EXHIBIT 10.6
FORM OF SUBSCRIPTION AGREEMENT FOR PREFERRED STOCK INVESTORS
DURING FISCAL 1998 AND FISCAL 1999
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SUBSCRIPTION AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (the "Act"), AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE AND ARE BEING OFFERED AND SOLD IN
RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF
SAID ACT AND SUCH LAWS. THE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SAID ACT AND
SUCH LAWS PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE
SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
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
DISCLOSURE DOCUMENTS. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
AGREEMENT, dated as of , by and between Avitar, Inc., a Delaware
corporation (the "Company"), and the undersigned investor (the "Purchaser").
WITNESSETH:
WHEREAS, the Company is seeking to raise up to $3,000,000 from a
targeted group of potential investors;
WHEREAS, in order to effectuate such financing, the Company is offering
(the "Offering") for sale shares of its Series B Redeemable Convertible
Preferred Stock, par value $.01 (the "Preferred Stock"), in an aggregate amount
up to $3,000,000 (the "Maximum Amount");
WHEREAS, as hereinafter provided, a holder will be entitled to convert
one share of the Preferred Stock in to ten shares of Common Stock, and
WHEREAS, all authorized shares of Common Stock have been issued or
otherwise committed to be issued, including without limitation to be issued upon
the conversion of the Preferred Stock into Common Stock, and
WHEREAS, subject to the approval of shareholders, the
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Company intends to increase the authorized shares of Common Stock from 25
million to 60 million as soon as practicable, and
WHEREAS, the Company is making the Offering pursuant to Regulation D
promulgated under the Securities Act of 1933, as amended; and
WHEREAS, in order to comply with the requirements of Regulation D, the
Company requires the Purchaser to make the representations, warranties and
agreements contained herein to, and for the reliance of, the Company.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, and subject to the terms and conditions set forth herein, the Company
and the Purchaser hereby agree as follows:
1. Subscription. The Purchaser, intending to be legally bound,
hereby irrevocably agrees to purchase from the Company the number
of shares of Preferred Stock (the "Shares") set forth on the
signature page hereof, at a per share purchase price of the
average closing price of ten shares of the Company's Common Stock
for the five prior trading days (the "Offering Price"), together
with warrant in the form attached hereto as Exhibit A with a
right to purchase on the terms set forth therein shares of the
Company's Common _______________________________ Stock at
an exercise price of $________ per share. The Purchaser hereby
acknowledges and _____________ agrees that the minimum
subscription amount for Shares is $25,000 (subject to the right
of the Company, in its sole discretion, to reduce such minimum
subscription amount).
2. Rights and Preferences. The following rights and preferences have
been determined by the Company for the Preferred Stock:
a. Voting Rights. On all matters submitted to a vote of the
holders of the Company's Common Stock, the holders of the
Preferred Stock shall be entitled to exercise one vote per
share of Preferred Stock.
b. Dividends. The holders of the Preferred Stock shall be
entitled to receive, at the discretion of theCompany, an
annual 8% cash dividend or 10% stock dividend computed on
the amount invested under this Subscription Agreement. Any
stock dividend shall be paid in shares of the Preferred
Stock based on the average closing price of ten shares of
the Company's Common Stock for the five days prior to the
five days before the dividend is paid. Such dividend shall
be payable within 90 days after the anniversary date of the
investment made hereunder.
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c. Liquidation Preference. Upon any voluntary liquidation,
dissolution or winding-up of the Company, the holders of the
Preferred Stock shall be entitled to receive out of the
assets of the Company which remain after satisfaction in
full of all valid claims of creditors of the Company,
liquidating distributions of an amount per share equal to
the Offering Price. Should these liquidation distributions
not be paid in full, the holders of the Preferred Stock
shall share ratably in any distribution of assets in
proportion to the full respective preferential amount to
which they are entitled. The Company may issue shares of
other preferred stock which have liquidation, dividend,
voting, and/or redemption rights which are senior or junior
to, or pari passu with, the Preferred Stock.
d. Conversion. A holder of the Preferred Stock shall be
entitled, at any time prior to the close of business on any
date fixed for the redemption of such shares, to cause any
or all such shares to be converted into ten shares of the
Company's Common Stock for each share of Preferred Stock (
the "Conversion Price"), subject to the anti-dilution
provisions provided herein. The issuance by the Company of
shares of Common Stock upon any conversion of shares of the
Preferred Stock made at the option of the holder thereof,
shall be effective as of the earlier of (i) the delivery to
such holder or such holders' designee of certificates
representing the shares of Common Stock issued upon
Conversion thereof or (ii) the commencement of business on
the second business day after the surrender of the
certificate or certificates for the shares of Preferred
Stock to be converted, duly assigned or endorsed for
transfer to the Company (or accompanied by duly executed
stock powers relating thereto) as provided hereby. On or
after the effective date of any Conversion, the converted
shares of the Preferred Stock shall no longer be deemed to
be outstanding and all rights whatsoever with respect
thereto shall terminate, and the person or persons entitled
to receive the Common Stock issuable upon such Conversion
shall be treated for all purposes as the record holder or
holders of such shares of Common Stock. All shares of the
Preferred Stock upon Conversion shall be restored to the
status of authorized but unissued shares of preferred stock
without designation as to Class, and may be issued
thereafter. The Conversion Price shall be
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subject to adjustment in the event of (i) any subdivision or
combination of the Company's outstanding Common Stock, (ii)
any payment by the Company of a stock dividend to the
holders of the Company's Common Stock holders or holders of
any other of stock convertible into Common Stock, or (iii)
any future issue of stock or securities convertible into the
Common Stock of the Company at a price less than the
Offering Price.
