SUBSCRIPTION AGREEMENT
----------------------
Dear Subscriber:
You (the "Subscriber") hereby agree to purchase, and Teltran
International Group, Ltd., a Delaware corporation (the "Company") hereby agrees
to issue and to sell to the Subscriber, the number of shares of the Company's
$.001 par value common stock (the "Company Shares") for the consideration as set
forth on the signature page hereof ("Purchase Price"). (The Company Shares are
sometimes referred to herein as the "Shares" or "Common Stock"). The Company
Shares, Commission Shares and Common Stock Purchase Warrants issuable to the
Placement Agents ("Placement Warrants"), identified on Schedule A hereto, and
the Common Stock issuable upon exercise of the Placement Warrants, the
Additional Shares, and the Put Securities (as hereinafter defined) are
collectively referred to herein as, the "Securities"). Upon acceptance of this
Agreement by the Subscriber, the Company shall issue and deliver to the
Subscriber the Company Shares against payment, by federal funds (U.S.) wire
transfer of the Purchase Price.
The following terms and conditions shall apply to this subscription.
1. Subscriber's Representations and Warranties. The Subscriber hereby
represents and warrants to and agrees with the Company that:
(a) Information on Company. The Subscriber has been furnished with
and has read the Company's Form SB-2 filed on or about April 8, 1999 with the
U.S. Securities and Exchange Commission (the "Commission") (hereinafter referred
to as the "Reports"). In addition, the Subscriber has received from the Company
such other information concerning its operations, financial condition and other
matters as the Subscriber has requested, and considered all factors the
Subscriber deems material in deciding on the advisability of investing in the
Securities (such information in writing is collectively, the "Other Written
Information").
(b) Information on Subscriber. The Subscriber is an "accredited
investor", as such term is defined in Regulation D promulgated by the Commission
under the Securities Act of 1933, as amended, is experienced in investments and
business matters, has made investments of a speculative nature and has purchased
securities of United States publicly-owned companies in private placements in
the past and, with its representatives, has such knowledge and experience in
financial, tax and other business matters as to enable the Subscriber to utilize
the information made available by the Company to evaluate the merits and risks
of and to make an informed investment decision with respect to the proposed
purchase, which represents a speculative investment. The Subscriber has the
authority and is duly and legally qualified to purchase and own the Securities.
The Subscriber is able to bear the risk of such investment for an indefinite
period and to afford a complete loss thereof.
(c) Purchase of Company Shares. On the Closing Date, the Subscriber
will purchase the Company Shares for its own account and not with a view to any
distribution thereof.
(d) Compliance with Securities Act. The Subscriber understands and
agrees that the Securities have not been registered under the Securities Act of
1933, as amended (the "1933 Act") by reason of their issuance in a transaction
that does not require registration under the 1933 Act, and that such Securities
must be held unless a subsequent disposition is registered under the 1933 Act or
is exempt from such registration. The Subscriber will comply with all relevant
rules and regulations of the Securities Exchange Act of 1934, as amended, as
they relate to short sales of the Securities. The Subscriber will not engage in
any short sales of the Company's common stock until the sooner of (i) the per
share closing bid price of the common stock is $10.00 or more as reported by the
NASD OTC Bulletin Board or other exchange or market where the common stock is
listed or traded, or (ii) the Subscriber has resold all the Company Shares and
Put Shares purchased pursuant to this Subscription Agreement.
(e) Company Shares Legend. The Company Shares, Commission Shares
and the shares of Common Stock issuable upon the exercise of the Placement
Warrants shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
TELTRAN INTERNATIONAL GROUP LTD.. THAT SUCH REGISTRATION IS
NOT REQUIRED."
(f) Warrants Legend. The Placement Warrants shall bear the
following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS
WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
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REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO TELTRAN INTERNATIONAL GROUP LTD.
THAT SUCH REGISTRATION IS NOT REQUIRED."
(g) Communication of Offer. The offer to sell the Securities was
directly communicated to the Subscriber. At no time was the Subscriber presented
with or solicited by any leaflet, newspaper or magazine article, radio or
television advertisement, or any other form of general advertising or solicited
or invited to attend a promotional meeting otherwise than in connection and
concurrently with such communicated offer.
(h) Correctness of Representations. The Subscriber represents that
the foregoing representations and warranties are true and correct as of the date
hereof and, unless the Subscriber otherwise notifies the Company prior to the
Closing Date (as hereinafter defined), shall be true and correct as of the
Closing Date. The foregoing representations and warranties shall survive the
Closing Date.
2. Company Representations and Warranties. Subject to the Reports and
Other Written Information, the Company represents and warrants to and agrees
with the Subscriber that:
(a) Due Incorporation. The Company and each of its subsidiaries is
a corporation duly organized, validly existing and in good standing under the
laws of the respective jurisdictions of their incorporation and have the
requisite corporate power to own their properties and to carry on their business
as now being conducted. The Company and each of its subsidiaries is duly
qualified as a foreign corporation to do business and is in good standing in
each jurisdiction where the nature of the business conducted or property owned
by it makes such qualification necessary, other than those jurisdictions in
which the failure to so qualify would not have a material adverse effect on the
business, operations or prospects or condition (financial or otherwise) of the
Company.
(b) Outstanding Stock. All issued and outstanding shares of capital
stock of the Company and each of its subsidiaries has been duly authorized and
validly issued and are fully paid and non-assessable.
(c) Authority; Enforceability. This Agreement has been duly
authorized, executed and delivered by the Company and is a valid and binding
agreement enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights generally and
to general principles of equity; and the Company has full corporate power and
authority necessary to enter into this
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Agreement and to perform its obligations hereunder and all other agreements
entered into by the Company relating hereto.
(d) Additional Issuances. There are no outstanding agreements or
preemptive or similar rights affecting the Company's common stock or equity and
no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, or agreements or understandings with
respect to the sale or issuance of any shares of common stock or equity of the
Company or other equity interest in any of the subsidiaries of the Company,
except as described in the Reports or Other Written Information.
(e) Consents. No consent, approval, authorization or order of any
court, governmental agency or body or arbitrator having jurisdiction over the
Company, or any of its affiliates, the NASD, NASDAQ or the Company's
Shareholders is required for execution of this Agreement, and all other
agreements entered into by the Company relating thereto, including, without
limitation issuance and sale of the Securities, and the performance of the
Company's obligations hereunder.
(f) No Violation or Conflict. Assuming the representations and
warranties of the Subscriber in Paragraph 1 are true and correct and the
Subscriber complies with its obligations under this Agreement, neither the
issuance and sale of the Securities nor the performance of its obligations under
this Agreement and all other agreements entered into by the Company relating
thereto by the Company will:
(i) violate, conflict with, result in a breach of, or
constitute a default (or an event which with the giving of notice or the lapse
of time or both would be reasonably likely to constitute a default) under (A)
the articles of incorporation, charter or bylaws of the Company, or any of its
affiliates, (B) to the Company's knowledge, any decree, judgment, order, law,
treaty, rule, regulation or determination applicable to the Company, or any of
its affiliates of any court, governmental agency or body, or arbitrator having
jurisdiction over the Company, or any of its affiliates or over the properties
or assets of the Company, or any of its affiliates, (C) the terms of any bond,
debenture, note or any other evidence of indebtedness, or any agreement, stock
option or other similar plan, indenture, lease, mortgage, deed of trust or other
instrument to which the Company, or any of its affiliates is a party, by which
the Company, or any of its affiliates is bound, or to which any of the
properties of the Company, or any of its affiliates is subject, or (D) the terms
of any "lock-up" or similar provision of any underwriting or similar agreement
to which the Company, or any of its affiliates is a party; or
(ii) result in the creation or imposition of any lien, charge
or encumbrance upon the Securities or any of the assets of the Company, or any
of its affiliates.
