting in
its individual or fiduciary capacity; or a broker dealer
registered pursuant to Section 15 of the Exchange Act; or an
insurance company as defined in Section 2(13) of the
Securities Act; or an investment company registered under the
Investment Company Act of 1940; or a business development
company as defined in Section 2(a)(48) of the Investment
Company Act of 1940; or a small business investment company
licensed by the U.S. Small Business Administration under
Section 301(c) or (d) of the Small Business Investment Act of
1958; or a plan established and maintained by a state, its
political subdivisions or any agency or instrumentality of a
state or its political subdivisions for the benefit of its
employees, if such plan has total assets in excess of
$5,000,000; or an employee benefit plan within the meaning of
the Employee Retirement Income Security Act of 1974, if the
investment decision is made by a plan fiduciary, as defined in
Section 3(21) of such 1974 Act, that is either a bank, savings
and loan association, insurance company or registered
investment adviser, or if the employee benefit plan has total
assets in excess of $5,000,000 or, if a self-directed plan,
with investment decisions made solely by persons that are
accredited investors.
_____ a private business development company as defined in Section
202(a)(22) of the Investment Advisors Act of 1940;
_____ an organization described in Section 501(c)(3) of the Internal
Revenue Code, a corporation, a Massachusetts or similar
business trust or partnership, not formed for the specific
purpose of acquiring the securities offered, with assets in
excess of $5,000,000;
_____ a trust, which trust has total assets in excess of $5,000,000,
which is not formed for the specific purpose of acquiring the
Units offered hereby and whose purchase is directed by a
sophisticated person as described in Rule 506(b)(ii) of
Regulation D and who has such knowledge and experience in
financial and business matters that he is capable of
evaluating the risks and merits of an investment in the Units;
_____ a natural person who is a director or executive officer of
Augment Systems, Inc.; or
_____ an entity in which all the equity owners are accredited
investors.
27
Dated: August ___, 1998 PURCHASER:
_______________________________ ____________________________
Number of Units being Purchased
If the Purchaser is an INDIVIDUAL, and if purchased as JOINT TENANTS, as TENANTS
IN COMMON, or as COMMUNITY PROPERTY:
_______________________________ ____________________________
Print Name(s) Social Security Number(s)
_______________________________ ____________________________
Signature(s) of Purchaser(s)
_______________________________ ____________________________
Date Address
If the Purchaser is PARTNERSHIP, CORPORATION, LIMITED LIABILITY COMPANY or
TRUST:
________________________________ ____________________________________
Name of Partnership, Corporation Federal Taxpayer
Limited Liability Company Identification Number
or Trust
______________________________
Date
By:
___________________________ ____________________________________
Name: State of Organization
Title:________________________ ____________________________________
Address
28
COMPANY SIGNATURE PAGE
SUBSCRIPTION ACCEPTED AND AGREED TO this _____ day of _________, 1998.
AUGMENT SYSTEMS, INC.
By:_________________________________
29
LOAN AGREEMENT
COUNTERPART SIGNATURE PAGE
IN WITNESS WHEREOF, the undersigned have executed this Loan Agreement as of
this _____ day of August, 1998.
LENDER:
_____________________________________________
Print Name
_____________________________________________
Signature
AUGMENT SYSTEMS, INC.
By:__________________________________________
30