e. Redemption. In the event that after one year of date of
issuance of Preferred Stock, that the average closing price
of ten shares of Company's Common Stock shall equal or
exceed 300% of the Offering Price for any twenty (20)
consecutive trading days prior to the notice of redemption,
the Company shall have the right, at any time, to redeem all
or any portion of, the outstanding shares of the Preferred
Stock, at the Offering Price. If less than all outstanding
shares of the Preferred Stock shall be redeemed, the Company
shall redeem a pro rata portion of the shares of each
holder. Notice of any redemption shall be sent to the
holders of the Preferred Stock at the address shown on the
books of the Company or its transfer agent by first class
mail, postage prepaid, mailed not less than thirty (30)
days' prior to the redemption date.
3. Payment. The Purchaser encloses herewith a check payable to the
order of, or will immediately make a wire transfer payment to,
"Avitar, Inc." in the full amount of the purchase price of the
Shares being subscribed for. To request wire transfer
instructions, please contact ▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇., Chief Financial
Officer of the Company, at (▇▇▇) ▇▇▇-▇▇▇▇ or (▇▇▇) ▇▇▇-▇▇▇▇. Such
funds will be held for the Purchaser's benefit, and will be
returned promptly, without interest, penalty, expense or
deduction if this Subscription Agreement is not accepted by the
Company, or the Offering is terminated pursuant to its terms or
by the Company.
4. Acceptance of Subscription. The Purchaser understands and agrees
that the Company, in its sole discretion, reserves the right to
accept or reject this or any other subscription for Shares, in
whole or in part and in any order, 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
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or the Offering is terminated, 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. The Company
reserves the right to, in its sole discretion and without notice
to the Purchaser or any other subscribers, increase or decrease
the Maximum Amount.
5. Representations, Warranties and Agreements of the Company. The
Company hereby represents and warrants to the Purchaser, and
covenants and agrees with the Purchaser, as follows:
a. The Company has been duly organized, is validly existing and
is in good standing under the laws of the State of Delaware.
b. This Agreement and the issuance of the Shares have been duly
authorized by the Company.
c. The Company is in compliance in all material respects with
the Federal securities laws applicable to the issuance of
the Shares to the Purchaser; provided, however, that in
making such representation and warranty, the Company is
relying upon the truth and accuracy of the Purchaser's
representations and warranties set forth in this Agreement.
d. The Shares, when issued upon payment of the appropriate
purchase price, will be validly issued, fully paid and
non-assessable and free from preemptive rights.
e. (i) The Common Stock is registered pursuant to Section 12(g)
of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), (ii) the Company files periodic reports
pursuant to the Exchange Act and has filed all reports
required to be filed thereunder and (iii) the Common Stock
is quoted on the NASD OTC Bulletin Board.
6. Representations, Warranties and Agreements of the Purchaser. The
Purchaser hereby represents and warrants to the Company, and
covenants and agrees with the Company, as follows:
a. The Purchaser understands and acknowledges that
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none of the Shares offered by the Company pursuant to the
Offering 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 Shares is intended to be exempt from registration
under the Securities Act, by virtue of Section 4(2) and/or
Section 4(6) thereof and the provisions of Regulation D
promulgated thereunder, based, in substantial part, upon the
representations, warranties and agreements of the Purchaser
contained in this Subscription Agreement.
b. The Purchaser and the Purchaser's attorney, accountant,
purchaser representative and/or tax advisor, if any
(collectively, the "Advisors") have received, or had made
available to it, copies of the following documents of the
Company (the "Disclosure Documents"): the Annual Report on
Form 10-KSB of the Company for its fiscal year ended
September 30, 1998, the Quarterly Report on Form 10-QSB of
the Company for the fiscal quarter ended December 31, 1998
and all other documents reasonably requested by the
Purchaser. The Purchaser has carefully reviewed the
Disclosure Documents and understands the information
contained therein.
c. Neither the Securities and Exchange Commission
("Commission") nor any state securities commission has
approved the Shares or the Offering, or passed upon or
endorsed the merits of the Offering or confirmed the
accuracy or determined the adequacy of this Subscription
Agreement. This Subscription Agreement has not been reviewed
by any Federal, state or other regulatory authority.
d. The Purchaser acknowledges that all documents, records, and
books pertaining to an investment in the Shares have been
made available for inspection by such Purchaser and the
Advisors, if any.
e. The Purchaser and the Advisors, if any, have had a
reasonable opportunity to ask questions of and receive
satisfactory answers from a person or persons acting on
behalf of the Company concerning the Offering, the Shares
and the Company and all such questions have been answered to
the full satisfaction of the Purchasers and the Advisors, if
any.