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(g) The Securities. The Securities upon issuance:
(i) are, or will be, free and clear of any security interests,
liens, claims or other encumbrances, subject to restrictions upon transfer under
the 1933 Act and State laws;
(ii) have been, or will be, duly and validly authorized and on
the date of issuance and on the Closing Date, as hereinafter defined, the
Effective Date, as hereinafter defined, and the date the Placement Warrants are
exercised, will be duly and validly issued, fully paid and nonassessable (and if
registered pursuant to the 1933 Act, and resold pursuant to an effective
registration statement will be free trading and unrestricted);
(iii) will not have been issued or sold in violation of any
preemptive or other similar rights of the holders of any securities of the
Company;
(iv) will not subject the holders thereof to personal liability
by reason of being such holders; and
(h) Litigation. There is no pending or, to the best knowledge of
the Company, threatened action, suit, proceeding or investigation before any
court, governmental agency or body, or arbitrator having jurisdiction over the
Company, or any of its affiliates that would affect the execution by the Company
or the performance by the Company of its obligations under this Agreement, and
all other agreements entered into by the Company relating hereto.
(i) Reporting Company. The Company is a publicly- held company
whose common stock is registered pursuant to Section 12(g) of the Securities
Exchange Act of 1934, as amended (the "1934 Act"). The Company's common stock is
trading on the NASD OTC Bulletin Board. Pursuant to the provisions of the 1934
Act, the Company has timely filed all reports and other materials required to be
filed thereunder with the Securities and Exchange Commission during the
preceding twelve months except as disclosed in the Other Written Information.
(j) No Market Manipulation. The Company has not taken, and will not
take, directly or indirectly, any action designed to, or that might reasonably
be expected to, cause or result in stabilization or manipulation of the price of
the common stock of the Company to facilitate the sale or resale of the
Securities or affect the price at which the Securities may be issued.
(k) Information Concerning Company. The Reports and Other Written
Information contain all material information relating to the Company and its
operations and financial condition as of their respective dates which
information is required to be
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disclosed therein. Since the date of the financial statements included in the
Reports, and except as modified in the Other Written Information, there has been
no material adverse change in the Company's business, financial condition or
affairs not disclosed in the Reports. The Reports and Other Written Information
do not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading.
(l) Dilution. The number of Shares issuable upon Reset (as
hereinafter defined) may increase substantially in certain circumstances,
including, but not necessarily limited to, the circumstance wherein the trading
price of the Common Stock declines prior to the Effective Date. The Company's
executive officers and directors have studied and fully understand the nature of
the Securities being sold hereby and recognize that they have a potential
dilutive effect. The board of directors of the Company has concluded, in its
good faith business judgment, that such issuance is in the best interests of the
Company. The Company specifically acknowledges that its obligation to issue the
Additional Shares upon Reset and exercise of the Placement Warrants is binding
upon the Company and enforceable, except as otherwise described in this
Subscription Agreement, regardless of the dilution such issuance may have on the
ownership interests of other shareholders of the Company.
(m) Stop Transfer. The Securities are restricted securities as of
the date of this Agreement. The Company will not issue any stop transfer order
or other order impeding the sale and delivery of the Securities at such time as
the Securities are registered for public sale or an exemption from registration
is available.
(n) Defaults. Neither the Company nor any of its subsidiaries is in
violation of its Articles of Incorporation or Bylaws. Neither the Company nor
any of its subsidiaries is (i) in default under or in violation of any other
material agreement or instrument to which it is a party or by which it or any of
its properties are bound or affected, which default or violation would have a
material adverse effect on the Company, (ii) in default with respect to any
order of any court, arbitrator or governmental body or subject to or party to
any order of any court or governmental authority arising out of any action, suit
or proceeding under any statute or other law respecting antitrust, monopoly,
restraint of trade, unfair competition or similar matters, or (iii) to its
knowledge in violation of any statute, rule or regulation of any governmental
authority material to its business.
(o) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under
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circumstances that would cause the offering of the Securities pursuant to this
Agreement to be integrated with prior offerings by the Company for purposes of
the 1933 Act which would prevent the Company from selling the Securities under
Section 4(2) of the 1933 Act, or any applicable stockholder approval provisions.
Nor will the Company or any of its affiliates or subsidiaries take any action or
steps that would cause the offering of the Securities to be integrated with
other offerings.
(p) Use of Proceeds. The proceeds of the Subscriber funds to be
released to the Company will be used for working capital and for expenses of
this offering.
(q) No General Solicitation. Neither the Company, nor any of its
affiliates, nor to its knowledge, any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Act) in connection with the offer or sale of
the Securities.
(r) Listing. The Company's common stock is listed for trading on
NASD OTC Bulletin Board. The Company has not received any notice that its common
stock will be delisted from the OTC Bulletin Board or that the common stock does
not meet all requirements for the continuation of such listing.
(s) Correctness of Representations. The Company represents that the
foregoing representations and warranties are true and correct as of the date
hereof in all material respects and, unless the Company otherwise notifies the
Subscriber prior to the Closing Date, shall be true and correct in all material
respects as of the Closing Date. The foregoing representations and warranties
shall survive the Closing Date.
3. Regulation D Offering. This Offering is being made pursuant to the
exemption from the registration provisions of the Securities Act of 1933, as
amended, afforded by Rule 506 of Regulation D promulgated thereunder. On the
Closing Date, the Company will provide an opinion acceptable to Subscriber from
the Company's legal counsel opining on the availability of the Regulation D
exemption as it relates to the offer and issuance of the Securities. A form of
the legal opinion is annexed hereto as Exhibit B. The Company will provide, at
the Company's expense, such other legal opinions in the future as are reasonably
necessary for the issuance of the Additional Shares and exercise of the
Placement Warrants.
4. Reissuance of Securities. The Company agrees to reissue certificates
representing the Securities without the legends set forth in Sections 1(e) and
1(f) above at such time as (a) the holder thereof is permitted to dispose of
such Securities pursuant to Rule 144(k) under the Act, or (b) upon resale
subject
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to an effective registration statement after the Securities are registered under
the Act. The Company agrees to cooperate with the Subscriber in connection with
all resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions
necessary to allow such resales provided the Company and its counsel receive
reasonably requested certifications from the Subscriber and selling broker, if
any.
5. Redemption. The Company may not redeem the Securities without the
consent of the holder of the Securities.
6. Legal Fees/Commissions. The Company shall pay to counsel to the
Subscriber its fee of $20,000 for services rendered to the Subscriber in
reviewing this Agreement and other subscription agreements for the aggregate
subscription amounts of up to $1,200,000 and acting as escrow agent. The Company
will pay a cash commission, in the aggregate, of six percent (6%) of the
Purchase Price designated on the signature page hereto to certain Placement
Agents identified on Schedule A hereto ("Cash Commissions"). The Cash
Commissions and legal fees will be payable out of funds held pursuant to a Funds
Escrow Agreement to be entered into by the Company, Subscriber and an Escrow
Agent. The Company will also issue and deliver to the Placement Agents as
additional compensation, the Commission Shares and Placement Warrants designated
on Schedule A hereto. The Cash Commissions, Commission Shares and Placement
Warrants will be issued to the Placement Agents only when, as, and if the
corresponding subscription amount is released from escrow to the Company. All
the representations, covenants, warranties, undertakings, and indemnification
including but not limited to registration rights made or granted to or for the
benefit of the Subscriber are hereby also made and granted to the Placement
Agents in respect of the Commission Shares, Placement Warrants and Company
Shares issuable upon exercise of the Placement Warrants. The Placement Warrants
will all be exercisable immediately upon issue and until three years after the
Closing Date. One Million (1,000,000) "A" Placement Warrants will be issued
proportionately for each $1,700,000 of Purchase Price and Put Consideration.
Eight Thousand Five Hundred (8,500) Commission Shares and Twenty-Five Thousand
(25,000) "B" Placement Warrants will be issued proportionately for each
$1,700,000 of Purchase Price and Put Consideration. Forms of "A" and "B"
Placement Warrants have been delivered to the Placement Agents.
7.1. Covenants of the Company. The Company covenants and agrees with
the Subscriber as follows:
(a) The Company will advise the Subscriber, promptly after it
receives notice of issuance by the Securities and Exchange Commission, any state
securities commission or any other regulatory authority of any stop order or of
any order preventing or suspending any offering of any securities of the
Company, or of
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the suspension of the qualification of the common stock of the Company for
offering or sale in any jurisdiction, or the initiation of any proceeding for
any such purpose.
(b) The Company shall promptly secure the listing of the Company
Shares, and Common Stock issuable upon the exercise of the Placement Warrants
upon each national securities exchange, or automated quotation system, if any,
upon which shares of common stock are then listed (subject to official notice of
issuance) and shall maintain such listing so long as any other shares of common
stock shall be so listed. The Company will use its best efforts to maintain the
listing and trading of its common stock on the NASD OTC Bulletin Board, and will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the National Association of Securities
Dealers ("NASD") and such exchanges, as applicable. The Company will provide the
Subscriber copies of all notices it receives notifying the Company of the
threatened and actual delisting of the common stock on any exchange or quotation
system on which the common stock is listed.
(c) The Company shall notify the SEC, NASD and applicable state
authorities, in accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to the Subscriber
and Placement Agents and promptly provide copies thereof to Subscriber.
(d) Until at least two (2) years after the Effective Date, as
defined in Section 10.1(iv) hereof, the Company will (i) cause its common stock
to continue to be registered under Sections 12(b) or 12(g) of the Exchange Act,
(ii) comply in all respects with its reporting and filing obligations under the
Exchange Act, and (iii) comply with all requirements related to any registration
statement filed pursuant to this Agreement. The Company will not take any action
or file any document (whether or not permitted by the Act or the Exchange Act or
the rules thereunder) to terminate or suspend such registration or to terminate
or suspend its reporting and filing obligations under said Acts until the later
of (i) two (2) years after the Effective Date, or (ii) the sale by the
Subscribers and Placement Agents of all the Company Shares and Commission Shares
issuable by the Company pursuant to this Agreement. Until at least two (2) years
after the Placement Warrants have been exercised, the Company will use its
commercial best efforts to continue the listing or trading of its common stock
on NASD OTC Bulletin Board and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the NASD
and NASDAQ, as appropriate.
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(e) The Company undertakes to use the proceeds of the Subscriber's
funds for working capital and expenses of this offering.
8. Covenants of the Company and Subscriber Regarding
Indemnifications.
(a) The Company agrees to indemnify, hold harmless, reimburse and
defend Subscriber, Subscriber's officers, directors, agents, affiliates, control
persons, and principal shareholders, against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of any
nature, incurred by or imposed upon Subscriber which results, arises out of or
is based upon (i) any misrepresentation by Company or breach of any warranty by
Company in this Agreement or in any Exhibits or Schedules attached hereto, or
Reports or other Written Information; or (ii) any breach or default in
performance by Company of any covenant or undertaking to be performed by Company
hereunder, or any other agreement entered into by the Company and Subscribers
relating hereto.
(b) Subscriber agrees to indemnify, hold harmless, reimburse and
defend the Company at all times against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company which results, arises out of or is based
upon (a) any misrepresentation by Subscriber in this Agreement or in any
Exhibits or Schedules attached hereto; or (b) any breach or default in
performance by Subscriber of any covenant or undertaking to be performed by
Subscriber hereunder, or any other agreement entered into by the Company and
Subscribers relating hereto.
9.1. Reset.
(a) The amount of Company Shares issuable to the Subscriber shall
be redetermined from time to time as described herein (the "Reset") and if
appropriate, additional shares of Common Stock (the "Additional Shares") will be
issued and delivered to the Subscriber as provided herein. The original purchase
price set forth on the signature page of this Subscription Agreement (the
"Purchase Price") shall be deemed the purchase price of all the shares of Common
Stock to be delivered pursuant to this Subscription Agreement including the
Additional Shares. Provided the Additional Shares are issued after the effective
date of the Registration Statement described in Section 10.1(iv) hereof, such
Additional Shares will be free-trading on the books and records of the Company
and issued without restrictive legend.
(b) The Reset shall be determined on the thirtieth (30th), sixtieth
(60th), and ninetieth (90th) days after the date the registration statement
described in Section 10.1(iv) hereof is declared effective by the Commission, or
if such registration
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statement has not been declared on or before the Effective Date then, at the
Subscriber's election, the thirtieth (30th), sixtieth (60th), and ninetieth
(90th) days after the Effective Date, (each a "Reset Date"). In the event the
Company elects to defer a Reset pursuant to Section 9.1(f) hereof, then the
final Reset determination shall be made on the 120th day after declaration of
effectiveness described above or Effective Date, as the case may be. The
Subscriber may elect to Reset up to one-third (1/3) of the Purchase Price on
each Reset Date ("Designated Portion"). A Subscriber may not Reset a portion of
the Purchase Price for which the Subscriber has sold, prior to a Reset Date, the
Common Shares Purchased (as identified on the signature page hereto) in
connection therewith. The Subscriber may, in the Subscriber's sole and absolute
discretion, determine and designate the source of any of the Company's common
shares sold by the Subscriber as being Company Shares received hereunder, or
Additional Shares, Put Shares or common shares obtained from any other source
other than pursuant to this Subscription Agreement.
(c) If the closing bid price of the common stock on the NASD OTC
Bulletin Board or such other principal exchange or market where the common stock
is listed for trading, on such Reset Date is less than $4.50 (subject to
adjustment for stock splits, stock dividends and similar events), then on each
Reset Date a number of Company Shares will be calculated for the Designated
Portion of the Purchase Price by dividing the Designated Portion of the Purchase
Price by a number equal to eighty-seven and one-half percent (87.5%) of the
average of the three lowest closing bid prices for the common stock on the NASD
OTC Bulletin Board, or on any securities exchange or other securities market on
which the common stock was listed, traded or quoted for the fifteen (15) trading
days immediately preceding the Reset Date (the "Reset Price"). If the Reset
Price is less than $4.00, then the Company will issue to the Subscriber the
number of shares of Common Stock obtained by subtracting (y) the number of
shares obtained by dividing the Designated Portion of Purchase Price by $4.00
from (z) the number of shares obtained by dividing the Designated Portion of
Purchase Price by the Reset Price.