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f. In evaluating the suitability of an investment in the
Company, the Purchaser has not relied upon any
representation or other information (oral or written) other
than as stated in this Subscription Agreement and/or as
contained in the Disclosure Documents.
g. The Purchaser is unaware of, is no way relying on, and did
not become aware of the Offering of the Shares 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 the Offering and is
not subscribing for the Shares 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.
h. The Purchaser has taken no action which would give rise to
any claim by any person for brokerage commissions, finders'
fees or the like relating to this Subscription Agreement or
the transactions contemplated hereby.
i. The Purchaser, together with the Advisors, have 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 Shares and to make
an informed investment decision with respect thereto.
j. The Purchaser is not relying on the Company or any of its
officers, directors, employees or agents with respect to the
legal, tax, economic and related considerations of an
investment in the Shares, and the Purchaser has relied on
the advice of, or has consulted with, only his own Advisors
(if any).
k. The Purchaser is acquiring the Shares solely for such
Purchaser's own account for investment and not with a view
to resale or distribution
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thereof, in whole or in part. The Purchaser has no agreement
or arrangement, formal or informal, with any person to sell
or transfer all or any part of the Shares, and the Purchaser
has no plans to enter into any such agreement or
arrangement.
l. The Purchaser must bear the substantial economic risks of an
investment in the Shares indefinitely because the Shares may
not 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. The Purchaser acknowledges that
legends shall be placed on the shares of Common Stock,
issued pursuant to the conversion of the Preferred Stock, 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 Company.
m. The Purchaser has adequate means of providing for such
Purchaser's current financial needs and foreseeable
contingencies and has no need for liquidity of the
investment in the Shares for an indefinite period of time.
n. The Purchaser is aware that an investment in the Shares
involves a number of very significant risks and investment
considerations.
o. The Purchaser meets the requirements of at least one of the
suitability standards for an "accredited investor" under
Regulation D promulgated under the Securities Act and as set
forth on the Accredited Investor Certification contained
herein.
p. 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 has adequate
means for providing for his or her current financial needs
and anticipated future needs and possible personal
contingencies and emergencies and has no need for liquidity
in the investment in the Shares; (ii) if a corporation,
partnership, limited liability company or
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partnership, association, joint stock company, trust,
unincorporated organization or other entity represents that
such entity was not formed for the specific purpose of
acquiring the Shares, 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 or breach of any law, regulation, agreement to
which it is a party or is otherwise bound or of 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 Shares; the execution and delivery of
this Subscription Agreement has been duly authorized by all
necessary action; 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, ▇▇▇▇, partnership, trust, estate,
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 will not violate or
be in conflict with any order, judgment, injunction,
agreement or document to which the Purchaser is a party or
by which it is bound.
q. Any information which the Purchaser has heretofore furnished
or furnishes herewith to the Company 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 will notify and
supply corrective information to the Company immediately
(and without a specific
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request therefor) upon the occurrence of any change therein
occurring prior to the Company's issuance of the Shares.
r. 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 Purchaser's overall commitment to
investments which are not readily marketable is not
excessive in view of his/its net worth and financial
circumstances and the purchase of the Shares will not cause
such commitment to become excessive. The investment is a
suitable one for the Purchaser.
s. No oral or written representations have been made, or oral
or written information furnished, to the Purchaser in
connection with the Offering which are in any way
inconsistent with the information contained herein.
t. The Purchaser acknowledges that, even if the Maximum Amount
is raised from the sale of the Shares, the net proceeds
thereof will provide the Company with the funds to meet only
its most immediate needs and that additional funds will be
required by the Company (with the consequent dilution of
value and/or ownership) through additional equity and/or
debt financing(s), and no assurance can be given as to the
availability or adequacy of terms of any such financing(s).