(d) In no event will the Subscriber be required to return any
Company Shares to the Company. Each Reset calculation shall be made independent
of all other Reset calculations.
(e) The Company agrees to deliver the Additional Shares to the
Subscriber in hand, or Redemption Amount (as defined herein) if such payment of
the Redemption Amount is required hereunder, no later than ten (10) business
days after notice from the Subscriber ("Reset Notice") of the Designated Portion
(the "Delivery Date"). A Reset Notice must be given to the Company within 20
days of the Reset Date. The Company understands that a delay in the delivery of
either the Additional Shares or failure to timely deliver the Redemption Amount
described in Section 9.2
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beyond the Delivery Date could result in economic loss to the Subscriber. As
compensation to the Subscriber for such loss, the Company agrees to pay as
liquidated damages payments to the Subscriber for late delivery of Additional
Shares or Redemption Amount beyond the Delivery Date, in the amount of $100 per
business day after the Delivery Date for each $10,000 of Designated Portion of
Purchase Price for which a Reset has been calculated. The Company shall pay any
payments incurred under this Section in immediately available funds upon demand.
The late payment charges described in this Section 9.1(g) shall be payable
through the date the Additional Shares or Redemption Amount is received in hand
by the Subscriber.
(f) The Company may elect to defer a Reset in relation to one Reset
Date ("Reset Deferral"). Such Reset Deferral must be made for all Subscribers
entering into subscription agreements similar to this Subscription Agreement in
connection with $1,200,000 of Purchase Price, in the aggregate. The Company's
Reset Deferral election must be communicated in writing to all of the above
described Subscribers within three business days after the Reset Date for which
the Company elects a Reset Deferral. In the event the Company elects a Reset
Deferral, the Subscriber shall have the option of electing the Reset Price in
effect on any subsequent Reset Date on which a Reset may be determined pursuant
to 9.1(c) above or an alternative Reset Price ("Alternative Reset Price") for
the amount of Purchase Price subject to the Reset Deferral. The Alternative
Reset Price, if any, shall be the average of the Reset Price in effect on the
Reset Date for which the Reset Deferral has been elected and the Reset Price on
the Reset Date for which a Reset Notice is given in relation to a portion of the
Purchase Price which was the subject of a Reset Deferral.
(g) Securities and Company Shares as defined and employed in this
Subscription Agreement shall include Additional Shares for all purposes
including but not limited to Section 10 of this Subscription Agreement.
(h) Nothing contained herein or in any document referred to herein
or delivered in connection herewith shall be deemed to establish or require the
payment of a rate of interest or other charges in excess of the maximum
permitted by applicable law. In the event that the rate of interest or dividends
required to be paid or other charges hereunder exceed the maximum permitted by
such law, any payments in excess of such maximum shall be credited against
amounts owed by the Company to the Subscriber and thus refunded to the Company.
9.2. Mandatory Redemption. In the event the Company does not issue and
deliver Additional Shares on a Delivery Date for any reason, then at the
Subscriber's election in lieu of delivering such Additional Shares the Company
must pay to the Subscriber
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immediately after request, a sum of dollars equal to the number obtained by
multiplying the Additional Shares otherwise deliverable by the closing bid price
of the common stock on the NASD OTC Bulletin Board or such other principal
exchange or market where the common stock is listed for trading on the Reset
Date ("Redemption Amount").
9.3. Reset Limitation. The Company and Subscriber agree that the
Subscriber and Company shall not be entitled to Reset on a Reset Date that
amount of the Purchase Price in connection with that number of shares of common
stock which would be in excess of the sum of (i) the number of shares of common
stock beneficially owned by the Subscriber and its affiliates on such Reset
Date, and (ii) the number of shares of common stock issuable upon such Reset
with respect to which the determination of this proviso is being made on such
Reset Date, which would result in beneficial ownership by the Subscriber and its
affiliates of more than 9.99% of the outstanding shares of common stock of the
Company on such Reset Date. For the purposes of the proviso to the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13d-3 thereunder. Subject to the foregoing, the Subscriber shall not be
prohibited from receiving Additional Shares in connection with the Reset of an
aggregate 100% of the Purchase Price provided the 9.99% limitation described
above is not violated on the date the Subscriber notifies the Company that it is
permitted to receive such previously undelivered Additional Shares. Subscriber
may revoke the restriction described in this paragraph upon seventy-five (75)
days prior written notice to the Company.
9.4. Buy-In. In addition to any other rights available to the
Subscriber, if the Company fails to deliver to the Subscriber such shares
issuable upon Reset by the Delivery Date and if after the Delivery Date the
Subscriber purchases (in an open market transaction or otherwise) shares of
common stock to deliver in satisfaction of a sale by such Subscriber of the
common stock which the Subscriber anticipated receiving upon such Reset (a
"Buy-In"), then the Company shall pay in cash to the Subscriber (in addition to
any remedies available to or elected by the Subscriber) the amount by which (A)
the Subscriber's total purchase price (including brokerage commissions, if any)
for the shares of common stock so purchased exceeds (B) the corresponding
proportional amount of Designated Amount for which Additional Shares were not
timely delivered, together with interest thereon at a rate of 15% per annum,
accruing until such amount and any accrued interest thereon is paid in full
(which amount shall be paid as liquidated damages and not as a penalty). For
example, if the Subscriber purchases shares of Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to an attempted Reset
of $10,000 of Designated Amount, the Company shall be required to pay the
Subscriber $1,000, plus interest. The Subscriber shall provide
13
the Company written notice indicating the amounts payable to the
Subscriber in respect of the Buy-In.
9.5. Injunction - Posting of Bond. In the event a Subscriber shall
exercise its Reset Rights, the Company may not refuse conversion based on any
claim that such Subscriber or any one associated or affiliated with such
Subscriber has been engaged in any violation of law, unless, an injunction from
a court, on notice, restraining and/or enjoining the exercise of the
Subscriber's Reset Rights shall have been obtained and the Company posts a
surety bond for the benefit of such Subscriber in the amount of 130% of the
amount of the Designated Amount, which is subject to the injunction, which bond
shall remain in effect until the completion of arbitration/litigation of the
dispute and the proceeds of which shall be payable to such Subscriber to the
extent it obtains judgment.
10.1. Registration Rights. The Company hereby grants the following
registration rights to holders of the Securities.
(i) On one occasion, for a period commencing 46 days after the
Closing Date, but not later than three years after the Closing Date, the
Company, upon a written request therefor from any record holder or holders of
more than 50% of the aggregate of the Company's Shares issued in connection with
the $1,100,000 aggregate offering to which this Subscription Agreement relates
(the Securities, Additional Shares and securities issued or issuable by virtue
of ownership of the Securities, and the Put Securities defined in Section 11
hereof, if actually issued, being, the "Registrable Securities"), shall prepare
and file with the SEC a registration statement under the Act covering the
Registrable Securities which are the subject of such request, unless such
Registrable Securities are the subject of an effective registration statement.