In the event that the Company does not obtain the requisite
funds, it may be necessary for the Company to reduce,
suspend or cease certain of its operations. The Purchaser
acknowledges that the Company intends to use the net
proceeds of the offering for its working capital
requirements.
u. Blue Sky Information:
FOR RESIDENTS OF ALL STATES:
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1993, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND ARE BEING OFFERED
AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID
ACT AND SUCH LAWS. THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY
AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED
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UNDER SAID ACT AND SUCH LAWS PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE 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 MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
FOR CONNECTICUT RESIDENTS:
THE SECURITIES HAVE NOT BEEN REGISTERED UNDER SECTION 36-485 OF THE CONNECTICUT
UNIFORM SECURITIES ACT AND THEREFORE CANNOT BE RESOLD UNLESS THEY ARE REGISTERED
UNDER THE CONNECTICUT UNIFORM SECURITIES ACT OR UNLESS AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
FOR FLORIDA RESIDENTS:
IF SALES OF THESE SECURITIES ARE CONSUMMATED WITH FIVE OR MORE OFFEREES IN THE
STATE OF FLORIDA, ANY SUCH OFFEREE MAY, AT SUCH OFFEREE'S OPTION, VOID ANY
PURCHASE HEREUNDER WITHIN THREE DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS
MADE BY THE PURCHASER TO THE COMPANY, AN AGENT OF THE COMPANY OR AN ESCROW
AGENT, OR WITHIN THREE DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE IS
COMMUNICATED TO THE PURCHASER, WHICHEVER OCCURS LATER.
FOR VERMONT RESIDENTS:
EACH PERSON WHO ACCEPTS AN OFFER TO PURCHASE SECURITIES DIRECTLY FROM THE ISSUER
OR AN AFFILIATE OF THE ISSUER SHALL HAVE THE RIGHT TO WITHDRAW HIS ACCEPTANCE
WITHOUT INCURRING ANY LIABILITY TO THE SELLER, UNDERWRITER (IF ANY) OR ANY OTHER
PERSON WITHIN THREE BUSINESS DAYS AFTER HE MAKES THE INITIAL PAYMENT FOR THE
SECURITIES BEING OFFERED.
7. Indemnification. The Purchaser hereby agrees to indemnify and
hold harmless the Company and its officers, directors, employees,
agents, control persons and affiliates against all losses,
liabilities, claims, damages, and expenses whatsoever (including,
but not limited to, any and all expenses incurred in
investigating, preparing, or defending against any litigation
commenced or threatened) based upon or arising out of any actual
or alleged false acknowledgment, representation or warranty, or
misrepresentation or omission to state a material fact, or breach
by the Purchaser of any covenant or agreement made by the
Purchaser herein or any other document delivered in connection
with this Subscription Agreement.
8 Irrevocability; Binding Effect. The Purchaser hereby acknowledges
and agrees that the subscription hereunder is irrevocable by the
Purchaser, except as
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required by applicable law, and that this Subscription Agreement
shall survive the death, disability or bankruptcy, as the case
may be, of the Purchaser and shall be binding upon and inure to
the benefit of the parties hereto and their respective 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 such person's heirs, executors,
administrators, successors, legal representatives, and permitted
assigns.
9. 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.
10. 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, or delivered against
receipt to the party to whom it is to be given (a) if to Company,
at ▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attn.: ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇, Chairman of the Board, 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 10).
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
at the time of receipt thereof.
11. Assignability. This Subscription Agreement and he rights,
interests and obligations hereunder are not transferable,
assignable or delegable by the Purchaser and the transfer or
assignment of the Shares shall be made only in accordance with
all applicable laws and this Subscription Agreement.
12. Applicable Law. This Subscription Agreement shall be governed by
and construed in accordance with the laws of the State of New
York without regard to its conflicts of laws principles. The
Purchaser hereby irrevocably submits to the non-exclusive
jurisdiction of any New York State court or United States 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 hereby
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irrevocably agrees that all claims in respect of such action or
proceeding may be heard and determined in such New York State or
Federal court. The Purchaser further waives any objection to
venues in such State on the basis of a non-convenient forum. The
Purchaser further agrees that any action or proceeding brought
against the Company shall be brought only in New York State or
United States Federal courts sitting in New York County. THE
PURCHASER HEREBY AGREES TO WAIVE ITS RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
SUBSCRIPTION AGREEMENT OR ANY DOCUMENT OR AGREEMENT CONTEMPLATED
HEREBY.
13. Blue Sky Qualification. The purchase of the Shares under this
Subscription Agreement is expressly conditioned upon the
exemption from registration and/or qualification of the offer and
sale of the Shares from applicable Federal and state securities
laws. 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 the Offering, and may
rescind any sale contracted, in the jurisdiction.
14. Piggyback Registration. If, at any time commencing after the date
hereof until such time as the Purchaser has sold or otherwise
disposed of the Shares, the holders of shares of the Preferred
Stock shall be entitled to "piggyback" registration rights with
respect to such shares on each occasion that the Company shall
propose to file a registration statement on Form S-3 ( the
"Registration Statement") under the Securities Act of 1933, as
amended, covering any shares of Common Stock. The Company shall,
at least thirty (30) days before filing any such Registration
Statement, notify the holders of the Preferred Stock in writing
of such filing. For a period of ten (10) days from the receipt of
such notice, each holder of the Preferred Stock shall be entitled
to provide written notice to the Company of such holder's
election to include in the Registration Statement up to the
number of shares of Common Stock covered by his/her Preferred
Stock; provided, however, that simultaneously with such notice
such holder shall agree to convert his/her Preferred Stock into
Common Stock upon effectiveness of the Registration Statement.
The Company shall have the right at any time thereafter to elect
not to file any such Registration Statement or to withdraw the
same after filing but prior to the effective date thereof. The
Company shall pay all expenses relating to the Registration
Statement except sales commissions
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attributable to these securities and except expenses incurred by
the Purchaser such as counsel for the Purchaser. Such sale
commissions and other expenses incurred by the Purchaser will be
borne by the Purchaser.
15. 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 identity of the person or
persons referred to may require.
16. Miscellaneous.
a. This Agreement 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 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.
b. The Purchaser's representations and warranties made in this
Agreement shall survive the execution and delivery hereof
and the sale and delivery of the Shares.
c. Each of the parties hereto shall pay its own fees and
expenses (including the fees of any attorneys, accountants,
advisors, appraisers or others engaged by such party) in
connection with this Agreement and the transactions
contemplated hereby whether or not the transactions
contemplated hereby are consummated.
d. This 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.
e. 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.
Accredited Investor Certification
(Check the appropriate line(s)
____(i) I am a natural person who had individual income of more than
$200,000 in each of the most recent two years or joint
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income with my spouse in excess of $300,000 in each of the most recent two years
and reasonably expect to reach that same income level for the current year
("income", for purposes hereof, should be computed as follows: individual
adjusted gross income, as reported (or to be reported) on a Federal income tax
return, increased by (1) any deduction of long-term capital gains under section
1202 of the Internal Revenue Code of 1986, as amended (the "Code"),(2) any
deduction for depletion under Section 611 et seq. of the Code, (3) any exclusion
for interest under Section 103 of the Code and (4) any losses of a partnership
as reported on Schedule E of Form 1040);
____(ii) I am a natural person whose individual net worth (i.e., total
assets in excess of total liabilities), or joint net worth with my spouse, will
at the time of purchase of the Shares be in excess of $1,000,000;
____(iii) The Purchaser is an investor satisfying the requirements of
Section 501(a)(1), (2) or (3) of Regulation D promulgated under the Securities
Act, which includes but is not limited to, a self-directed employee benefit plan
where investment decisions are made solely by persons who are "accredited
investors" as otherwise defined in Regulation D;
____(iv) The Purchaser is a trust, which trust has total assets in
excess of $5,000,000, which is not formed for the specific purpose of acquiring
the Shares 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 Shares;
____(v) I am a director or executive officer of the Company; or
____(vi) The Purchaser is an entity (other than a trust) in which all
of the equity owners meet the requirements of at least one of the above
subparagraphs.
FOR MASSACHUSETTS RESIDENTS:
MY INVESTMENT IN THE SHARES DOES NOT EXCEED 25% OF MY AND MY SPOUSE'S
JOINT NET WORTH (EXCLUDING OUR PRINCIPAL RESIDENCE AND FURNISHINGS).
IN WITNESS WHEREOF, the Purchaser has executed this Subscription Agreement this
____ day of ____________, 1999.
Preferred Stock*
______________ x __________________ $__________________
(Shares being (Share Price) Subscription
purchased) (Minimum of
$25,000)
*Convertible into____________ shares of Common Stock
16
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
_______________________________ _______________________________
Signature(s) of Purchaser(s)
_______________________________
Date
If the purchaser is a PARTNERSHIP, CORPORATION, or TRUST:
_______________________________ _______________________________
Name of Partnership, Federal Taxpayer
Corporation or Trust Indemnification Number
_______________________________
Date
By:____________________________ _______________________________
Name State of Organization
Title:_________________________
Address:_______________________
_______________________
17
SUBSCRIPTION ACCEPTED AND AGREED TO this______ day of _____, 1999.
AVITAR, INC.
By:__________________________________
Title:_______________________________
18
(EXHIBIT A ATTACHED)
19
EXHIBIT A
Void after 5:00 p.m. New York City Time,
on _________, ▇▇▇▇
▇▇▇▇▇▇▇ to Purchase an Aggregate of _______ Shares
of Common Stock
WARRANT TO PURCHASE COMMON STOCK
OF
AVITAR, INC.