In addition, upon the receipt of such request, the Company shall promptly give
written notice to all other record holders of the Registrable Securities that
such registration statement is to be filed and shall include in such
registration statement Registrable Securities for which it has received written
requests within 10 days after the Company gives such written notice. Such other
requesting record holders shall be deemed to have exercised their demand
registration right under this Section 10.1(i). As a condition precedent to the
inclusion of Registrable Securities, the holder thereof shall provide the
Company with such information as the Company reasonably requests. The obligation
of the Company under this Section 10.1(i) shall be limited to one registration
statement.
(ii) If the Company at any time proposes to register any of its
securities under the Act for sale to the public, whether for its own account or
for the account of other security holders or both, except with respect to
registration statements on Forms ▇-▇, ▇-▇ or another form not available for
registering the Registrable
14
Securities for sale to the public, provided the Registrable Securities are not
otherwise registered for resale by the Subscriber or Holder pursuant to an
effective registration statement, each such time it will give at least 30 days'
prior written notice to the record holder of the Registrable Securities of its
intention so to do. Upon the written request of the holder, received by the
Company within 30 days after the giving of any such notice by the Company, to
register any of the Registrable Securities, the Company will cause such
Registrable Securities as to which registration shall have been so requested to
be included with the securities to be covered by the registration statement
proposed to be filed by the Company, all to the extent required to permit the
sale or other disposition of the Registrable Securities so registered by the
holder of such Registrable Securities (the "Seller"). In the event that any
registration pursuant to this Section 10.1(ii) shall be, in whole or in part, an
underwritten public offering of common stock of the Company, the number of
shares of Registrable Securities to be included in such an underwriting may be
reduced by the managing underwriter if and to the extent that the Company and
the underwriter shall reasonably be of the opinion that such inclusion would
adversely affect the marketing of the securities to be sold by the Company
therein; provided, however, that the Company shall notify the Seller in writing
of any such reduction. Notwithstanding the forgoing provisions, the Company may
withdraw any registration statement referred to in this Section 10.1(ii) without
thereby incurring any liability to the Seller.
(iii) If, at the time any written request for registration is
received by the Company pursuant to Section 10.1(i), the Company has determined
to proceed with the actual preparation and filing of a registration statement
under the 1933 Act in connection with the proposed offer and sale for cash of
any of its securities for the Company's own account, such written request shall
be deemed to have been given pursuant to Section 10.1(ii) rather than Section
10.1(i), and the rights of the holders of Registrable Securities covered by such
written request shall be governed by Section 10.1(ii) except that the Company or
underwriter, if any, may not withdraw such registration or limit the amount of
Registrable Securities included in such registration.
(iv) The Company shall file with the Commission within 45 days
of the Closing Date (the "Filing Date"), and use its reasonable commercial
efforts to cause to be declared effective an amendment to the Form SB-2
registration statement filed with the Commission on or about April 8, 1999, (or
such other form that it is eligible to use) within 120 days of the Closing Date
in order to register the Registrable Securities for resale and distribution
under the Act. The registration statement described in this paragraph must be
declared effective by the Commission on or before October 1, 1999 ("Effective
Date"). The Company will register not less than 12,500 shares of common stock in
the aforedescribed
15
registration statement for each $25,000 of Purchase Price and Put Consideration
set forth on the signature page hereto, one share of common stock for each Put
Commission Share (as defined herein) and one share of Common Stock for each
common share issuable upon exercise of the Placement Warrants and Put Commission
Warrants (as defined herein). The Registrable Securities shall be reserved and
set aside exclusively for the benefit of the Subscriber and Placement Agents, as
the case may be, and not issued, employed or reserved for anyone other than the
Subscriber and Placement Agents. Such registration statement will be promptly
amended or additional registration statements will be promptly filed by the
Company as necessary to register additional Company Shares to allow the public
resale of all common stock included in and issuable by virtue of the Registrable
Securities.
10.2. Registration Procedures. If and whenever the Company is required
by the provisions hereof to effect the registration of any shares of Registrable
Securities under the Act, the Company will, as expeditiously as possible:
(a) prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as herein provided), and promptly
provide to the holders of Registrable Securities copies of all filings and
Commission letters of comment;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
not less than 6 months after the longest exercise period of any common stock
purchase warrant included in the Registrable Securities and comply with the
provisions of the Act with respect to the disposition of all of the Registrable
Securities covered by such registration statement in accordance with the
Seller's intended method of disposition set forth in such registration statement
for such period;
(c) furnish to the Seller, and to each underwriter if any, such
number of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons reasonably may
request in order to facilitate the public sale or their disposition of the
securities covered by such registration statement;
(d) use its best efforts to register or qualify the Seller's
Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Seller and in the
case of an underwritten public offering, the managing underwriter shall
reasonably request, provided, however, that the Company shall not for any such
purpose
16
be required to qualify generally to transact business as a foreign corporation
in any jurisdiction where it is not so qualified or to consent to general
service of process in any such jurisdiction;
(e) list the Registrable Securities covered by such registration
statement with any securities exchange on which the Common Stock of the Company
is then listed;
(f) immediately notify the Seller and each underwriter under such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act, of the happening of any event of which
the Company has knowledge as a result of which the prospectus contained in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing;
(g) make available for inspection by the Seller, any underwriter
participating in any distribution pursuant to such registration statement, and
any attorney, accountant or other agent retained by the Seller or underwriter,
all publicly available, non- confidential financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all publicly available,
non-confidential information reasonably requested by the seller, underwriter,
attorney, accountant or agent in connection with such registration statement.
10.3. Provision of Documents.
(a) At the request of the Seller, provided a demand for
registration has been made pursuant to Section 10.1(i) or a request for
registration has been made pursuant to Section 10.1(ii), the Registrable
Securities will be included in a registration statement filed pursuant to this
Section 10. In the event of a firm commitment underwritten public offering in
which the Registrable Securities are so included, the lockup, if any, requested
by the managing underwriter may not exceed ninety (90) days after the effective
date thereof.
(b) In connection with each registration hereunder, the Seller will
furnish to the Company in writing such information and representation letters
with respect to itself and the proposed distribution by it as reasonably shall
be necessary in order to assure compliance with federal and applicable state
securities laws. In connection with each registration pursuant to Section
10.1(i) or 10.1(ii) covering an underwritten public offering, the Company and
the Seller agree to enter into a written
17
agreement with the managing underwriter in such form and containing such
provisions as are customary in the securities business for such an arrangement
between such underwriter and companies of the Company's size and investment
stature.