a Delaware Corporation
THIS WARRANT AND THE SHARES OF COMMON STOCK
UNDERLYING THIS WARRANT (collectively, the
"Securities") HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (the "Act") OR
THE SECURITIES LAWS OF ANY STATE AND ARE BEING
OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM
REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH
LAWS. THIS WARRANT MAY NOT BE EXERCISED UNLESS THE
SECURITIES ARE REGISTERED UNDER THE ACT OR
EXEMPTION FROM SUCH REGISTRATION UNDER THE ACT IS
APPLICABLE. THE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY
NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED
UNDER SAID ACT AND SUCH LAWS PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. THE
SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES COMMISSION OR ANY OTHER
REGULATORY AUTHORITY. NOR HAVE ANY OF THE
FOREGOING AUTHORITIES
20
PASSED UPON OR ENDORSED THE MERITS OF THIS
OFFERING OR THE ACCURACY OR ADEQUACY OF THE
DISCLOSURE DOCUMENTS. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
This is to certify that, FOR VALUE RECEIVED, or assigns (the "Holder"),
is entitled to purchase, subject to the provisions of this Warrant, from AVITAR,
INC. a Delaware Corporation (the "Company"),
_____________________________________ fully paid, validly issued and
non-assessable shares of Common Stock, $0.01 par value, of the Company ("Common
Stock") at any time or from time to time from the date hereof, through and
including _____________, 2000, (the "Termination Date") but not later than 5:00
p.m. New York City, New York Time on the Termination Date (the "Exercise
Period") at an initial exercise price equal to $______ per share. The number of
shares of Common Stock to be received upon the exercise of this Warrant and the
price to be paid for each share of Common Stock may be adjusted from time to
time as hereinafter set forth. The shares of Common Stock deliverable upon such
exercise, and as adjusted from time to time, are hereinafter sometimes referred
to as "Warrant Shares" and the exercise price of a share of Common Stock in
effect at any time and as adjusted from time to time is hereinafter sometimes
referred to as the "Exercise Price".
(a) Exercise of Warrant. This Warrant may be exercised in whole
or in part at any time during the Exercise Period. This Warrant, subject to the
provisions hereof, may be exercised by presentation and surrender hereof to the
Company at its principal office, or at the office of its stock transfer agent,
if any, with the Purchase Form annexed hereto duly executed and accompanied by
payment of the Exercise Price for the number of Warrant Shares specified in such
exercise. The Company shall issue and deliver to the Holder a certificate or
certificates for the Warrant Shares issuable upon such exercise, registered in
the name of the Holder or its designee. If this Warrant should be exercised in
part only, the Company shall, upon surrender of this Warrant for cancellation,
execute and deliver a new Warrant evidencing the rights of the Holder thereof to
purchase the balance of the Warrant Shares purchasable thereunder. Upon receipt
by the Company of this Warrant at its office, or by the stock transfer agent of
the Company at its office, in proper form for exercise shall be deemed to be the
holder of record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Common Stock shall not
then be physically delivered to the Holder.
(b) Reservation of Shares. The Company shall at all
21
times reserve for issuance and/or delivery upon exercise of this Warrant such
number of shares of its Common Stock as shall be required for issuance and
delivery upon exercise of this Warrant.
(c) Fractional Shares. No fractional shares or script
representing fractional shares shall be issued upon the exercise of this
Warrant. All fractional shares shall be eliminated by rounding any fraction up
to the nearest whole number of shares of Common Stock.
(d) Exchange, Transfer, Assignment or Loss of Warrant. Subject to
the legend first appearing above, this Warrant is exchangeable, without expense,
at the option of the Holder, upon presentation and surrender hereof to the
Company or at the office of its stock transfer agent, if any, for other warrants
of different denominations entitling the Holder thereof to purchase in the
aggregate the same number of shares of Common Stock purchasable hereunder.
Subject to the legend first appearing above, upon surrender of this Warrant to
the Company at is principal office or at the office of its stock transfer agent,
if any, with the Assignment Form annexed hereto duly executed and funds
sufficient to pay any transfer tax, the Company shall, without charge, execute
and deliver a new Warrant in the name of the assignee named in such instrument
of assignment and this Warrant shall promptly be canceled. This Warrant may be
divided or combined with other Warrants which carry the same rights upon
presentation hereof at the principal office of the Company or at the office of
its stock transfer agent, if any, together with a written notice specifying the
names and denominations in which new Warrants are to be issued and signed by the
Holder hereof. The term "Warrant" as used herein includes any Warrant into which
this Warrant may be divided or exchanged. Upon receipt by the Company of
evidence satisfactory to it of the loss, destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this Warrant, if
mutilated, the Company will execute and deliver a new Warrant of like tenor and
date.
(e) Rights of the Holder. The Holder shall not, by virtue hereof,
be entitled to any rights of a shareholder in the Company, either at law or
equity, and the rights of the Holder are limited to those expressed in this
Warrant and are not enforceable against the Company except to the extent set
forth herein.
(f) Anti-Dilution Provisions. The Exercise Price in effect at any
time and the number and kind of securities purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(1) In case the Company shall (i) declare a dividend or
make a distribution on its outstanding shares of Common Stock in shares of
Common Stock, or (ii) subdivide or reclassify its outstanding shares of Common
Stock into a greater
22
number of shares of Common Stock or into a smaller number of shares, the
Exercise Price immediately prior to such adjustment shall be adjusted by
multiplying it by a fraction, the denominator of which shall be the number of
shares of Common Stock outstanding after giving effect to such action, and the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such action. Such adjustment shall be made successively
whenever any event listed above shall occur.