10.4. Non-Registration Events. The Company and the Subscriber agree
that the Seller will suffer damages if any registration statement required under
Section 10.1(i) or 10.1(ii) above is not filed within 60 days after request by
the Holder and not declared effective by the Commission within 120 days after
such request [or the Filing Date and Effective Date, respectively, in reference
to the Registration Statement on Form SB-2 or such other form described in
Section 10.1(iv)], and maintained in the manner and within the time periods
contemplated by Section 10 hereof, and it would not be feasible to ascertain the
extent of such damages with precision. Accordingly, if (i) the Registration
Statement described in Sections 10.1(i) or 10.1(ii) is not filed within 60 days
of such request, or is not declared effective by the Commission on or prior to
the date that is 120 days after such request, or (ii) the registration statement
on Form SB-2 or such other form described in Section 10.1(iv) is not filed on or
before the Filing Date or not declared effective on or before the sooner of the
Effective Date, or within five days of receipt by the Company of a communication
from the Commission that the registration statement described in Section
10.1(iv) will not be reviewed, or (iii) any registration statement described in
Sections 10.1(i), 10.1(ii) or 10.1(iv) is filed and declared effective but shall
thereafter cease to be effective (without being succeeded immediately by an
additional registration statement filed and declared effective) for a period of
time which shall exceed 30 days in the aggregate per year but not more than 20
consecutive calendar days (defined as a period of 365 days commencing on the
date the Registration Statement is declared effective) (each such event referred
to in clauses (i), (ii) and (iii) of this Section 10.4 is referred to herein as
a "Non-Registration Event"), then, for so long as such Non-Registration Event
shall continue, the Company shall pay in cash as Liquidated Damages to each
holder of any Registrable Securities an amount equal to three (3%) percent for
each thirty (30) days or part thereof, of the Purchase Price set forth on the
signature page hereto, and the aggregate amount of the exercise prices of the
Placement Warrants, whether or not exercised, then owned of record by such
holder as of the occurrence of such Non-Registration Event. Payments to be made
pursuant to this Section 10.4 shall be due and payable immediately upon demand
in immediately available funds. In the event a Mandatory Redemption payment is
received from the Company by the Subscriber pursuant to Section 9.2 of this
Subscription Agreement, then the Liquidated Damages described in this Section
10.4 shall no longer accrue on the portion of Purchase Price underlying the
Mandatory Redemption Payment, from and after the date the Holder receives the
Mandatory Redemption Payment. It shall also be deemed a Non- Registration Event
to the extent any Additional Shares issuable are
18
not included in an effective registration statement as of and after the
Effective Date at the Conversion Price in effect from and after the Effective
Date.
10.5. Expenses. All expenses incurred by the Company in complying with
Section 10, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including reasonable counsel
fees) incurred in connection with complying with state securities or "blue sky"
laws, fees of the National Association of Securities Dealers, Inc., transfer
taxes, fees of transfer agents and registrars, fee of one counsel, if any, to
represent all the Sellers, and costs of insurance are called "Registration
Expenses". All underwriting discounts and selling commissions applicable to the
sale of Registrable Securities, including any fees and disbursements of any
special counsel to the Seller, are called "Selling Expenses". The Seller shall
pay the fees of its own additional counsel, if any.
The Company will pay all Registration Expenses in connection with
the registration statement under Section 10. All Selling Expenses in connection
with each registration statement under Section 10 shall be borne by the Seller
and may be apportioned among the Sellers in proportion to the number of shares
sold by the Seller relative to the number of shares sold under such registration
statement or as all Sellers thereunder may agree.
10.6. Indemnification and Contribution.
(a) In the event of a registration of any Registrable Securities
under the Act pursuant to Section 10, the Company will indemnify and hold
harmless the Seller, each officer of the Seller, each director of the Seller,
each underwriter of such Registrable Securities thereunder and each other
person, if any, who controls such Seller or underwriter within the meaning of
the 1933 Act, against any losses, claims, damages or liabilities, joint or
several, to which the Seller, or such underwriter or controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such Registrable Securities
was registered under the Act pursuant to Section 10, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Seller, each such
underwriter and each such controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim,
19
damage, liability or action; provided, however, that the Company will not be
liable in any such case if and to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
information furnished by any such Seller, the underwriter or any such
controlling person in writing specifically for use in such registration
statement or prospectus.
(b) In the event of a registration of any of the Registrable
Securities under the Act pursuant to Section 10, the Seller will indemnify and
hold harmless the Company, and each person, if any, who controls the Company
within the meaning of the Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and each
person who controls any underwriter within the meaning of the Act, against all
losses, claims, damages or liabilities, joint or several, to which the Company
or such officer, director, underwriter or controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement under which such Registrable Securities were
registered under the Act pursuant to Section 10, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereof, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each such
officer, director, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
that the Seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information pertaining to
such Seller, as such, furnished in writing to the Company by such Seller
specifically for use in such registration statement or prospectus, and provided,
further, however, that the liability of the Seller hereunder shall be limited to
the proportion of any such loss, claim, damage, liability or expense which is
equal to the proportion that the public offering price of the Registrable
Securities sold by the Seller under such registration statement bears to the
total public offering price of all securities sold thereunder, but not in any
event to exceed the gross proceeds received by the Seller from the sale of
Registrable Securities covered by such registration statement.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such
20
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party hereunder, notify the indemnifying party in writing thereof,
but the omission so to notify the indemnifying party shall not relieve it from
any liability which it may have to such indemnified party other than under this
Section 10.6(c) and shall only relieve it from any liability which it may have
to such indemnified party under this Section 10.6(c) if and to the extent the
indemnifying party is prejudiced by such omission. In case any such action shall
be brought against any indemnified party and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate in and, to the extent it shall wish, to assume and undertake the
defense thereof with counsel satisfactory to such indemnified party, and, after
notice from the indemnifying party to such indemnified party of its election so
to assume and undertake the defense thereof, the indemnifying party shall not be
liable to such indemnified party under this Section 10.6(c) for any legal
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation and of liaison with
counsel so selected, provided, however, that, if the defendants in any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified parties shall have the right to select one separate
counsel and to assume such legal defenses and otherwise to participate in the
defense of such action, with the reasonable expenses and fees of such separate
counsel and other expenses related to such participation to be reimbursed by the
indemnifying party as incurred.
(d) In order to provide for just and equitable contribution in the
event of joint liability under the Act in any case in which either (i) the
Seller, or any controlling person of the Seller, makes a claim for
indemnification pursuant to this Section 10.6 but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding the
fact that this Section 10.6 provides for indemnification in such case, or (ii)
contribution under the Act may be required on the part of the Seller or
controlling person of the Seller in circumstances for which indemnification is
provided under this Section 10.6; then, and in each such case, the Company and
the Seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the
21
registration statement bears to the public offering price of all securities
offered by such registration statement, provided, however, that, in any such
case, (A) the Seller will not be required to contribute any amount in excess of
the public offering price of all such securities offered by it pursuant to such
registration statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 10(f) of the Act) will be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
11.1. Obligation To Purchase.
(a) The Subscriber agrees to purchase from the Company additional
Company Shares ("Put Shares") for up to the Maximum Put Consideration designated
on the signature page hereto. Collectively the Put Shares and Put Commissions
(as hereinafter defined) are referred to as the "Put Securities".) The Holders
of the Put Securities are granted all the rights, remedies and indemnification
granted to the Subscriber in connection with the Securities, including but not
limited to, the registration rights described in Section 10 hereof, and the
Reset Rights described in Section 9 hereof.
(b) The agreement to purchase the Put Shares is contingent on the
following (unless waived by the Subscriber):
(i) The timely filing and timely effectiveness of the
registration statement described in Section 10.1(iv) hereof relating to all the
Registrable Securities.
(ii) As of the Put Date and Put Closing Date (as defined
hereinafter), the Company will be a full reporting company with the class of
Shares registered pursuant to Section 12(g) of the Securities Exchange Act of
1934.
(iii) The closing bid price of the Company's common stock on
the NASD OTC Bulletin Board or such other securities exchange or market where
the Company's common stock is listed for trading ("Closing Bid Price") for each
of the five trading days prior to the effective date of the registration
statement described in Section 10.1(iv) hereof and until to the Put Closing Date
will not be less than $2.00.