(2) Whenever the Exercise Price payable upon exercise of
each Warrant is adjusted pursuant to Subsection (1) above, the number of shares
purchasable upon exercise of this Warrant shall simultaneously be adjusted by
multiplying the number of shares initially issuable upon exercise of this
Warrant by the Exercise Price in effect on the date hereof and dividing the
product so obtained by Exercise Price, as adjusted.
(3) Whenever the Exercise Price is adjusted, as herein
provided, the Company shall promptly cause a notice setting forth the adjusted
Exercise Price and adjusted number of shares issuable upon exercise of each
Warrant to be mailed to the Holders, at their last addresses appearing in the
Warrant Register, and shall cause a certified copy thereof to be mailed to its
transfer agent, if any. The Company may retain a firm of independent certified
public accountants selected by the Board of Directors (who may be the regular
accountants employed shall be conclusive evidence of the correctness of such
adjustment.
(g) Officer's Certificate. Whenever the Exercise Price shall be
adjusted as required by the provisions of Section (f), the Company shall
forthwith file in the custody of its Secretary or an Assistant Secretary at its
principal office and with its stock transfer agent, if any, an officer's
certificate showing the adjusted Exercise Price determined as herein provided,
setting forth in reasonable detail the facts requiring such adjustment,
including a statement of the number of additional shares of Common Stock, if
any, and such other facts as shall be necessary to show the reason for and the
manner computing such adjustment.
(h) Notices to Warrant Holders. So long as this Warrant shall be
outstanding, (1) if the Company shall pay any dividend or make any distribution
upon the Common Stock or (2) if the Company shall offer to the holders of Common
Stock for subscription or purchase by them any share of any class or any other
rights or (3) if the capital reorganization of the Company, reclassification or
merger of the Company with or into another corporation, sale of all or
substantially all of the property and assets of the Company or voluntary or
involuntary dissolution, liquidation or winding up of the Company shall be
effected, then in any such case, the Company shall cause to be mailed by
certified mail to the Holder, at least ten (10) days prior to the date specified
in (x) or (y) below, as the case may be, a notice
23
containing a brief description of the proposed action and stating the date on
which (x) a record is to be taken for the purpose of such dividend, distribution
or rights, or (y) such reclassification, reorganization, consolidation, merger,
conveyance, lease, dissolution, liquidation or winding up is to take place and
the date, if any, is to be fixed, as of which the holders of Common Stock or
other securities shall receive cash or other property deliverable upon such
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
(i) Piggyback Registration. If, at any time commencing after the
date hereof until such time as the Holder has sold or otherwise disposed all of
the Warrant Shares, the Company proposes to register any of its equity
securities under the Act (other than in connection with a merger or
consolidation or pursuant to a Registration Statement on Form S-3 or S-4 or
comparable registration statement) it will give written notice, at least thirty
(30)days prior to the filing of such registration statement, to the Holder and
to all other holders of Warrants and Warrant Shares (collectively, "Warrant
Securities") of its intention to do so. If the Holder and/or other holders of
Warrant Securities notify the Company within twenty (20) days after receipt of
such notice of its or their desire to include any Warrants (including the shares
of Common Stock underlying any such Warrants) and/or Warrant Shares (whether
issued or issuable) in such proposed registration statement, the Company shall,
subject to the provisions set forth below, afford the Holder and such holders of
Warrant Securities the opportunity to have any such securities registered under
such registration statement. If such registration is an underwritten
registration, and the managing underwriters advise the Company that in their
opinion the number of securities requested to be included in such registration
exceeds the number which can be sold in such offering without materially
adversely affecting such underwriters' ability to effect an orderly distribution
of such securities, the Company will include in such registration first, the
securities proposed to be sold thereunder and, second, the Warrant Securities
and such other securities of the Company having registration rights requested to
be included in such registration registered on a pro-rata basis. The Company
shall have the right at any time thereafter it shall give written notice to
elect not to file any such proposed registration statement or to withdraw the
same after filing but prior to the effective date thereof. The Company shall pay
all such expenses relating to registration except sales commissions attributable
to Warrant Securities requested to be offered by the holders thereof and except
expenses incurred by the holders such as counsel for the holders. Such sales
commissions and other such expenses will be borne by the holders requesting
inclusion in such registration.
(j) Indemnification. In the event Warrant Securities are included
in a registration statement by the Company, the
24
Company will indemnify and hold harmless each holder of registered Warrant
Securities against all claims and losses arising out of securities law
violations by the Company and each holder of registered Warrant Securities will
indemnify and hold harmless the Company against all claims and losses arising
out of the information supplied to the Company by such holder for use in
connection with such registration.