(iv) No material adverse change in the Company's business or
business prospects shall have occurred after the date of the most recent
financial statements included in the Reports. Material adverse change is defined
as any effect on the business, operations, properties, prospects, or financial
condition of the Company that is material and adverse to the Company and its
22
subsidiaries and affiliates, taken as a whole, and/or any condition,
circumstance, or situation that would prohibit or otherwise interfere with the
ability of the Company to enter into and perform any of its obligations under
this Agreement, or any other agreement entered into or to be entered into in
connection herewith, in any material respect.
(v) The execution and delivery to the Subscriber of a
certificate signed by its chief executive officer representing the truth and
accuracy of all the Company's representations and warranties contained in this
Subscription Agreement as of the Put Date and the Put Closing Date and
confirming the undertakings contained herein, and representing the satisfaction
of all contingencies and conditions required for the exercise of the Put.
(vi) The Company's compliance after the date hereof with the
listing requirements of the NASD OTC Bulletin Board, and the Company's not
having received notice from the NASD OTC Bulletin Board (and any principal
market on which the Company's Common Stock is listed for trading) that the
Company is not in compliance with the requirements for continued listing.
(vii) The execution by the Company and delivery to the
Subscriber of all documents reasonably necessary to memorialize the rights and
obligations of each of the parties in relation to the Put.
(viii) A Closing shall have occurred on an aggregate of
$1,200,000 on the same terms and conditions described in this Subscription
Agreement.
(c) The exercise of the Put is further contingent on the
non-occurrence of any of the following events, each an Event of Default:
(i) The Company shall make an assignment for the benefit of
creditors, or apply for or consent to the appointment of a receiver or trustee
for it or for a substantial part of its property or business; or such a receiver
or trustee shall otherwise be appointed.
(ii) Any money judgment, writ or similar process shall be
entered or filed against Company or any of its property or other assets for more
than $50,000, and shall remain unvacated, unbonded or unstayed for a period of
forty-five (45) days.
23
(iii) Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Company.
(iv) Delisting of any of the Company's securities from the NASD
OTC Bulletin Board or such other principal exchange on which such security was
listed for trading, or receipt by the Company of notice from NASDAQ or such
other principal exchange that the Company is not in compliance with its listing
requirements.
(v) A concession by the Company or a default by the Company
under any one or more obligations in an aggregate monetary amount in excess of
$50,000.
(vi) An SEC stop trade order or NASDAQ trading suspension for a
period of ten or more days.
(vii) Any representation or warranty of the Company made in
this Subscription Agreement or in connection herewith, or in any agreement,
statement or certificate given in writing pursuant hereto or in any other
agreement to which the Company and Subscriber are parties, or in connection
herewith or therewith shall be materially false or misleading.
(viii) The occurrence of a Non-Registration Event.
(ix) Any material default by the Company of any covenant or
undertaking described in this Subscription Agreement or any document delivered
in connection herewith or under any other agreement to which the Company and
Subscriber are parties.
(d) The exercise of the Put is expressly contingent on the
declaration of effectiveness by the Securities and Exchange Commission and the
continued effectiveness of the Registration Statement on Form SB-2 or such other
form as described in Section 10.1(iv) hereof relating to the Registrable
Securities and the Company's ability to issue Common Stock on the Put Closing
Date pursuant to an effective registration statement, with such Common Stock,
upon resale, being unlegended freely transferable Common Stock.
11.2. Exercise of Put.
24
(a) The Company's right to exercise the Put expires two weeks after
the effective date of the registration statement described in Section 10.1(iv)
hereof ("Put Exercise Period").
(b) The Put may be exercised by the Company by the giving to the
Subscriber of a written notice of exercise ("Put Notice") during the Put
Exercise Period in relation to all the subject Put Securities. The date a Put
Notice is given is a Put Date. Each Put Notice must be accompanied by the (i)
officer's certificate described in Section 11.1(b)(viii) above; (ii) a copy of
the filed registration statement; (iii) notice of declaration of effectiveness;
(iv) five copies of the final prospectus; and (v) a legal opinion relating to
the Put Securities in form reasonably acceptable to Subscriber.
(c) Unless otherwise agreed to by the Subscribers, Put Notices must
be given to all Subscribers in proportion to the amounts agreed to be purchased
by all Subscribers undertaking to purchase Put Shares in the $1,200,000 offering
to which this Subscription Agreement relates. The aggregate amount of all such
Put Notices may not exceed $500,000. In the event the Company does not exercise
the Put during the Put Exercise Period, then the Subscriber may exercise the Put
on behalf of the Company, by giving notice to the Company of such exercise
during the fourteen (14) business days following the Put Exercise Period. Only
one Put Notice may be given to the Subscriber.
(d) Payment by the Subscriber in relation to a Put Notice relating
to the Put must be made within 10 days of receipt of a Put Notice. Payment will
be made against delivery to the Subscriber or an escrow agent to be agreed upon
by the Company and Subscriber, of the Put Shares and items set forth in Section
11.2(b) above, and delivery to the Placement Agents of the Put Commissions
relating to the Put being exercised.
11.3. Put Price. If the average Closing Bid Price for the 15 trading
days prior to the effective date of the registration statement described in
Section 10.1(iv) hereof is $4.00 or more, then the price for each Put Share
shall be $4.00 ("Put Price"). If the average Closing Bid Price during such
period is less than $4.00, then the Put Price shall be 87.5% of the average of
the three lowest Closing Bid Prices during such 15 day period.
11.4. Put Commission Warrants. The Put Commission Warrants (as defined
herein) payable in connection with the Put will be identical to the Placement
Warrants and issued in the same proportions as the Placement Warrants except
that such Put Warrants
25
will be exercisable commencing on the Put Closing Date and for three years
thereafter at a purchase price of the lesser of $4.00 per share or the closing
bid price of the common stock as reported on the NASD OTC Bulletin Board or such
other principal market or exchange where the common stock is listed for trading,
on the thirtieth day following the effective date of the registration statement
described in Section 10.1(iv) of this Subscription Agreement.
11.5. Put Commissions. The Placement Agents identified on Schedule A
hereto shall receive aggregate cash, stock and warrants as commissions in
connection with the closing of the Put in exactly the same proportions as set
forth in Section 6 hereof. The aggregate Put Commissions are set forth on
Schedule A hereto. Put Commissions shall be payable only in connection with the
Put Purchase Price actually paid by a Subscriber. The attorney for the
Subscriber shall receive a payment at the Put Closing equal to one and one-half
(1.5%) percent of the Put Consideration.
11.6. Adjustments. The Put Price and number of Common Shares to be
issued pursuant to this Section shall be subject to adjustment from time to time
upon the happening of certain events while the Put right remains outstanding, as
follows:
(a) Stock Splits, Combinations and Dividends. If the shares of
common stock are subdivided or combined into a greater or smaller number of
shares of common stock, or if a dividend is paid on the common stock in shares
of common stock, the Put Price shall be proportionately reduced in case of
subdivision of shares or stock dividend or proportionately increased in the case
of combination of shares, in each such case by the ratio which the total number
of shares of common stock outstanding immediately after such event bears to the
total number of shares of common stock outstanding immediately prior to such
event.