(k) Reclassification, Reorganization or Merger. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or in which merger the Company is the continuing corporation and
which does not result in any reclassification, capital reorganization or other
change of outstanding shares of Common Stock of the class issuable upon exercise
of this Warrant or in case of any sale to another corporation of the property of
the Company as an entirety, the Company shall, as a condition precedent to such
transaction, cause effective provisions to be made so that the Holder shall have
the right thereafter by exercising this Warrant at any time prior to the
expiration of the Warrant, to purchase the kind and amount of shares upon
exercise of this Warrant immediately prior to such reclassification, change,
consolidation, merger or sale. Any such transaction shall include provision for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Warrant. The foregoing provisions of this
Section (k) shall similarly apply to successive reclassifications, capital
reorganizations and changes of shares of Common Stock and to successive
consolidations, mergers or sales. In the event that in connection with any such
capital reorganization, a share of Common Stock shall be issued in exchange,
conversion, substitution or payment, in whole or in part, for a security of the
Company other than Common Stock, any such issue shall be treated as an issue of
Common Stock covered by the provisions of Subsection (1) of Section (f) hereof.
(l) Redemption.
(1) Commencing one year after the date hereof (the
"Initial Warrant Redemption Date") the Company may, on 30 days prior written
notice redeem all the Warrants at $0.01 provided, however, that before any such
call for redemption of Warrants can take place, the (A) high closing bid price
for the Common Stock in the over-the-counter market as reported by the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") or (B)
the closing sale price on the primary exchange on which the Common Stock is
traded, if the Common Stock is traded on a national securities exchange or if
the Common Stock is a National Market Security on NASDAQ, shall have for five
(5) consecutive trading days within a period of thirty (30) consecutive trading
days ending on the fifth trading day prior to the date on which the notice
contemplated by (2)and (3) below is given, equaled or exceeded $0.75 per share
(subject to adjustment
25
in the event of any stock splits or other similar events as provided in Section
(f) hereof).
(2) In case the Company shall exercise its right to redeem
all of the Warrants, it shall give or cause to be given notice to the registered
Holders of the Warrants by mailing to such registered Holders a notice of
redemption, first class, postage prepaid, at their last address as shall appear
on the records of the Company. Any notice mailed in the manner provided herein
shall be conclusively presumed to have been duly given whether or not the
registered Holder receives such notice.
(3) The notice of redemption shall specify (i) the
redemption price, (ii) the date fixed for redemption, which shall in no event be
less than thirty (30) days after the date of mailing of such notice, (iii) the
place where the Warrant Certificate shall be delivered and the redemption price
shall be paid and (iv) that the right to exercise the Warrant shall terminate at
5:00 p.m. (New York time) on the business day immediately preceding the date
fixed for redemption. The date fixed for the redemption of the Warrants shall be
the Redemption Date. No failure to mail such notice nor any defect therein or in
the mailing thereof shall affect the validity of the proceedings for such
redemption except as to a Holder (a) to whom notice was not mailed or (b) w of
the Company that notice of redemption has been mailed shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
(4) Any right to exercise a Warrant shall terminate at
5:00 p.m. (New York time) on the business day immediately preceding the
Redemption Date. The redemption price payable to the registered Holders shall be
mailed to such persons at their addresses of record.
(m) Addresses for Notices.Any notices to be given to the Company
or to the Holder pursuant hereto shall be delivered personally or sent by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
(1) If to the Company, until another address is supplied
by the Company to the Holder, in accordance with the provisions of this Section
(m):
Avitar, Inc.
▇▇ ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn.: Secretary
(2) If to the Holder, until another address is supplied by
the Holder to the Company, in accordance with the provisions of this Section
(k), at the address specified on the transfer books of the Company.
(n) Governing Law. This Warrant shall be governed
26
by and construed in accordance with the law of the State of New York, without
reference to any choice of law provisions thereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
and attested by the undersigned, each being duly authorized, as of the date
below.
AVITAR, INC.,
a Delaware Corporation
By:____________________
Chief Executive Officer
Dated:_______________________________, 1999
Attest:
By:_______________________________
Secretary
PURCHASE FORM
Dated:______________, 199
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing _________ Shares of Common Stock and hereby
makes payment of $________ in payment of the actual exercise price thereof.
27
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name:______________________________________________________________
(Please typewrite or print in block letters)
Address:___________________________________________________________
Signature:_________________________________________________________
ASSIGNMENT FORM
FOR VALUE RECEIVED, _________________________ hereby sells, assigns
and transfers unto
Name: _________________________________________________
(Please typewrite or print in block letters)
28
Social Security or Taxpayer I.D. No.: _________________
Address: _______________________________________________
the right to purchase Common Stock represented by this Warrant to the extent of
__________ shares as to which such right is exercisable and does irrevocably
constitute and appoint ___________, Attorney, to transfer the same on the books
of the Company with full power of substitution in the premises.
Date:___________________________________________, 199
Signature: _______________________________________
29