(b) Share Issuance. Subject to the provisions of this Section, if
the Company at any time shall issue any shares of common stock prior to Put
Closings on up to $500,000 [otherwise than as provided in Section 11.6(a) or
this subparagraph 11.6(b) or int he Other Written Information] for a
consideration less than the Put Price that would be in effect at the time of
such issue, then, and thereafter successively upon each such issue, the Put
Price shall be reduced as follows: (i) the number of shares of common stock
outstanding immediately prior to such issue shall be multiplied by the Put Price
in effect at the time of such issue and the product shall be added to the
aggregate consideration, if any, received by the Company upon such issue of
additional shares of common stock; and (ii) the sum so obtained shall be divided
by the number of shares of common stock outstanding immediately after such
26
issue. The resulting quotient shall be the adjusted Put Price. For purposes of
this adjustment, the issuance of any security of the Company carrying the right
to convert such security into shares of common stock or of any warrant, right or
option to purchase common stock shall result in an adjustment to the Put Price
upon the issuance of shares of common stock upon exercise of such conversion or
purchase rights.
11.7. The Company and Subscriber agree that the Company and Subscriber
may not exercise the Put in connection with that number of shares of common
stock which would be in excess of the sum of (i) the number of shares of common
stock beneficially owned by the Subscriber and its affiliates on the Closing
Date, and (ii) the number of shares of common stock issuable upon the exercise
of the Put with respect to which the determination of this proviso is being made
on a Put Date, which would result in beneficial ownership by the Subscriber and
its affiliates of more than 9.99% of the outstanding shares of common stock of
the Company. For the purposes of the proviso to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder, except as otherwise provided in clause (i) of such proviso. Any
conflict between this Section 11.7 and Section 9.3 hereof or the potential
application of this Section 11.7 and Section 9.3 at the same time shall be
resolved by the Subscriber at the Subscriber's election, provided that the
aggregate maximum amount of common shares that may be issued is not exceeded.
The Subscriber may revoke the restriction described in this paragraph upon
seventy-five (75) days prior written notice to the Company.
11.8. Put Reset Rights. The Subscriber is hereby granted identical
Reset Rights in relation to the Put Shares and aggregate Put Consideration as
described in Section 9 of this Subscription Agreement.
12. (a) Right of First Refusal. Until 180 days after the effective date
of the Registration Statement described in Section 10.1(iv) hereof, the
Subscriber shall be given not less than ten (10) business days prior written
notice of any proposed sale by the Company of its common stock or other
securities or debt obligations except as disclosed in the Reports or Other
Written Information. The Subscriber shall have the right during the ten (10)
business days following the notice to agree to purchase an amount of common
shares or other securities in the same proportion as the Company Shares being
purchased in the aggregate offering to which this Subscription Agreement relates
(i.e. $1,100,000 in the aggregate), of those securities proposed to be issued
and sold, in accordance with the terms and conditions set forth in the notice of
27
sale. In the event such terms and conditions are modified during the notice
period, the Subscriber shall be given prompt notice of such modification and
shall have the right during the original notice period or for a period of ten
(10) business days following the notice of modification, whichever is longer, to
exercise such right. In the event the right of first refusal described in this
Section is exercised by the Subscriber and the Company thereby receives net
proceeds from such exercise, then commissions and fees will be paid by the
Company to the Placement Agents in the same amounts as specified in the notice
of sale.
(b) Offering Restrictions. Except with respect to securities
otherwise disclosed in the Reports or Other Written Information, the Company
will not issue any equity, convertible debt or other securities prior to 120
days after the Effective Date.
13. Miscellaneous.
(a) Notices. All notices or other communications given or made
hereunder shall be in writing and shall be personally delivered or deemed
delivered the first business day after being telecopied (provided that a copy is
delivered by first class mail) to the party to receive the same at its address
set forth below or to such other address as either party shall hereafter give to
the other by notice duly made under this Section: (i) if to the Company, to
Teltran International Group Ltd., ▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇,
telecopier number: (▇▇▇) ▇▇▇-▇▇▇▇, with a copy by telecopier only to ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, Attn:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, Esq., telecopier number: (▇▇▇) ▇▇▇-▇▇▇▇, and (ii) if to the
Subscriber, to the name, address and telecopy number set forth on the signature
page hereto, with a copy by telecopier only to Grushko & ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, telecopier number: (▇▇▇) ▇▇▇-▇▇▇▇. Any
notice that may be given pursuant to this Agreement, or any document delivered
in connection with the foregoing may be given by the Subscriber on the first
business day after the observance dates in the United States of America by
Orthodox Jewry of Rosh Hashanah, Yom Kippur, the first two days of the Feast of
Tabernacles, Shemini Atzeret Simchat Torah, the first two and final two days of
Passover and Pentecost, with such notice to be deemed given and effective, at
the election of the Subscriber on a holiday date that precedes such notice. Any
notice received by the Subscriber on any of the aforedescribed holidays may be
deemed by the Subscriber to be received and effective as if such notice had been
received on the first business day after the holiday.
28
(b) Closing. The consummation of the transactions contemplated
herein shall take place at the offices of Grushko & ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, upon the satisfaction of all conditions to
Closing set forth in this Agreement. The closing date shall be the date that
subscriber funds representing the net amount due the Company from the Purchase
Price are transmitted by wire transfer to the Company (the "Closing Date"). The
closing date for the Put shall be the date on which Subscriber funds
representing the net amount due the Company from the Put Consideration are
transmitted to or on behalf of the Company ("Put Closing Date").
(c) Entire Agreement; Assignment. This Agreement represents the
entire agreement between the parties hereto with respect to the subject matter
hereof and may be amended only by a writing executed by both parties. No right
or obligation of either party shall be assigned by that party without prior
notice to and the written consent of the other party.
(d) Execution. This Agreement may be executed by facsimile
transmission, and in counterparts, each of which will be deemed an original.
(e) Law Governing this Agreement. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York without
regard to principles of conflicts of laws. Any action brought by either party
against the other concerning the transactions contemplated by this Agreement
shall be brought only in the state courts of New York or in the federal courts
located in the state of New York. Both parties and the individuals executing
this Agreement and other agreements on behalf of the Company agree to submit to
the jurisdiction of such courts and waive trial by jury. The prevailing party
shall be entitled to recover from the other party its reasonable attorney's fees
and costs. In the event that any provision of this Agreement or any other
agreement delivered in connection herewith is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of any agreement.
(f) Specific Enforcement, Consent to Jurisdiction. The Company and
Subscriber acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to
29
prevent or cure breaches of the provisions of this Agreement and to enforce
specifically the terms and provisions hereof or thereof, this being in addition
to any other remedy to which any of them may be entitled by law or equity.
Subject to Section 13(e) hereof, each of the Company and Subscriber hereby
waives, and agrees not to assert in any such suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction of such court, that
the suit, action or proceeding is brought in an inconvenient forum or that the
venue of the suit, action or proceeding is improper. Nothing in this Section
shall affect or limit any right to serve process in any other manner permitted
by law.
(g) Automatic Termination. This Agreement shall automatically
terminate without any further action of either party hereto if the Closing shall
not have occurred by the tenth (10th) business day following the date this
Agreement is accepted by the Subscriber.
[THIS SPACE INTENTIONALLY LEFT BLANK]
30
